-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CFGeqfuG99s9Feo8or7NT2yHZKnZGYByL1CVn1WQhqmJmJzhXR+u94C34BGUGFPd b+E7vNGZ/aXdFX+oaKRB/w== 0001140361-07-006288.txt : 20070323 0001140361-07-006288.hdr.sgml : 20070323 20070323172852 ACCESSION NUMBER: 0001140361-07-006288 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20061231 FILED AS OF DATE: 20070323 DATE AS OF CHANGE: 20070323 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOOTS & COOTS INTERNATIONAL WELL CONTROL INC CENTRAL INDEX KEY: 0000833845 STANDARD INDUSTRIAL CLASSIFICATION: OIL & GAS FILED MACHINERY & EQUIPMENT [3533] IRS NUMBER: 112908692 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13817 FILM NUMBER: 07716143 BUSINESS ADDRESS: STREET 1: 11615 N. HOUSTON ROSSLYN CITY: HOUSTON STATE: TX ZIP: 77086 BUSINESS PHONE: 7136217911 MAIL ADDRESS: STREET 1: 11615 N. HOUSTON ROSSLYN CITY: HOUSTON STATE: TX ZIP: 77086 FORMER COMPANY: FORMER CONFORMED NAME: HAVENWOOD VENTURES INC DATE OF NAME CHANGE: 19920703 10-K 1 form10-k.htm BOOTS & COOTS 10-K 12-31-2006 Boots & Coots 10-K 12-31-2006
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
_______________

Form 10-K
_______________

For the fiscal year ended December 31, 2006
 
Commission file number 1-13817
_______________

Boots & Coots
International Well Control, Inc.
(Name of Registrant as specified in Its Charter)

 
Delaware
  
11-2908692
  
 
(State or Other Jurisdiction of Incorporation or Organization)
  
(I.R.S. Employer Identification No.)
  
         
         
 
7908 N. Sam Houston Parkway W., Suite 500
  
77064
  
 
Houston, Texas
  
(Zip Code)
  
 
(Address of Principal Executive Offices)
      

281-931-8884
(Issuer's Telephone Number, Including Area Code)
_______________

Securities registered under Section 12(b) of the Exchange Act:

 
Title of Each Class
  
Name of Each Exchange on Which Registered
  
 
Common Stock, $.00001 par value
  
American Stock Exchange
  

Securities registered under Section 12(g) of the Exchange Act: None

Indicate by check mark whether the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities act.   Yes ¨     No x

Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes ¨    No x

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Exchange Act Rule (12b-2))

Large Accelerated Filer     ¨
Accelerated Filer     ¨
Non-Accelerated Filer     x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the act. Yes    ¨     No     x

The aggregate market value of common stock held by non-affiliates as of June 30, 2006 was $56,215,000
 
The number of shares of the issuer's common stock, par value $.00001, outstanding on March 22, 2007 was 59,489,830.
 

DOCUMENTS INCORPORATED BY REFERENCE
 
FORM 10-K
ANNUAL REPORT
For the Year Ended December 31, 2006

TABLE OF CONTENTS

   
Page
PART I
  
3
Item 1.
3
Item 1A.
10
Item 1B.
16
Item 2.
16
Item 3.
16
Item 4.
17
PART II
  
17
Item 5.
17
Item 6.
18
Item 7.
20
Item 7A.
28
Item 8
28
Item 9.
28
Item 9A.
28
Item 9B.
29
PART III
  
29
Item 10.
29
Item 11.
33
Item 12.
48
Item 13.
49
PART IV
  
50
Item 14.
49
Item 15.
50
53
CERTIFICATIONS
 
FINANCIAL STATEMENTS
  
     
F-1
F-2
F-3
F-4
F-5
F-6


PART I
 
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
        Included and incorporated by reference in this Form 10-K are certain forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, included or incorporated by reference in this Form 10-K that address activities, events or developments that we expect or anticipate will or may occur in the future are forward-looking statements, including statements regarding our future financial position, growth strategy, budgets, projected costs, and plans and objectives of management for future operations. We use the words "may," "will," "expect," "anticipate," "estimate," "believe," "continue," "intend," "plan," "budget" and other similar words to identify forward-looking statements. You should read statements that contain these words carefully and should not place undue reliance on these statements. Although we believe our expectations reflected in these forward-looking statements are based on reasonable assumptions, no assurance can be given that these expectations or assumptions will prove to have been correct. Important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements include, but are not limited to, the following factors and the other factors described in this Form 10-K under the caption "Risk Factors":
 
 
•
competition;
 
•
changes in economic or political conditions in the markets in which we operate; and
 
•
the inherent risks associated with our operations, such as equipment defects, malfunctions and natural disasters.
 
        We believe that it is important to communicate our expectations of future performance to our investors. However, events may occur in the future that we are unable to accurately predict or that we are unable to control. We do not undertake any obligation to update or revise publicly any forward-looking statements. When considering our forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this Form 10-K.
 

Item 1. Business.

General

We provide a suite of integrated pressure control and related services to onshore and offshore oil and gas exploration and development companies, principally in North America, South America, North Africa, West Africa and the Middle East. Our well intervention segment consists of services that are designed to enhance production for oil and gas operators and to reduce the number and severity of critical events such as oil and gas well fires, blowouts, or other losses of control at the well. Our well intervention segment includes services performed by hydraulic workover and snubbing units that are used to enhance production of oil and gas wells. These units may be used for underbalanced drilling, workover, well completions and plugging and abandonment services. This segment also includes training, contingency planning, well plan reviews, audits, inspection services and engineering services. Our response segment consists of personnel, equipment and emergency services utilized during a critical well event.
 
We have a long history in the oil and gas industry and are widely recognized for our emergency response services. On March 3, 2006, we acquired the hydraulic well control business (HWC) of Oil States International, Inc. Our acquisition of HWC has significantly expanded and enhanced our pressure control services capabilities and further emphasizes our strategy of complementing our response service line with services routinely needed by oil and gas exploration and development companies.

We increased our revenues to $97.0 million in the year 2006 from $29.5 million in the year 2005. During the same period, diluted earnings per share increased to $0.21 from $0.06.


Credit Facility

In conjunction with the acquisition of HWC, we entered into a new credit facility with Wells Fargo Bank, National Association, which established a revolving credit facility of $10,300,000, subject to a borrowing base initially set at $5,993,189, and a term credit facility of $9,700,000. The term credit facility is due and payable in full on March 3, 2010, subject to extension to March 3, 2011. The revolving credit facility is due and payable in full on March 3, 2010, subject to a year-to-year renewal thereafter. We utilized initial borrowings under these credit facilities to repay amounts outstanding under previous credit facilities, and to repurchase all of our outstanding shares of preferred stock and for other corporate purposes.

SafeGuard Algeria

On November 9, 2004, we announced a significant expansion of the scope of our services in Algeria with the signing of two SafeGuard contracts totaling $23.3 million, a substantial portion of which we expect to realize during the first three years of the agreement. On July 24, 2006, we announced another significant expansion of the contracts to $35.2 million. Under the terms of both SafeGuard contracts, we are providing training, risk analyses, contingency planning and well inspections, as well as the prevention and control of blowouts and the mitigation of risk related to installations. The work under these contracts began in January 2005 and is expected to continue at a minimum through 2008.
 
History of Boots & Coots
 
Boots & Coots International Well Control, Inc. was incorporated in Delaware in April 1988, and remained largely inactive until acquiring IWC Services, Inc., a Texas corporation ("IWC Services"), on July 29, 1997. IWC Services was a global-response oil and gas well control service company that specialized in responding to and controlling oil and gas well emergencies, including blowouts and well fires. IWC Services was organized in June 1995 by six former key employees of the Red Adair Company.
 
On July 31, 1997, we acquired substantially all of the operating assets of Boots & Coots, L.P., a Colorado limited partnership, and the stock of our subsidiary corporations, Boots & Coots Overseas, Ltd., and Boots & Coots de Venezuela, S.A. Boots & Coots, L.P. and our subsidiaries were engaged in oil well fire fighting, snubbing and blowout control services. Boots & Coots, L.P. was organized by Boots Hansen and Coots Matthews, two former employees of the Red Adair Company who, like the founders of IWC Services, left that firm to form an independent company, which was a primary competitor of IWC Services. As a consequence of the acquisition of Boots & Coots, L.P., we became a leader in the worldwide oil well firefighting and blowout control industry, reuniting many of the former employees of the Red Adair Company.
 
On March 3, 2006, we acquired HWC, which provides hydraulic units for pressure well control situations (snubbing) and provides various hydraulic well control solutions involving workover, well drilling, well completion, and plugging and abandonment to the oil and gas industry. We provide our workover products and services primarily to customers in the United States, Venezuela, the Middle East, North Africa and West Africa, for both onshore and offshore applications. Workover products and services are used in operations on a producing well to restore or increase production. Workover services are typically used during the development, production and abandonment stages of the well. Our hydraulic workover/snubbing units are used for workover operations and snubbing operations in pressure situations.
 
A hydraulic workover/snubbing unit is a specially designed rig used for moving tubulars in and out of a wellbore using hydraulic pressure. These units may be used for servicing wells that are not producing or for working on wells under pressure. These units may be used for underbalanced drilling and workover and also in well control applications. When a unit is snubbing, it is pushing pipe or tubulars into the well bore against well bore pressures. Because of their small size and ability to work on wells under pressure, hydraulic workover units offer some advantages over larger workover rigs and conventional drilling rigs. However, most wells where we perform workovers service are wells with no pressure.
 
Our business is primarily dependent on the condition of the oil and gas industry and, in particular, the level of capital expenditures by oil and gas companies for workover and drilling services in our operating areas, which directly affects demand for our pre-event planning, prevention, engineering, workover and other non-event related products and services, and may indirectly impact the longer-term prospects for our well control and other event-driven services. These expenditures are influenced by prevailing oil and gas prices, expectations about future demand and prices, the cost of exploring, producing and developing oil and gas reserves, the discovery rates of new oil and gas reserves, political and economic conditions, governmental regulation and the availability and cost of capital.
 
 
Business Strategy.    The market for well control response services is finite, with services dependent upon the occurrence of blowouts that cannot be reasonably predicted. Accordingly, we have endeavored to build upon our demonstrated strengths in risk management by increasing our more predictable revenues from our well intervention services. During 2006, we were successful in growing these additional services primarily in international markets by utilizing our existing business platform. The acquisition of HWC represents a significant expansion of our strategy to include the acquisition of assets that support our business strategy. We intend to continue to seek complementary business acquisitions that would enable us to attain more predictable levels of income, broaden our pressure control service capabilities and increase our geographic presence.
 
Executive Offices.    Our principal offices are located at 7908 N. Sam Houston Parkway W., Suite 500, Houston, Texas 77064, and our telephone number is (281) 931-8884. Our website is located at www.boots-coots.com.
 
Business Segments
 
Well Intervention
 
History.    In 1999, we began to offer well intervention services in an effort to reduce the uncertainty of revenue in the response business. Well intervention services began with the introduction of SafeGuard services in Alaska. We expanded our SafeGuard services into Venezuela in late 1999 and into Algeria in 2001. The SafeGuard operations in Algeria were significantly expanded in 2004 when we entered into new long-term contracts with Algeria's national oil and gas company, Sonatrach, and ENSP, one of the Algeria national oil and gas service providers.
 
WELLSURE® also began in 1999 as the first group of customers joined the program which provides oil and gas operators and insurance underwriters a medium for effective management of well control insurance costs. WELLSURE® expanded internationally into Canada in 2003 and Indonesia in 2004.
 
The most substantial increase in well intervention services resulted from our March 3, 2006 acquisition of HWC. HWC significantly expanded our pressure control services offerings with the addition of hydraulic workover/snubbing operations.
 
Description.    Our well intervention segment consists of services that are designed to enhance production for oil and gas operators and reduce the number and severity of critical well events such as oil and gas well fires, blowouts, or other losses of control at the well. This segment includes services performed by hydraulic workover/snubbing units that are used to enhance production of oil and gas wells. These units are used for underbalanced drilling, workover, well completions and plugging and abandonment services. This segment also includes services that are designed to reduce the number and severity of critical well events offered through our SafeGuard program, including training, contingency planning, well plan reviews, audits, inspection services and engineering services. These services typically generate revenue on a contractual basis dependent upon the breadth, scope, and duration of services performed. Customers of SafeGuard services include, but are not limited to, British Petroleum, Sonatrach, ONGC, Pemex, Petrobras, and EnCana. All of these services are performed onshore and offshore, and both domestically and internationally. Domestically, the company generates revenue from these services on a "call-out" basis and charges a day rate for equipment and personnel. This structure enables us to increase day rate prices without going through contractual pricing issues when the market for these services is tight. Call out services range in duration from less than a week for a single well cleanout procedure to more than one year for a multi-well plugging and abandonment campaign. Internationally, revenue is typically generated on a contractual basis, with contracts ranging between six months and three years in duration.
 
Trends.    In the United States and Gulf Coast regions, the increased recognition of the importance of risk management services, training and emergency preparedness is having a profound impact on the oil and gas services industry. Instead of waiting for a blowout, fire or other disaster to occur, oil and gas producers now seek proactive preparedness and incident prevention programs. These trends are expanding the market for our well intervention services. Underwriting syndicates continue to seek firm renewal rates and higher quality risks in the "Control of Well" segment of the energy insurance market. We believe these factors enhance the viability of proven alternative risk transfer programs such as WELLSURE®, a proprietary insurance program in which we provide both pre-event and loss management services.

 
In the international markets, national oil and gas companies and large international operators are becoming aware of the risks associated with older poorly maintained wells and wellheads, internal competency levels among core employees and service vendors and societal risks from fields positioned in high population areas. This awareness is leading to increased demand for well intervention services to assess the magnitude of exposure, prevent catastrophic failures and mitigate damages in the event a loss occurs. We have a proven ability to provide these risk management services in the form of training, risk analyses, contingency planning, audit programs and well inspections, as well as the prevention and control of blowouts and the mitigation of risks related to installations. These services are typical of those provided under our SafeGuard programs in Algeria and Venezuela.
 
In the hydraulic workover/snubbing market, the advancement of underbalanced drilling techniques and well completion methods is unlocking the potential in unconventional resource plays. Underbalanced drilling can reduce lost circulation, minimize differential sticking, increase drilling rates, and most importantly, create more productive wells by avoiding formation damage. Similarly, completion techniques have also advanced to drive the economics of these unconventional resource plays.
 
Our principal products and services for our well intervention business segment include:
 
Hydraulic Workover/Snubbing.    We provide various well intervention solutions involving workovers, well drilling, well completions and plugging and abandonment services. Hydraulic units may be used for both routine and emergency well control situations in the oil and gas industry. Our hydraulic workover units are specially designed for moving tubulars in and out of a wellbore using hydraulic pressure. These units may also be used for snubbing operations, servicing wells that are under pressure. We operate a fleet of 29 hydraulic workover rigs and four hot tap/valve drilling units, 27 of which we own and 2 of which we operate on behalf of a customer.
 
SafeGuard.    Through our SafeGuard program, developed specifically for international producers and operators, we provide dedicated risk management and emergency response services. These services include risk assessment, loss mitigation, contingency planning and continuous training, and education in all aspects of well management. The growth of our SafeGuard business reflects an industry trend moving operators towards a higher level of preventative measures to protect against critical well events.
 
WELLSURE® Program.    We and Global Special Risks, Inc., a managing general insurance agent located in Houston, Texas, and New Orleans, Louisiana, have formed an alliance that offers oil and gas exploration and production companies, through retail insurance brokers, a program known as "WELLSURE®," which combines traditional well control and blowout insurance with our post-event response services and well control preventative services including company-wide and/or well specific contingency planning, personnel training, safety inspections and engineering consultation. Insurance provided under WELLSURE® has been arranged with leading London insurance underwriters. WELLSURE® program participants are provided with the full benefit of having us as a safety and prevention partner. We generate service fees based upon the scope of prevention activity required.
 
Engineering Services.    With greater engineering capabilities than our competitors, we provide pre-event engineering services that include consultation, well planning, dynamic kill modeling and intervention planning.
 
Firefighting Equipment Sales and Service.    In this service line, we sell complete firefighting equipment packages, together with maintenance, monitoring, updating of equipment and ongoing consulting services.
 
Specialized Drilling Engineering.    We have a highly specialized in-house engineering staff which provides engineering services, including planning and design of relief well drilling (trajectory planning, directional control and equipment specifications, and on-site supervision of drilling operations); planning and design of production facilities which are susceptible to well capping or other control procedures; and mechanical and computer aided designs for well control equipment.

 
Inspections.    A cornerstone of our strategy of providing preventive well control services involves on-site inspection services for drilling and workover rigs, production platforms and field production facilities.
 
Training.    We provide specialized training in well control procedures for drilling, exploration and production personnel for both U.S. and international operators. Additionally, we provide competency programs, blowout drills and evaluations as well as incident command training.
 
Response
 
History.    The emergency response segment of the oil and gas services industry traces its roots to the late 1930's when Myron Kinley organized the Kinley Company, the first oil and gas well firefighting specialty company. Shortly after organizing the Kinley Company, Mr. Kinley took on an assistant named Red Adair who learned the firefighting business under Mr. Kinley's supervision and remained with the Kinley Company until Mr. Kinley's retirement. When Mr. Kinley retired in the late 1950's, Mr. Adair organized the Red Adair Company and subsequently hired Boots Hansen, Coots Matthews and Raymond Henry as members of his professional firefighting staff. Mr. Adair later added Richard Hatteberg, Danny Clayton, Mike Foreman and Juan Moran to his staff, and the international reputation of the Red Adair Company grew to the point where it was a subject of popular films and the dominant competitor in the industry. Boots Hansen and Coots Matthews remained with the Red Adair Company until 1978 when they split off to organize Boots & Coots, an independent firefighting, snubbing and blowout control company.
 
The 1990's represented a period of rapid change in the oil and gas well control and firefighting business. The hundreds of oil well fires that were started by Iraqi troops during their retreat from Kuwait spurred the development of new firefighting techniques and tools that have now become industry standards. Moreover, after extinguishing the Kuwait fires, the entrepreneurs who created the oil and gas well firefighting industry, including Red Adair, Boots Hansen and Coots Matthews, retired, leaving our senior staff as the most experienced active oil and gas well firefighters in the world.
 
Historically, the well control emergency response segment of the oil and gas services industry has been reactive, rather than proactive, and a small number of companies have dominated the market. As a result, if an operator in West Africa, for example, experienced a well blowout and fire, he would likely call a well control emergency response company in Houston, Texas that would take the following steps:
 
• immediately dispatch a control team to the well location to assess the damage, supervise debris removal, local equipment mobilization and site preparation;

• gather and analyze the available data, including drilling history, geology, availability of support equipment, personnel, water supplies and ancillary firefighting resources;

• develop or implement a detailed fire suppression and well-control plan;

• mobilize additional well-control and firefighting equipment in Houston, Texas;

• transport equipment by air freight from Houston, Texas to the blowout location;

• extinguish the fire and bring the well under control; and

• transport the control team and equipment back to Houston, Texas.
 
Description.    Our response services consist of personnel, equipment and emergency services utilized during a critical well event, such as an oil and gas well fire, blowout, or other loss of control at the well. These services also include snubbing and pressure control services provided during a response which are designed to minimize response time, mitigate damage, and maximize safety. Revenue is generated through personnel time and material. Personnel time consists of day rates charged for working crews usually consisting of a team of four personnel. Day rates charged for personnel time vary widely depending up the perceived technical, political, and security risks inherent in a project. Critical events are typically covered by our customers' insurance, lowering the risk of non-payment.

 
Our principal products and services for response segment include:
 
Well Control.    This service segment is divided into two distinct levels. Critical event response is ordinarily reserved for well control projects where hydrocarbons are escaping from a well bore, regardless of whether a fire has occurred. Non-critical event response, on the other hand, is intended for the more common sub-surface operating problems that do not involve escaping hydrocarbons.
 
• Critical events.    Critical events frequently result in explosive fires, loss of life, destruction of drilling and production facilities, substantial environmental damage and the loss of significant amounts of money per day in production revenue. Since critical events ordinarily arise from equipment failures or human error, it is impossible to accurately predict the timing or scope of our critical event work. Critical events of catastrophic proportions can result in significant revenues to us in the year of the incident. Our professional firefighting staff has over 300 years of combined industry experience in responding to critical events, oil well fires and blowouts.

• Non-critical events.    Non-critical events frequently occur in connection with workover operations or the drilling of new wells into high pressure reservoirs. In most non-critical events, the blowout prevention equipment and other safety systems on the drilling rig function according to design and in those instances, we are called upon to supervise and assist in the well control effort so that drilling operations can resume as promptly as safety permits. While non-critical events do not ordinarily have the revenue impact of a critical event, they are more common. Non-critical events can escalate into critical events.
 
Firefighting Equipment Rentals.    This service includes the rental of specialty well control and firefighting equipment primarily for use in conjunction with Critical Events, including firefighting pumps, pipe racks, athey wagons, pipe cutters, crimping tools and deluge safety systems. We charge this equipment out on a per diem basis. Rentals typically average approximately 40% of the revenues associated with a Critical Event.
 
WELLSURE® Program.    Under the WELLSURE® insurance program, we serve as the emergency response provider in the event of a well blowout, as well as project manager for control and restoration of wells covered under the program.
 
Snubbing Services.    We provide hydraulic workover/snubbing units for emergency well control situations to the oil and gas industry. A hydraulic workover/snubbing unit is a specially designed rig used for moving tubulars in and out of a wellbore using hydraulic pressure. When a unit is snubbing, it is pushing pipe or tubulars into the well bore against well bore pressures. These units may also be used for underbalanced drilling and workover.

Dependence upon Customers
 
The emergency response business is by nature episodic and unpredictable. A customer that accounted for a material amount of business as a result of an oil well blow-out or similar emergency may not account for a material amount of business after the emergency is over. While well intervention services in general are generated from a base of several hundred customers, a significant portion of the total revenue in recent years has been generated by less than five international clients. Approximately 33% of our consolidated revenues during the year ended December 31, 2006 were derived from two key customers. Unless we are able to retain our existing customers or secure new customers, if we lose one or more of our significant customers, our revenue and results of operations would be adversely affected.
 
Regulation

Our operations are affected by numerous federal, state, and local laws and regulations relating, among other things, to workplace health and safety and the protection of the environment. The technical requirements of these laws and regulations are becoming increasingly complex and stringent, and compliance is becoming increasingly difficult and expensive. However, we do not believe that compliance with current laws and regulations is likely to have a material adverse effect on our business or financial statements. Nevertheless, we are obligated to exercise prudent judgment and reasonable care at all times and the failure to do so could result in liability under any number of laws and regulations.


Certain environmental laws provide for “strict liability” for remediation of spills and releases of hazardous substances and some provide liability for damages to natural resources or threats to public health and safety. Sanctions for noncompliance may include revocation of permits, corrective action orders, administrative or civil penalties, and criminal prosecution. It is possible that changes in the environmental laws and enforcement policies hereunder, or claims for damages to persons, property, natural resources, or the environment could result in substantial costs and liabilities to us. Our insurance policies provide liability coverage for sudden and accidental occurrences of pollution and/or clean-up and containment of the foregoing in amounts which we believe are comparable to companies in the industry. To date, we have not been subject to any fines or penalties for violations of governmental or environmental regulations and have not incurred material capital expenditures to comply with environmental regulations.

Research and Development

We are not directly involved in activities that will require the expenditure of substantial sums on research and development.

Competition

The emergency response segment of the oil and gas services business is a dynamic market in which new technical developments could afford a service company a significant advantage. At present, the principal competitors in the oil and gas well firefighting business are Wild Well Control, Inc., a subsidiary of Superior Energy Services, Inc., and Cudd Pressure Control, a subsidiary of RPC, Inc. We believe that our SafeGuard expansion strategy along with the WELLSUREÒ program and the recent acquisition of HWC have strengthened our competitive position in the industry by expanding both the scope of services that we offer to our customers as well as our geographic presence.

Although we have a strong market share position in workover products and services, the market is highly fragmented. Our main competitors in hydraulic workover include Halliburton Co., Cudd Pressure Control, a subsidiary of RPC, Inc., and International Snubbing Services, a subsidiary of Superior Energy Services, Inc.

Our competitors may succeed in developing new techniques, products and services that are more effective than any that have been or are being developed by us or that render our techniques, products and services obsolete or noncompetitive. Our competitors may also succeed in obtaining patent protection or other intellectual property rights that might hinder our ability to develop, produce or sell competitive products or the specialized equipment used in our business.

Employees

As of January 31, 2007, we and our operating subsidiaries collectively had 392 full-time employees, and 7 part-time personnel. In addition, we have several part-time consultants and also employ part-time contract personnel who remain on-call for certain emergency response projects. We are not subject to any collective bargaining agreements and consider our relations with our employees, consultants and contract personnel to be good.
 
Reliance upon Officers, Directors and Employees

Our services require highly specialized skilled personnel. Because of the unique nature of the industry and the small number of persons who possess the requisite skills and experience, we are highly dependent upon the personal efforts and abilities of our employees. In seeking qualified personnel, we may be required to compete with companies having greater financial and other resources than us. Our future success will be dependent upon our ability to attract and retain qualified personnel, and the inability to do so, or the loss of personnel, could have a material adverse impact on our business.


Contractual Obligations to Customers; Indemnification

We customarily enter into service contracts which contain provisions that hold us liable for various losses or liabilities incurred by the customer in connection with our activities, including, without limitation, losses and liabilities relating to claims by third parties, damage to property, violation of governmental laws, regulations or orders, injury or death to persons, and pollution or contamination caused by substances in our possession or control. We may be responsible for any such losses or liabilities caused by contractors retained by us in connection with the provision of services. In addition, such contracts generally require us, our employees, agents and contractors to comply with all applicable laws, rules and regulations (which may include the laws, rules and regulations of various foreign jurisdictions) and to provide sufficient training and educational programs to such persons in order to enable them to comply with applicable laws, rules and regulations. In the case of emergency response services, we frequently enter into agreements with customers which limit our exposure to liability and/or require the customer to indemnify us for losses or liabilities incurred by us in connection with such services, except in the case of gross negligence or willful misconduct. There can be no assurance, however, that such contractual provisions limiting our liability will be enforceable in whole or in part under applicable law.

Item 1A. Risk Factors.

In addition to the other information set forth elsewhere or incorporated by reference in this report, the following factors relating to us and our common stock should be considered carefully.

Risks Relating to Our Business
 
Demand for our services and products depends on oil and natural gas industry activity and expenditure levels that are directly affected by trends in oil and natural gas prices.
 
Demand for our products and services is particularly sensitive to the level of exploration, development, and production activity of, and the corresponding capital spending by, oil and natural gas companies, including national oil companies. Prices for oil and natural gas are subject to large fluctuations in response to relatively minor changes in the supply of, and demand for, oil and natural gas, market uncertainty, and a variety of other factors that are beyond our control. Any prolonged reduction in oil and natural gas prices will depress the immediate levels of exploration, development, and production activity, often reflected as changes in rig counts. Perceptions of longer-term lower oil and natural gas prices by oil and gas companies may result in the reduction or deferral of major expenditures given the long-term nature of many large-scale development projects. Lower levels of activity result in a corresponding decline in the demand for our services that could have a material adverse effect on our revenue and profitability. Many factors affect the supply and demand for oil and natural gas and therefore influence product prices, including:
 
• the level of production;
• the levels of oil and natural gas inventories;
• domestic and worldwide demand for oil and natural gas;
• the expected cost of developing new reserves;
• the actual cost of finding and producing oil and natural gas;
• the availability of attractive oil and gas field prospects, which may be affected by governmental actions and regulations or environmental activists;
• the availability of transportation infrastructure and refining capacity;
• the level of drilling activity;
• global weather conditions and natural disasters;
• worldwide political, military, and economic conditions and economic activity, including growth in underdeveloped countries;
• national government political objectives, including the ability of the Organization of Petroleum Exporting Countries (OPEC) to set and maintain production levels and prices for oil;
• the cost and timing of the development of alternate energy sources; and
• tax policies.
 
If demand for drilling services or drilling rig utilization rates decrease significantly then demand for our services will decrease, which will adversely affect our results of operations.
 
 
We may not successfully integrate the businesses we acquire or achieve the benefits we are seeking from acquisitions.
 
As part of our business strategy, we intend to evaluate potential acquisitions of other businesses or assets. However, there can be no assurance that we will be successful in consummating any such acquisitions. Successful acquisition of businesses or assets will depend on various factors, including, but not limited to, our ability to obtain financing and the competitive environment for acquisitions. In addition, we may not be able to successfully integrate any business or assets that we acquire in the future. The integration of acquired businesses is likely to be complex and time consuming and may place a significant strain on management resources.
 
Disruptions in the political and economic conditions of the foreign countries in which we operate expose us to risks that may have a material adverse effect on our business.
 
We derive a significant portion of our revenue from our operations outside of the United States, which exposes us to risks inherent in doing business in each of the countries in which we transact business. Our operations in countries other than the United States accounted for approximately 74% of our consolidated revenues during the year ended December 31, 2006. Our operations in Venezuela and Algeria accounted for approximately 21% and 24%, respectively, of our consolidated revenues during the year ended December 31, 2006. We anticipate that our revenues from foreign operations will increase in the future as a consequence of our acquisition of HWC during the first quarter of 2006. Operations in countries other than the United States are subject to various risks peculiar to each country. With respect to any particular country, these risks may include:
 
• expropriation and nationalization of our assets or those of our customers in that country;
• political and economic instability;
• civil unrest, acts of terrorism, force majeure, war, or other armed conflict;
• natural disasters, including those related to earthquakes and flooding;
• inflation;
• currency fluctuations, devaluations, conversion and expropriation restrictions;
• confiscatory taxation or other adverse tax policies;
• governmental activities that limit or disrupt markets, restrict payments, or limit the movement of funds;
• governmental activities that may result in the deprivation of contract rights; and
• trade restrictions and economic embargoes imposed by the United States and other countries.

 
Due to the unsettled political conditions in many oil-producing countries, our revenue and profits are subject to the adverse consequences of war, the effects of terrorism, civil unrest, strikes, currency controls, and governmental actions, which could impact the supply and pricing for oil and natural gas, disrupt our operations, and increase our costs for security worldwide. International areas where we operate that have significant amounts of political risk include parts of Africa, South America and the Middle East. Operations in these areas increase our exposure to the foregoing risks.
 
For instance, the Venezuelan National Assembly recently raised royalties on certain crude oil projects and Venezuelan President Hugo Chavez has threatened to nationalize the country's key industries and indicated his intention is to seize certain oil producing regions unless foreign oil companies surrender control to the Venezuelan national oil company. These actions have created uncertainty in the future business and investment activities of foreign oil and natural gas companies in Venezuela. To the extent that these actions adversely affect our customers' activities in this region, they may adversely affect our revenues and profits.
 
We are subject to foreign exchange and currency risks, particularly with respect to Venezuela.
 
We operate internationally, giving rise to exposure to market risks from changes in foreign currency exchange rates to the extent that transactions are not denominated in U.S. dollars. We typically endeavor to denominate our contracts in U.S. dollars to mitigate exposure to fluctuations in foreign currencies. On December 31, 2006, we had $1,754,000 of cash and $15,823,000 in accounts receivable attributable to our Venezuelan operations. Of this cash, $1,209,000 was denominated in U.S. dollars and resided in a U.S. bank; the remaining $545,000 was denominated in Venezuelan bolívares and resided in a Venezuelan bank. Of the total Venezuela accounts receivable balance. $7,509,000 was denominated in Venezuelan bolívares and are subject to market risks. The remaining $8,314,000 was denominated in U.S. dollars..

 
Effective March 1, 2005, the exchange rate in Venezuela devalued from 1,920 to 2,150 Venezuelan bolívares to the U.S. dollar. We have taken charges to equity under the caption "foreign currency translation loss" of $361,000 during the year ended December 31, 2005 to reflect devaluation of the Venezuelan bolívar for that period. There was no currency gain or loss attributable to Venezuela during the year ended December 31, 2006. The Venezuelan government implemented a foreign currency control regime on February 5, 2003. This has resulted in currency controls that restrict the conversion of the Venezuelan currency, the Venezuelan bolívar, to U.S. Dollars. A subsidiary of ours has registered with the control board (CADIVI) in order to have a portion of total receivables paid in U.S. dollars directly to a United States bank account. Venezuela is also on the U.S. government's "watch list" for highly inflationary economies. Management continues to monitor the situation closely.
 
We must successfully compete for the services of highly trained technical personnel.
 
Many of the services that we provide are complex and require a high level of expertise and often must be performed in harsh conditions. Our success depends in part upon our ability to employ and retain technical personnel with the ability to provide and enhance these services. In addition, our ability to expand our operations depends in part on our ability to increase our skilled labor force. The demand for skilled workers is high and the supply is limited. A significant increase in the wages paid by competing employers could result in a reduction of our skilled labor force, increases in the wage rates that we must pay, or both. If these events were to occur, our cost structure could increase, our margins could decrease, and our growth potential could be impaired.
 
Our hydraulic workover/snubbing business is susceptible to seasonal earnings volatility and may be adversely affected by severe weather.
 
Our hydraulic workover/snubbing operations are directly affected by seasonal differences in weather in the areas in which we operate, most notably in the Gulf of Mexico and the Gulf Coast region. Weather conditions in the Gulf of Mexico and the Gulf Coast region generally result in higher activity in the spring, summer and fall months, with the lowest activity in the winter months. In addition, summer and fall drilling activity and, therefore, the demand for our hydraulic workover/snubbing services can be restricted due to hurricanes and other storms prevalent in the Gulf of Mexico and along the Gulf Coast. Repercussions of severe weather conditions may include:
 
• evacuation of personnel and curtailment of services;
• weather-related damage to offshore equipment resulting in suspension of operations;
• weather-related damage to our facilities;
• increase in insurance cost and reduction in its availability;
• inability to deliver men or materials to jobsites; and
• loss of productivity.
 
For example, during 2005 HWC suffered the loss of one workover unit as a consequence of severe weather in the Gulf of Mexico.
 
We have borrowed, and may in the future borrow, money to fund our operations and growth, which exposes us to certain risks that may materially impact our operations.
 
As of December 31, 2006, we had outstanding subordinated promissory notes totaling approximately $21.2 million, the outstanding amount under our bank term credit facility was $8.3 million, the outstanding amount under our bank revolving credit facility was $1.9 million, and we had approximately $5.8 million in remaining borrowing capacity under our bank revolving credit facility. The borrowing base limitation under our revolving credit facility is subject to redetermination periodically at the discretion of the lender. Upon a redetermination, we could be required to repay a portion of our bank debt. We may not have sufficient funds to make such repayments, which could result in a default under the terms of the loan agreement and an acceleration of the loan. We intend to finance our operating expenses, capital expenditures and acquisitions with cash flow from operations, and borrowings under our credit facility. In addition, we may significantly alter our capitalization in order to make future acquisitions. These changes in capitalization may significantly increase our level of debt. If we incur additional debt for these or other purposes, the related risks that we face could intensify. A higher level of debt also increases the risk that we may default on our debt obligations. Our ability to meet our debt obligations and to reduce our level of debt depends on our future performance which is affected by general economic conditions and financial, business and other factors. Many of these factors are beyond our control. Our level of debt affects our operations in several important ways, including the following:


 
•
a significant portion of our cash flow from operations must be used to pay interest on borrowings and is therefore not available to re-invest in our business;
 
•
the covenants contained in the agreements governing our debt limit our ability to borrow additional funds, pay dividends, make capital expenditures, dispose of assets and issue shares of preferred stock and otherwise may affect our flexibility in planning for, and reacting to, changes in business conditions;
 
•
a high level of debt may impair our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, or general corporate or other purposes;
 
•
a highly leveraged financial position would make us more vulnerable to economic downturns and could limit our ability to withstand competitive pressures; and
 
•
any debt that we incur under our term credit facility or revolving credit facility will be at variable rates which makes us vulnerable to increases in interest rates.
 
Our ability to finance our business activities will require us to generate substantial cash flow.
 
Our business activities require substantial capital. We intend to finance our operations and growth in the future through cash flows from operations, the incurrence of additional indebtedness and/or the issuance of additional equity securities. We cannot be sure that our business will continue to generate cash flow at or above current levels.
 
If we are unable to generate sufficient cash flow from operations to fund our business and service our debt, we may have to obtain additional financing through the issuance of debt and/or equity. We cannot be sure that any additional financing will be available to us on acceptable terms. Issuing equity securities to satisfy our financing requirements could cause substantial dilution to our existing stockholders.
 
If our revenues were to decrease due to lower demand for our services as a result of lower oil and natural gas prices or for other reasons, and if we could not obtain capital through our revolving credit facility or otherwise, our ability to operate and grow our business could be materially adversely affected.
 
The loss of one or more of our current customers could adversely affect our results of operations.
 
Our business is dependent not only on securing new customers but also on maintaining current customers. Approximately 30% of our consolidated revenues during the year ended December 31, 2006 were derived from two key customers. Unless we are able to retain our existing customers, or secure new customers if we lose one or more of our significant customers, our revenue and results of operations would be adversely affected.
 
The intense competition in our industry could result in reduced profitability and loss of market share for us.
 
In some of our business segments, we compete with the oil and natural gas industry's largest equipment and service providers. Some of these companies have substantially greater financial resources, and larger operations than we do. They may be better able to compete because of their broader geographic dispersion, or their product and service diversity. As a result, we could lose customers and market share to those competitors. These companies may also be better positioned than us to successfully endure downturns in the oil and natural gas industry. Our operations may be adversely affected if our current competitors or new market entrants introduce new products or services with better prices, features, performance or other competitive characteristics than our products and services. Competitive pressures or other factors also may result in significant price competition that could harm our revenue and our business. Additionally, we may face competition in our efforts to acquire other businesses.
 
We could be subject to substantial liability claims that could harm our financial condition.
 
Our operations involve hazardous activities that involve an extraordinarily high degree of risk. Hazardous operations are subject to accidents resulting in personal injury and the loss of life or property, environmental mishaps and mechanical failures, and litigation arising from such events may result in our being named a defendant in lawsuits asserting large claims. We may be held liable in certain circumstances, including if we fail to exercise reasonable care in connection with our activities, and we may also be liable for injuries to agents, employees and contractors who are acting within the course and scope of their duties. We currently maintain liability insurance coverage with aggregate policy limits which we believe to be adequate for our operations. However:
 
 
•
we may not be able to continue to obtain insurance on commercially reasonable terms;
 
•
we may be faced with types of liabilities that will not be covered by our insurance, such as damages from environmental contamination; and
 
•
the dollar amount of any liabilities may exceed our policy limits.

 
A successful claim for which we are not fully insured could have a material adverse effect on us. No assurance can be given that we will not be subject to future claims in excess of the amount of insurance coverage which we deem appropriate to maintain.
 
Risks Relating to Our Relationship with Oil States Energy Services, Inc.
 
Oil States Energy Services, Inc. owns a significant percentage of common stock in our company, which could limit your ability to influence the outcome of stockholder votes.
 
Oil States Energy Services, Inc., a wholly owned subsidiary of Oil States International, Inc., owns approximately 44.5% of our common stock outstanding as of March 15, 2007. In addition, Douglas E. Swanson and Cindy B. Taylor, two current members of our board of directors, are directors of Oil States Energy Services, Inc. and executive officers of Oil States International, Inc. In addition, Oil States Energy Services, Inc. had the ability to designate a third member of our board of directors and has designated Robert G. Croyle. As a result, Oil States will be able to exercise significant influence over the outcome of matters requiring a stockholder vote, including the election of directors, the adoption or amendment of provisions in our charter and bylaws, the approval of mergers and other significant corporate transactions, including transactions involving a change of control. The interests of Oil States may differ from yours, and Oil States may vote its common stock in a manner that may adversely affect you.
 
We have renounced any interest in specified business opportunities, and Oil States International, Inc. and its director nominees on our board of directors generally have no obligation to offer us those opportunities.
 
Pursuant to our certificate of incorporation, we have renounced any interest or expectancy in specified business opportunities in which Oil States International, Inc., any of its affiliates or any of their respective officers, directors, employees or other agents serving as a member of our board of directors (collectively, the "Oil States Group") participates or desires or seeks to participate and that involves any aspect of the energy equipment or services business or industry. Our certificate of incorporation also provides that if any such business opportunity is presented to a person who is a member of the Oil States Group, including any of those individuals who also serves as a member of our board of directors:
 
 
•
no member of the Oil States Group or any of those individuals has any obligation to communicate or offer the opportunity to us; and
 
•
such entity or individual may pursue the opportunity as that entity or individual sees fit,

unless:
 
•
it was presented to a member of the Oil States Group who also serves as a member of our board of directors solely in that person's capacity as a director of our company and no other member of the Oil States Group independently received notice of or otherwise identified such opportunity; or
 
•
the opportunity was identified solely through the disclosure of information by or on behalf of our company.
 
We may amend these provisions of our certificate of incorporation only by an affirmative vote of holders of at least 80% of our outstanding common stock. As a result of these charter provisions, our future competitive position and growth potential could be adversely affected.
 
Risks Relating to Ownership of Our Common Stock
 
Future sales of our common stock by our existing stockholders may depress our stock price.
 
As of March 22, 2007, there were 59,489,830 shares of our common stock outstanding. We have previously filed a shelf registration statement registering all of the shares owned by Oil States Energy Services, Inc. for resale, which would continue to be available to Oil States Energy Services, Inc. for future sales. In addition, approximately 9.5 million shares of common stock underlying certain warrant agreements, employee stock option plans, and director stock option plans are eligible for immediate sale, and we may register for sale additional shares underlying these or other plans in the future. All of the common stock covered by current and any future registration statements may be sold by the selling security holders in market transactions from time to time. Sales of a substantial number of shares of our common stock in the public market, or the perception that these sales may occur, could cause the market price of our common stock to decline.
 
 
Trading volumes of our shares of common stock have been comparatively low and, therefore, our common stock may suffer from limited liquidity and its prices will likely be volatile and its value may be adversely affected.
 
Because of our relatively low trading volumes, the trading price of our common stock will likely be subject to significant price fluctuations and limited liquidity. This may adversely affect the value of your investment. In addition, our common stock price could be subject to fluctuations in response to variations in quarterly operating results, changes in management, future announcements concerning us, general trends in the industry and other events or factors as well as those described above.
 
We have not paid, and do not anticipate paying, any dividends on our common stock in the foreseeable future.
 
We have never paid any cash dividends on our common stock. We do not expect to declare or pay any cash or other dividends in the foreseeable future on our common stock. Our existing revolving and term credit facilities restrict our ability to pay cash dividends, and we may also enter into credit agreements or other borrowing arrangements in the future that further restrict our ability to declare or pay cash dividends on our common stock.
 
You may experience dilution of your ownership interests due to the future issuance of additional shares of our common stock.
 
We may in the future issue our previously authorized and unissued securities, resulting in the dilution of the ownership interests of our present stockholders. We are currently authorized to issue 125,000,000 shares of common stock and 5,000,000 shares of preferred stock with such designations, preferences and rights as determined by our board of directors. As of March 22, 2007, no shares of our preferred stock were outstanding, 59,489,830 shares of common stock were outstanding, and there were approximately 9.5 million shares of common stock underlying certain warrant agreements, employee stock option plans and director stock option plans, of which options and warrants to purchase 6.8 million shares were outstanding and of these shares, 4.4 million were exercisable within 60 days. The issuance of such additional shares of common stock would dilute the interests of our existing stockholders and issuance or potential issuance of such shares may create downward pressure on the trading price of our common stock. We may also issue additional shares of our common stock or other securities that are convertible into or exercisable for common stock in connection with the hiring of personnel, future acquisitions, future private placements of our securities for capital raising purposes, or for other business purposes. Any such issuances would further dilute the interests of our existing stockholders.
 
We may issue preferred stock, the terms of which could adversely affect the voting power or value of our common stock.
 
Our certificate of incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such preferences, powers and relative participating, optional and other rights, including preferences over our common stock respecting dividends and distributions, as our board of directors may determine. The terms of one or more classes or series of preferred stock could adversely impact the voting power or value of our common stock. For example, we might afford holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we might assign to holders of preferred stock could affect the residual value of our common stock.
 
The ownership interest of Oil States Energy Services, Inc., the Rights Agreement by and between us and American Stock Transfer & Trust Company dated November 17, 2001 ("Rights Agreement"), provisions contained in our certificate of incorporation and bylaws and provisions of Delaware law could discourage a takeover attempt, which may reduce or eliminate the likelihood of a change of control transaction and, therefore, your ability to sell your shares for a premium.
 
The significant ownership position of Oil States Energy Services, Inc., our Rights Agreement, provisions contained in our certificate of incorporation and bylaws and provisions of Delaware law could make it more difficult for a third party to acquire control of our company. We have entered into a Rights Agreement that would cause extreme dilution to any person or group (other than Oil States Energy Services, Inc., its affiliates and certain of its direct transferees) who attempts to acquire a significant interest in us without advance approval of our board of directors. Our certificate of incorporation and bylaws include provisions for a classified board, limitations on the removal of directors and on stockholder proposals at meetings of stockholders and limitations on the right of stockholders to call special meetings. Our certificate of incorporation also authorizes our board of directors to issue preferred stock without stockholder approval. In addition, Section 203 of the Delaware General Corporation Law imposes restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock. Each of these factors could increase the difficulty for a third party to acquire us and therefore delay or prevent a change of control transaction, even if that change would be beneficial to our stockholders, which could affect the value of our common stock and reduce or eliminate your ability to sell your shares of common stock at a premium.

 
Lack of effective internal control over financial reporting could result in an inability to accurately report our financial results that could lead to a loss of investor confidence in our financial reports and have an adverse effect on our stock price.
 
Effective internal control over financial reporting is essential for us to produce reliable financial reports. If we cannot provide reliable financial information or prevent fraud, our business and operating results could be harmed. We have in the past discovered, and may in the future discover, deficiencies in our internal control over financial reporting. In connection with the audit of our consolidated financial statements for the year ended December 31, 2004, our independent auditors, UHY Mann Frankfort Stein and Lipp CPAs, LLP, issued a letter to our audit committee noting certain matters in our Venezuelan subsidiary that they considered to be material weaknesses in internal control. The matters listed in the letter included the lack of controls to mitigate the risk of fraud and the lack of controls over financial reporting; particularly, with respect to adjustments necessary to convert the Venezuelan financial statements from Venezuelan generally accepted accounting principles to accounting principles generally accepted in the United States. The same material weaknesses were identified in connection with the audit of our consolidated financial statements for the year ended December 31, 2005.
 
We enacted changes in policies and procedures during 2006 designed to remediate the material weaknesses identified in our internal control over financial reporting and at December 31, 2006 such material weaknesses were remediated. However, there can be no assurance that in the future other material weakness will not arise and failure to successfully implement and maintain effective internal control over financial reporting, including any ineffectiveness of the corrective actions that may be needed to address the control deficiencies, could result in a material misstatement of our financial statements or otherwise cause us to fail to meet our financial reporting obligations. This, in turn, could result in a loss of investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on our stock price.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

We own a facility in northwest Houston, Texas, at 11615 N. Houston-Rosslyn Road, that includes approximately 2 acres of land, a 4,000 square foot office building and a 12,000 square foot manufacturing and warehouse building. We also own approximately 6.3 acres of land and a 62,470 square foot office for hydraulic workover services along with approximately 1.8 acres of land and a 9,000 square foot training facility in Houma, Louisiana. Additionally, we have leased office and equipment storage facilities in Houston, Algeria, Republic of Congo, Egypt, Dubai and Venezuela. (See “Note I” Commitment and Contingencies in the footnotes to the financial statements.) We believe that these facilities will be adequate for our anticipated needs.

Item 3. Legal Proceedings.

We are involved in or threatened with various legal proceedings from time to time arising in the ordinary course of business. We do not believe that any liabilities resulting from any such proceedings will have a material adverse effect on our operations or financial position.


Item 4. Submission of Matters to a Vote of Security Holders.

No matters were submitted to the shareholders during the fourth quarter of 2006.


PART II

Item 5. Market for Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock is listed on the American Stock Exchange (AMEX) under the symbol “WEL.” The following table sets forth the high and low sales prices per share of our common stock for each full quarterly period within the two most recent fiscal years as reported on the AMEX:

High and Low Sales Prices

   
2006
  
2005
  
 
  
High
  
Low
  
High
  
Low
  
First Quarter 
  
$
1.86
  
$
1.08
  
$
1.15
  
$
0.81
  
Second Quarter 
    
2.45
    
1.58
    
1.14
    
0.89
  
Third Quarter 
    
1.97
    
1.56
    
1.61
    
1.02
  
Fourth Quarter 
    
2.25
    
1.55
    
1.24
    
0.90
  

On March 21, 2007 the last reported sales price of our common stock as reported on AMEX was $ 2.34 per share.

As of March 15, 2007, our common stock was held by approximately 258 holders of record. We estimate that we have a larger number of beneficial stockholders and much of our common stock is held by broker-dealers in street name for their customers.

We have not paid any cash dividends on our common stock to date. Our current policy is to retain earnings, if any, to provide funds for the operation and expansion of our business. Our credit facilities prohibit paying cash dividends.


PERFORMANCE OF COMMON STOCK

The following graph compares our total stockholder return on an investment of $100 in our common stock at December 31, 2001 for the years ended December 31, 2002, 2003, 2004, 2005 and 2006 as compared to the Standard & Poors' 500 Stock Index, the Standard & Poors' Energy Composite Index and the PHLX Oil Service Sector over the same period.

 
 
 
                           
 
  
12/01
  
12/02
  
12/03
  
12/04
  
12/05
  
12/06
  
                           
Boots & Coots International Well Control
    
100.00
    
32.00
    
63.00
    
45.50
    
52.00
    
112.00
  
S & P 500
    
100.00
    
77.90
    
100.24
    
111.15
    
116.61
    
135.03
  
S & P Energy
    
100.00
    
88.87
    
111.65
    
146.87
    
192.93
    
239.63
  
PHLX Oil Service Sector
    
100.00
    
91.27
    
105.49
    
142.69
    
214.08
    
242.69
  

Copyright © 2007, Standard & Poor's, a division of The McGraw-Hill Companies, Inc. All rights reserved.
www. researchdatagroup.com/S&P.htm
 
Item 6. Selected Financial Data.

The following table sets forth certain historical financial data as of and for the years ended December 31, 2006, 2005, 2004, 2003, and 2002 which has been derived from our audited consolidated financial statements. The results of operations of ITS, Baylor Company, Abasco and Special Services are presented as discontinued operations. The data should be read in conjunction with the consolidated financial statements, including the notes, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Form 10-K.


   
Years Ended December 31,
  
   
2006
  
2005
  
2004
  
2003
  
2002
  
   
(in thousands except per share amounts)
  
INCOME STATEMENT DATA:
                      
Revenues
  
$
97,030
  
$
29,537
  
$
24,175
  
$
35,935
  
$
14,102
  
Operating income (loss)
    
19,892
   
4,563
   
1,066
    
10,234
    
(1,539
)
Income (loss) from continuing operations
    
11,165
    
2,779
    
(290
)
  
6,609
    
(2,525
)
Income (loss) from discontinued operations, net of income taxes
    
—
    
—
    
42
    
482
    
(6,179
)
(Loss) from sale of discontinued operations, net of income taxes
    
—
    
—
    
—
    
—
    
(476
)
Net income (loss)
    
11,165
    
2,779
    
(248
)
  
7,091
    
(9,180
)
Net income (loss) attributable to common stockholders
    
11,781
   
1,905
   
(996
)
  
5,868
    
(12,292
)
BASIC INCOME (LOSS) PER COMMON SHARE:
                                
Continuing operations
  
$
0.22
  
$
0.06
  
$
(0.04
)
$
0.25
  
$
(0.53
)
Discontinued operations
  
$
—
  
$
—
  
$
—
  
$
0.02
  
$
(0.61
)
Net income (loss)
  
$
0.22
  
$
0.06
  
$
(0.04
)
$
0.27
  
$
(1.14
)
Weighted average common shares outstanding -Basic
    
53,772
   
29,507
    
28,142
    
21,878
    
10,828
  
     
DILUTED INCOME (LOSS) PER COMMON SHARE:
                                
Continuing operations
  
$
0.21
  
$
0.06
  
$
(0.04
)
$
0.24
  
$
(0.53
)
Discontinued operations
  
$
—
  
$
—
  
$
—
  
$
0.02
  
$
(0.61
)
Net income (loss)
  
$
0.21
  
$
0.06
  
$
(0.04
)
$
0.26
  
$
(1.14
)
Weighted average common shares outstanding - Diluted
    
55,036
    
31,374
    
28,142
    
22,218
    
10,828
  

   
As of December 31,
  
   
2006
  
2005
  
2004
  
2003
  
2002
  
   
(in thousands)
  
BALANCE SHEET DATA:
                      
Total assets
  
$
101,017
  
$
14,767
  
$
18,393
  
$
19,726
  
$
7,036
  
Long-term debt and notes payable, including current maturities (1)
    
31,432
   
6,448
   
7,680
    
12,398
    
15,000
  
Working capital (deficit) (2) …
    
25,512
   
3,565
   
2,553
    
9,375
    
(16,994
)
Stockholders' equity (deficit) (3)…
    
38,422
    
3,795
    
1,180
    
380
    
(13,988
)
Common shares outstanding….
    
59,186
    
29,594
    
29,439
    
27,300
    
11,216
  

 
(1)
The improvement in long-term debt and notes payable including current maturities and working capital from 2003 to 2004 is a result of restructuring our obligations with Prudential in 2004. The increase in long term debt from 2005 to 2006 is a result of debt issued to Oil States Energy Services, Inc. and the credit agreement with Wells Fargo entered into in conjunction with the HWC acquisition.

 
(2)
Working capital is the dollar amount of current assets less current liabilities. The change in working capital from 2002 to 2003 is a result of increased business activities in 2003 which resulted in higher levels of cash and receivables and payments on long term debt and reclassifying subordinated debt from current to long term debt. The increase in working capital from 2005 to 2006 is a result of the HWC acquisition.

 
(3)
The change in equity from 2002 to 2003 is a result of net income in 2003, a short swing profit contribution and various issuances of common stock. The increase in Stockholders’ equity from 2005 to 2006 is a result of the HWC acquisition.
 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Results of Operations

The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto and the other financial information contained in our periodic reports previously filed with the Securities and Exchange Commission and incorporated herein by reference.

Summary consolidated operating results for the fiscal years ended December 31, 2006, 2005 and 2004:
 
   
Years Ended December 31,
  
 
  
2006
  
2005
  
2004
  
   
(in thousands)
  
Revenues
  
$
97,030
  
$
29,537
  
$
24,175
  
Costs and expenses:
                    
Cost of sales
    
52,281
    
14,488
    
11,929
  
Operating expenses
    
15,597
    
7,098
    
6,921
  
Selling, general and administrative
    
4,118
    
2,674
    
3,370
  
Other operating expense
    
259
    
—
    
—
  
Depreciation and amortization
    
4,883
    
714
    
889
  
Operating income
    
19,892
    
4,563
    
1,066
  
Interest expense and other, net
    
2,860
    
655
    
864
  
Income tax expense
    
5,867
    
1,129
    
492
  
Income (loss) from continuing operations…
    
11,165
   
2,779
   
(290
)
Income from discontinued operations, net of income taxes
    
—
    
—
    
42
  
Net income (loss)
    
11,165
   
2,779
   
(248
)
Stock and warrant accretion
    
—
    
—
    
(13
)
Preferred dividends accrued
    
616
    
(874
)
  
(735
)
Net income (loss) attributable to common stockholders
  
$
11,781
  
$
1,905
  
$
(996
)

We operate in two business segments: Well Intervention and Response. Intercompany transfers between segments were not material. Our accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. For purposes of this presentation, operating expenses and depreciation and amortization have been charged to each segment based upon specific identification of expenses and a pro rata allocation of remaining non-segment specific expenses are assigned between segments based upon relative revenues. Selling, general and administrative and corporate expenses have been allocated between segments in proportion to their relative revenue. Business segment operating data from continuing operations is presented for purposes of management discussion and analysis of operating results.

While cost of sales expenses are variable based upon the type of revenue generated, most of our operating expenses represent fixed costs for base labor charges, rent and utilities. Consequently, operating expenses increase only slightly as a result of responding to a critical event. During periods of extremely high response activity, we utilize third party consultants to support our response staff and costs of sales will rise more significantly. In the past, during periods of few critical events, resources dedicated to emergency response were underutilized or, at times, idle, while the fixed costs of operations continued to be incurred, contributing to significant operating losses. To mitigate these consequences, we are actively seeking to expand our non-event services. These services primarily utilize existing personnel to maximize utilization with only slight increases in fixed operating costs.
 
Our well intervention segment consists of services that are designed to enhance production for oil and gas operators and reduce the number and severity of critical well events such as oil and gas well fires, blowouts, or other losses of control at the well. This segment includes services performed by hydraulic workover/snubbing units that are used to enhance production of oil and gas wells. These units are used for underbalanced drilling, workover, well completions and plugging and abandonment services. This segment also includes services that are designed to reduce the number and severity of critical well events offered through our SafeGuard and WELLSURE® risk management programs, including training, contingency planning, well plan reviews, audits, inspection services and engineering services


The Response segment consists of personnel, equipment and services provided during an emergency response such as a critical well event or a hazardous material response. These services also include snubbing and pressure control services provided during a response which are designed to minimize response time and mitigate damage while maximizing safety. Information concerning operations in our two different business segments for the years ended December 31, 2006, 2005 and 2004 is presented below. Certain reclassifications have been made to the prior periods to conform to the current presentation.

 
  
Year Ended December 31,
  
 
  
2006
  
2005
  
2004
  
   
(in thousands)
  
Revenues
              
Well Intervention
  
$
76,653
  
$
13,860
  
$
8,050
  
Response
    
20,377
    
15,677
    
16,125
  
   
$
97,030
  
$
29,537
  
$
24,175
  
Cost of Sales
                    
Well Intervention
  
$
46,562
  
$
6,226
  
$
4,216
  
Response
    
5,719
    
8,262
    
7,713
  
   
$
52,281
  
$
14,488
  
$
11,929
  
Operating Expenses (1)
                    
Well Intervention
  
$
10,104
  
$
3,531
  
$
2,676
  
Response
    
5,493
    
3,567
    
4,245
  
   
$
15,597
  
$
7,098
  
$
6,921
  
Selling, General and Administrative (2)
                    
Well Intervention
  
$
3,514
  
$
1,255
  
$
1,122
  
Response
    
863
    
1,419
    
2,248
  
   
$
4,377
  
$
2,674
  
$
3,370
  
Depreciation and Amortization (1)
                    
Well Intervention
  
$
4,637
  
$
310
  
$
261
  
Response
    
246
    
404
    
628
  
   
$
4,883
  
$
714
  
$
889
  
Operating Income
                    
Well Intervention
  
$
11,835
  
$
2,538
  
$
(225
)
Response
    
8,057
    
2,025
    
1,291
  
   
$
19,892
  
$
4,563
  
$
1,066
  

 
(1)
Operating expenses and depreciation and amortization have been charged to each segment based upon specific identification of expenses and an allocation of remaining non-segment specific expenses pro rata between segments based upon relative revenues.
 
(2)
Selling, general and administrative expenses have been allocated pro rata between segments based upon relative revenues.
 
Comparison of the Year ended December 31, 2006 with the Year ended December 31, 2005

Revenues

Well Intervention revenues were $76,653,000 for the year ended December 31, 2006, compared to $13,860,000 for the year ended December 31, 2005, representing an increase of $62,793,000, or 453.1% in the current year. The increase was primarily the result of the inclusion of $53,826,000 of HWC’s snubbing and hydraulic workover revenues for ten of the twelve months ended December 31, 2006. Safeguard revenues increased $6,298,000 or 88.1% during the year due to an increase in international revenues primarily in Algeria. The remaining increase in revenue for the year ended December 31, 2006 was primarily due to remediation work in the Gulf of Mexico.

Response revenues were $20,377,000 for the year ended December 31, 2006, compared to $15,677,000 for the year ended December 31, 2005, an increase of $4,700,000, or 30.0% in the current year. This increase was due to international activity which included extended jobs in Africa and Indonesia during the quarter ending December 31, 2006.

Cost of Sales

Well Intervention cost of sales were $46,562,000 for the year ended December 31, 2006, compared to $6,226,000 for the year ended December 31, 2005, an increase of $40,336,000, or 647.9% in the current year. The increase was primarily the result of inclusion of $36,581,000 of HWC’s snubbing and hydraulic workover cost of sales for ten of the twelve months ended December 31, 2006. The remaining cost increase of $3,755,000 during the twelve months of 2006 compared to the same period in 2005 was primarily due to increases in activity attributable to our Safeguard international business (primarily in Algeria).


Response cost of sales were $5,719,000 for the year ended December 31, 2006, compared to $8,262,000 for the year ended December 31, 2005, a decrease of $2,543,000, or 30.8% in the current year. This decrease was the result of reduced subcontractor costs for third party field personnel security which were $5,087,000 during 2005. For the current year, cost of sales was 28.1% of revenue which is more typical of direct costs associated with international response revenue.
 
Operating Expenses

Consolidated operating expenses were $15,597,000 for the year ended December 31, 2006, compared to $7,098,000 for the year ended December 31, 2005, an increase of $8,499,000, or 119.7% in the current year. This increase was primarily the result of inclusion of $3,951,000 related to support personnel and facility expense of the snubbing and hydraulic workover service line for ten of the twelve months ended December 31, 2006. The remaining operating cost increase during the twelve months ended December 31, 2006 was primarily due to business development expense associated with increased international business activities, incentive compensation expense and administrative costs. The current twelve month period includes expense of $976,000 related to stock option expense pursuant to our adoption of SFAS No. 123R which requires the expensing of stock options beginning January 1, 2006.

Selling, General and Administrative Expenses

Consolidated selling, general and administrative expenses were $4,377,000 for the year ended December 31, 2006, compared to $2,674,000 for the year ended December 31, 2005, an increase of $1,703,000, or 63.7% in the current year. This increase was primarily due to professional service fees, incentive compensation expense and $312,000 of stock option expense in the current year pursuant to our adoption of SFAS No. 123R which requires the expensing of stock options beginning January 1, 2006. During the twelve months ended December 31, 2006, SG&A expense represented 4.5% of consolidated revenues compared to 9.1% of revenues in the prior year.

Depreciation and Amortization

Consolidated depreciation and amortization expense increased by $4,169,000 for the year ended December 31, 2006 compared to the 2005 period, due to the inclusion of depreciation expense of $4,363,000 associated with the snubbing and hydraulic workover service line for ten of the twelve months ended December 31, 2006.

Interest Expense and Other, Net

The increase in interest and other expenses, net, of $2,205,000 for the year ended December 31, 2006 as compared to the prior year is set forth in the table below:

   
For the Years Ended December 31,
  
   
2006
  
2005
  
   
(in thousands)
  
Interest expense - senior debt
    
9
    
53
  
Interest on subordinated notes
    
102
    
666
  
Interest credit related to December 2000 subordinated debt restructuring
   
(598
)
  
(332
)
Interest expense - Term Note and Revolver
    
829
    
—
  
Interest expense - Subordinated Debt
    
1,752
    
—
  
Amortization of deferred finance cost on credit facility
    
41
    
—
  
Amortization of deferred finance cost on subordinated debt
    
809
    
202
  
Interest expense on financing agreements
    
85
    
56
  
Interest income on cash investments
   
(177
)
  
(49
)
Gain (loss) on foreign exchange
    
—
    
(14
)
Legal settlements and other
    
8
    
73
  
Total Interest and Other, Net
  
$
2,860
  
$
655
  
 

Income Tax Expense
 
Income taxes for the year ended December 31, 2006 were $5,867,000, or 34.45% of pre-tax income compared to the year ended December 31, 2005 of $1,129,000, or 28.9% of pre-tax income. We have determined that as a result of the acquisition of HWC we have experienced a change of control pursuant to limitations set forth in Section 382 of the IRS rules and regulations. As a result, we are limited to utilizing approximately $3.2 million of U.S. net operating losses (NOL) to offset U.S. taxable income generated during the tax year ended December 31, 2006 and expect lower dollar limits in future years until our U.S. NOL’s are either completely used or expire. In 2005, the tax expense was due to taxable income in foreign jurisdictions. All 2005 U.S. tax expense was offset by utilization of NOL’s.
 
Comparison of the Year ended December 31, 2005 with the Year ended December 31, 2004

Revenues

Well Intervention revenues were $13,860,000 for the year ended December 31, 2005, compared to $8,050,000 for the year ended December 31, 2004, representing an increase of $5,810,000, or 72.2% in the current year. The increase was primarily the result of work performed under Safeguard agreements in Algeria and a moderate increase in service fees generated from the WELLSURE® program. These increases were offset by a reduction in Venezuelan activity.
 
Response revenues were $15,677,000 for the year ended December 31, 2005, compared to $16,125,000 for the year ended December 31, 2004, a decrease of $448,000, or 2.8% in the current year. This decrease was the result of lower revenues from response to critical well events in Iraq of $1,963,000, of which, $1,301,000 was a reduction of third party subcontractor pass-through revenue for field personnel security, offset by increased domestic activity in the Gulf of Mexico.

Cost of Sales

Well Intervention cost of sales were $6,226,000 for the year ended December 31, 2005, compared to $4,216,000 for the year ended December 31, 2004, an increase of $2,010,000, or 47.7% in the current year. The increase is due to the increased variable expense associated with the related increased revenue in Algeria and the WELLSURE® program; partially offset by decreased variable expense in the Venezuelan operation.

Response cost of sales were $8,262,000 for the year ended December 31, 2005, compared to $7,713,000 for the year ended December 31, 2004, an increase of $---549,000, or 7.1% in the current year. This increase was the result of subcontractor costs of $5,087,000 for field personnel security related to Iraq response activities as compared to $3,848,000 expensed during 2004. The subcontractor costs were third party pass-through charges. Excluding these pass-through charges, response cost of sales would have been $2,921,000 and $3,673,000 for the year ended December 31, 2005 and 2004, respectively.

Operating Expenses

Consolidated operating expenses were $7,098,000 for the year ended December 31, 2005, compared to $6,921,000 for the year ended December 31, 2004, an increase of $177,000, or 2.6% in the current year. This increase is due to increased business development expense, and administrative costs associated with international business activities.


Selling, General and Administrative Expenses

Consolidated selling, general and administrative expenses were $2,674,000 for the year ended December 31, 2005, compared to $3,370,000 for the year ended December 31, 2004, a decrease of $696,000, or 20.7% from the prior year. This decrease is primarily related to reduced litigation expense compared to 2004; partially offset by increases in costs related to compliance with the Sarbanes Oxley Act of 2002 and related regulatory requirements.

Depreciation and Amortization

Consolidated depreciation and amortization expense decreased by $175,000 for the year ended December 31, 2005 compared to the 2004 period, as a result of certain assets being fully depreciated by year end 2004.

Interest Expense and Other, Net,

The reduction in interest and other expenses, net, of $209,000 for the year ended December 31, 2005 as compared to the prior year is set forth in the table below:

   
For the Years Ended December 31,
  
   
2005
  
2004
  
   
(in thousands)
  
Financing fees
    
—
    
190
  
Interest expense - senior debt
    
53
    
74
  
Interest on subordinated notes
    
666
    
1,084
  
Interest credit related to December 2000 subordinated debt restructuring
   
(332
)
  
(829
)
Deferred interest on subordinated debt
    
202
    
76
  
Interest income on cash investments
   
(49
)
  
(25
)
Gain (loss) on foreign exchange
    
(14
)
  
(94
)
Legal settlements and other
    
129
    
388
  
Total Interest and Other, Net
  
$
655
  
$
864
  


Income Tax Expense
 
Income taxes for the year ended December 31, 2005 and 2004 were $1,129,000 and $492,000, respectively, and are a result of comparative taxable income in foreign operations and changes in the foreign tax laws. Algeria activity starting in 2005 accounted for most of the increase in income tax expense.


Liquidity and Capital Resources

Liquidity

At December 31, 2006, we had working capital of $25,512,000, including a cash balance of $5,033,000. We ended the year with stockholders’ equity of $38,422,000. For the year, we generated operating income of $19,892,000 and net cash provided by operating activities was $4,400,000. Capital expenditures were $6,882,000 and $306,000 during the years ended December 31, 2006 and 2005, respectively. Net cash used in investing activities was $1,687,000. During the year we utilized our credit facility with Wells Fargo Bank, borrowing $10,850,000 to retire our senior secured loan facility of $750,000 and a 12% senior subordinated note of $4,800,000 and to redeem $5,300,000 in preferred stock. The acquisition of HWC increased our working capital by $10,368,000 effective March 1, 2006.

We generate our revenues from well intervention and emergency response services. Response services are generally associated with a specific well control emergency or critical “event” whereas well intervention services are generally “non-event” related. The frequency and scale of occurrence for response services varies widely and is inherently unpredictable. There is little statistical correlation between common industry activity indicators such as commodity pricing, activity forecasts, E&P operating budgets and resulting response revenues. Well Intervention services provide a more predictable base of revenues. Historically we have relied upon event driven services as the primary source of our operating revenues, but more recently our strategy has been to achieve greater contribution from well intervention service revenues. Our acquisition of HWC combined with organic growth in our well intervention service and product offerings has significantly reduced the volatility of our revenues, however, our profitability is still significantly affected by event driven services.

 
On December 31, 2006, we had $1,754,000 of cash and $15,823,000 in accounts receivable attributable to our Venezuelan operations. Of this cash, $1,209,000 was denominated in U.S. Dollars and resided in a U.S. bank. The remaining $545,000 was denominated in Bolivars and resided in a Venezuelan bank. Of the total Venezuela accounts receivable balance. $7,509,000 was denominated in Venezuelan bolívares and are subject to market risks. The remaining $8,314,000 was denominated in U.S. dollars. Effective February 5, 2004, the exchange rate in Venezuela changed from 1,600 to 1,920 Bolivars to the U.S. dollar and effective March 1, 2005, the exchange rate in Venezuela further devalued from 1,920 to 2,150 Bolivars to the U.S. dollar. We have taken charges to equity under the caption “foreign currency translation loss” for 0 and $361,000 during the years ended December 31, 2006 and 2005, respectively, to reflect the devaluation of the Bolivar. We have registered with the control board (CADIVI) in order to have a portion of total receivables in U.S. dollar payments made directly to a United States bank account. Venezuela is also on the U.S. government’s “watch list” for highly inflationary economies. The Venezuelan government has made it very difficult for U.S. dollars to be repatriated. Management continues to monitor the situation closely.

Disclosure of on and off balance sheet debts and commitments:

Our known contractual obligations at December 31, 2006 are reflected in the table below.
 
Future commitments (000’s)
  
Description
  
TOTAL
  
Less than 1 year
  
1-3 years
  
3-5 years
  
After 5 years
  
Long and short term debt and notes payable
                     
Term loan
  
$
8,349
  
$
1,940
  
$
3,880
  
$
2,529
  
$
—
  
Revolving credit facility
  
$
1,917
  
$
—
  
$
—
  
$
1,917
  
$
—
  
Subordinated debt
  
$
21,166
  
$
—
  
$
—
  
$
21,166
  
$
—
  
Future minimum lease Payments
  
$
4,174
  
$
470
  
$
760
  
$
768
  
$
2,176
  
Total commitments
  
$
35,606
  
$
2,410
  
$
4,640
  
$
26,380
  
$
2,176
  
 
Credit Facilities/Capital Resources

On August 13, 2004, we restructured our subordinated debt facility with Prudential. The principal balance of $9,635,000 would have been due on December 30, 2005. Under the amended terms, we paid principal of $2,000,000 on August 13, 2004 plus accrued interest of $28,667. We were also required to pay down approximately $1,635,000 of principal on December 15, 2004. The December 31, 2005 remaining balance of $5,100,000 was to be paid in equal quarterly installments over the next four years with a final maturity of December 31, 2009. This restructuring also extended the amortization period of the remaining troubled debt restructuring related credit over the life of the restructured facility. In connection with the restructuring, Prudential also exchanged its remaining 582 shares of Series E preferred stock for 55,429 shares of common stock and surrendered its warrants to purchase 2,418,000 shares of common stock, and we issued Prudential 1,250,000 shares of common stock valued at $1,088,000 as well as 524,206 shares of common stock to pay accrued and unpaid dividends owed on Series E and Series G preferred stock.


In conjunction with the acquisition of HWC on March 3, 2006, we and our wholly owned subsidiary, IWC Services, LLC, entered into a Credit Agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association, which established a revolving credit facility of $10.3 million, subject to an initial borrowing base of $6.0 million, and a term credit facility of $9.7 million. The term credit facility is due and payable in full on March 3, 2010, subject to extension under certain circumstances to March 3, 2011. The revolving credit facility is due and payable in full on March 3, 2010, subject to a year to year renewal thereafter. We utilized initial borrowings totaling $10.6 million under the credit facilities to repay the then outstanding senior and subordinated debt in full and repurchase all of our outstanding shares of preferred stock and for other corporate purposes. The $9.7 million credit facility is payable monthly over sixty months. Interest is accrued and payable monthly for both agreements.

The Credit Agreement is secured by substantially all of our assets. Unused line fees are due monthly on the revolving credit facility and range from 0.25% to 0.50% per annum, based on the ratio of the outstanding principal amount under the Credit Agreement to our consolidated EBITDA. At our option, borrowings under the Credit Agreement bear interest at either (i) Wells Fargo’s prime commercial lending rate, or (ii) the Inter-Bank Market Offered Rate plus a margin ranging, as to the revolving credit facility, from 0.50% to 1.50% per annum, and, as to the term credit facility, from 3.00% to 3.50%, which margin increases or decreases based on the ratio of the outstanding principal amount under the Credit Agreement to our consolidated EBITDA. The interest rates for the revolving credit facility and the term credit facility were 8.25% and 8.75%, respectively at March 22, 2006.

The Credit Agreement, as amended, contains various restrictive covenants and compliance requirements, including (1) maintenance of a minimum book net worth through December 31, 2006 equal to 90% of the pro forma book net Worth calculated on March 1, 2006, but in no event less than $25,000,000, or, for each fiscal year thereafter, equal to the greater of the minimum book net worth required for the preceding fiscal year or 85% of book net worth on the last day of the preceding fiscal year. For these purposes “book net worth” means the aggregate of our common and preferred stockholders’ equity on a consolidated basis; (2) maintenance of a minimum ratio of our consolidated EBITDA less unfinanced capital expenditures to principal and interest payments required under the Credit Agreement, on a trailing twelve month basis, of 1.50 to 1.00; (3) notice within five (5) business days of making any capital expenditure exceeding $500,000; (4) limitation on the incurrence of additional indebtedness except for indebtedness arising under subordinated notes in the aggregate amount of $21,166,000 owing to Oil States Energy Services, Inc., indebtedness existing on the date of the Credit Agreement, and indebtedness existing between us and our subsidiaries that is unsecured and subordinated to the indebtedness arising under the Credit Agreement. Substantially all of our assets are pledged as collateral under the debt agreements. We were in compliance with these covenants at December 31, 2006 and through the date of this report.

The $21,166,000 owing to Oil States Energy Services, Inc. is an unsecured subordinated debt which bears interest at a rate of 10% per annum, with a one time principal payment on September 9, 2010. Interest is accrued monthly and payable quarterly.


Critical accounting policies

In response to the SEC’s Release No. 33-8040, “Cautionary Advice Regarding Disclosure about Critical Accounting Policies,” we have identified the accounting principles which we believe are most critical to the reported financial statements by considering accounting policies that involve the most complex or subjective decisions or assessment. We have identified our most critical accounting policies to be those related to revenue recognition, allowance for doubtful accounts and income taxes.

Revenue Recognition - Revenue is recognized on our service contracts primarily on the basis of contractual day rates as the work is completed. Revenue and cost from product and equipment sales is recognized upon customer acceptance and contract completion.


Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, related workman’s compensation insurance, supplies, tools, repairs and depreciation costs. General and administrative costs are charged to expense as incurred. Fixed assets are depreciated over their useful lives. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.

We recognize revenues under the WELLSURE® program as follows: (a) initial deposits for pre-event type services are recognized ratably over the life of the contract period, typically twelve months (b) revenues and billings for pre-event type services provided are recognized when the insurance carrier has billed the operator and the revenues become determinable and (c) revenues and billings for contracting and event services are recognized based upon our predetermined day rates and sub-contracted work as incurred.  

Allowance for Doubtful Accounts - We perform ongoing evaluations of our customers and generally do not require collateral. We assess our credit risk and provide an allowance for doubtful accounts for any accounts which we deem doubtful of collection.

Income Taxes - We account for income taxes pursuant to the SFAS No. 109 “Accounting For Income Taxes,” which requires recognition of deferred income tax liabilities and assets for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. Deferred income tax liabilities and assets are determined based on the temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and available tax carry forwards. The domestic tax liabilities are offset by the usage of our net domestic operating loss carry forwards. The provision for tax expense includes foreign income taxes from Algeria and Venezuela and a minimal amount of domestic alternative minimum tax liability (See “Note G” Income Taxes to the consolidated financial statements).

Share-based compensation - We have adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, consultants and directors; including employee stock options based on estimated fair values. SFAS No. 123R supersedes our previous accounting under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) for periods beginning in fiscal 2006. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to SFAS No. 123R. We have applied the provisions of SAB 107 in our adoption of SFAS No. 123R.

Recent Accounting Pronouncements

In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“ FIN48”), an interpretation of FASB Statement No. 109. FIN48 establishes the threshold for recognizing the benefits of tax-return positions in the financial statements as more-likely-than-not to be sustained by the taxing authorities, and prescribes a measurement methodology for those positions meeting the recognition threshold. The Company has not yet determined the estimated impact on its financial condition or results of operations, if any, of adopting FIN48 which becomes effective for the fiscal year beginning after December 15, 2006.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current practice. The Company has not yet determined the estimated impact on its financial condition or results of operations, if any, of adopting SFAS No. 157, which becomes effective for the fiscal years beginning after November 15, 2007.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115.” SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments. The Company has not yet determined the estimated impact on its financial condition or results of operations, if any, of adopting SFAS No. 159, which becomes effective for the fiscal years beginning after November 15, 2007.


Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

The nature of our Response revenue stream is unpredictable from quarter to quarter and from country to country such that any history of geographic split does not represent a trend. During the year 2006, foreign revenues were 74% of total revenue. Revenue generated by Venezuela and Algeria during the year 2006 was 21% and 24%, respectively. Revenue generated by Venezuela and Algeria during the year 2005 was 12% and 21%, respectively. See “- Liquidity and Capital Resources” for more information regarding our foreign currency risks.

Our debt consists of both fixed-interest and variable-interest rate debt; consequently, our earnings and cash flows, as well as the fair values of our fixed-rate debt instruments, are subject to interest-rate risk. We have performed sensitivity analyses on the variable-interest rate debt to assess the impact of this risk based on a hypothetical 10% increase in market interest rates.

We have a term loan and a revolving line of credit that are subject to the risk of loss associated with movements in interest rates. As of December 31, 2006, we had floating rate obligations totaling approximately $10.3 million. See “Liquidity and Capital Resources” for more information. These floating rate obligations expose us to the risk of increased interest expense in the event of increases in short-term interest rates. If the floating interest rate was to increase by 10% from the December 31, 2006 levels, our interest expense would increase by a total of approximately $97,000 annually.

Item 8. Financial Statements and Supplementary Data.
 
Attached following the Signature Pages and Exhibits.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures. 

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, 2006. Our Chief Executive Officer and Chief Financial Officer concluded, based upon their evaluation, that our disclosure controls and procedures are effective to ensure that the information required to be disclosed in reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

In connection with the audit of our consolidated financial statements for the two years ended December 31, 2005, our independent auditors, UHY LLP, issued letters to our audit committee, dated March 21, 2005 and March 27, 2006, noting certain matters in our Venezuelan subsidiary that they considered to be a material weakness in internal control. The matters listed in the letters included the lack of controls to mitigate the risk of fraud and the lack of controls over financial reporting; particularly with respect to adjustments necessary to convert the Venezuelan financial statements from Venezuelan generally accepted accounting principles to accounting principles generally accepted in the United States.


During 2005 and 2006, we made changes in policies and procedures to improve and enhance internal controls with regard to fraud prevention and detection and with respect to financial reporting in Venezuela intended to appropriately address the matters referred to in the letters. These changes included:

 
-
hiring a CFO with an International background and Sarbanes Oxley implementation experience;

 
-
revising and implementing the existing policies and procedures of the subsidiary;

 
-
restructuring the accounting department of the subsidiary and enhancing our corporate reporting requirements;

 
-
utilizing the HWC in-country accounting manager to support the implementation of the HWC integrated accounting system. The HWC accounting manager is responsible for local internal controls and policies and procedures.

Based on these improvements, the material weaknesses were remediated as of December 31, 2006.

 
Item 9B. Other Information.

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governace.
 
The following table lists the names and ages of each of our directors and/or executive officers, as well as those persons expected to make a significant contribution to us as of the date of this Form 10-K. There are no family relationships between any director and any other director or executive officer.


NAME
  
AGE
  
POSITION
         
Douglas E. Swanson
  
68
  
Chairman of the Board
         
Jerry L. Winchester
  
47
  
President, Chief Executive Officer and Director
         
Gabe Aldape
  
47
  
Chief Financial Officer
         
Dewitt H. Edwards
  
48
  
Executive Vice President
         
Don B. Cobb
  
50
  
Executive Vice President
         
W. Richard Anderson (1)(2)
  
53
  
Director
         
E. J. DiPaolo (1)(2)
  
54
  
Director
         
Robert S. Herlin (1)(2)
  
51
  
Director
         
Kirk Krist
 
48
  
Director
         
Cindy B. Taylor (2)
  
45
  
Director
         
Robert G. Croyle
  
64
  
Director
         

 
(1)
Member of our audit committee.
 
(2)
Member of our compensation committee.
 
 
BIOGRAPHIES OF EXECUTIVE OFFICERS AND DIRECTORS

Douglas E. Swanson has served as a Class III director since March 2006. Mr. Swanson serves as a class III director for a term that will expire on the date of our annual meeting of stockholders in 2009. Mr. Swanson was elected Chairman of the board by our board of directors on November 6, 2006. Mr. Swanson is the current Chief Executive Officer of Oil States International Inc., and until May 2006 was the President of Oil States International, Inc. Oil States International, Inc., a diversified oilfield services company, that is a leading manufacturer of products for deepwater production facilities and subsea pipelines, and is a leading supplier of a broad range of services to the oil and gas industry, including production-related rental tools, work force accommodations and logistics, oil country tubular goods distribution and land drilling services. Oil States is a publicly traded company on the New York Stock Exchange under the symbol “OIS”. Douglas E. Swanson has served as president and chief executive officer of Oil States since January 2000. Prior to joining Oil States, Mr. Swanson served as president and chief executive officer of Cliffs Drilling Company, a contract drilling company, from January 1992 to August 1999. He holds a bachelor’s degree from Cornell College and is a Certified Public Accountant.

Jerry Winchester has served as our President, Class II Director and Chief Operating Officer since 1998. In July of 2002 he assumed the position of chief executive officer. Mr. Winchester serves as a Class II Director for a term that will expire on the date of our annual meeting of stockholders scheduled in 2008. Prior to joining us in 1998, Mr. Winchester was employed by Halliburton Energy Services since 1981 in positions of increasing responsibility, most recently as Global Manager - Well Control, Coil Tubing and Special Services. He received his B.S. in Engineering Technology from Oklahoma State University in 1982 and is an active member of the Society of Petroleum Engineers and the International Association of Drilling Contractors.

Gabriel Aldape was appointed our Chief Financial Officer March 3, 2006. From July 1998 to February 2006, Mr. Aldape served as Vice President-Finance of Hydraulic Well Control, LLC and in such capacity was responsible for directing investment analysis, cost analysis, general accounting, and finance management, including cash management and business planning, for Oil States land drilling operation, for Capstar Drilling. Mr. Aldape also managed the Sarbanes-Oxley compliance effort for Hydraulic Well Control, LLC and Capstar Drilling. While at Hydraulic Well Control, LLC, Mr. Aldape directed the financial start up efforts in Dubai, the Republic of the Congo, Algeria and Egypt. Prior to that, his international experience includes five years as finance manager and controller of Hydraulic Well Control, LLC in Mexico and Venezuela. Mr. Aldape has spent 21 years in accounting and management in the oil field service industry.

Dewitt H. Edwards has served as Executive Vice President since June 30, 2006. From April 2005 to June 2006, Mr. Edwards served as Senior Vice President—Finance and Principal Financial Officer. His primary responsibilities include the delivery of our services and the business development and geographic management of our domestic businesses. Prior to his employment, Mr. Edwards served as a consultant to the Company from May 2002 to April 2005. In that capacity, he had been engaged to work on initiatives to refinance our debt and improve our overall capital structure and liquidity. Prior to that time, Mr. Edwards had been employed by us as Executive Vice President since September 1998. Before joining us, Mr. Edwards had been employed by Halliburton Energy Services for 19 years where he served in positions of increasing authority, including Mid-Continent area manager and North America resource manager.

Don B. Cobb was appointed Executive Vice President February 5, 2007. Mr. Cobb had served as President of Hydraulic Well Control since 1998. During that period, HWC expanded from a domestic based service provider into an international company with continuing international operations in the Republic of Congo, Algeria, United Arab Emirates, Venezuela and Egypt. While employed by HWC, Mr. Cobb was also involved in the senior management of Oil States International, Inc.’s U.S. land drilling business, Capstar Drilling, L.P. and Elenburg Exploration. Prior to his employment with HWC, Mr. Cobb was employed for 22 years by Baker Hughes, Inc., where he served in various management and technical positions of increasing authority in the U.S. and internationally, including Area Manager of Indonesia, Regional Manager Western U.S., and Alaska, Regional Manager of Latin America and Manager of Multi-Lateral Operations.


W. Richard Anderson has served as a Class I director since August 1999. Mr. Anderson also serves as chairman of the Audit Committee and is a member of the compensation committee. Mr. Anderson serves as a Class I Director for a term that will expire on the date of the annual meeting of stockholders scheduled for calendar year 2007.  Mr. Anderson is the President, Chief Financial Officer and a director of Prime Natural Resources, a closely-held exploration and production company. Prior to his employment at Prime in January 1999, he was employed by Hein & Associates LLP, a certified public accounting firm, where he served as a partner from 1989 to January 1995 and as a managing partner from January 1995 until October 1998. Mr. Anderson also serves on the boards of directors of Global Santa Fe Corporation and Calibre Energy, Inc.

E. J. DiPaolo served as a director from May 1999 to December 4, 2002 then was reappointed on September 30, 2003. Mr. DiPaolo serves as a Class II Director for a term that will expire on the date of our annual meeting of stockholders in 2008. Mr. DiPaolo also serves on the audit and compensation committees. Since August of 2003, Mr. DiPaolo has provided consulting services to Growth Capital Partners, L.P., a company engaged in investments and merchant banking. Mr. DiPaolo was the Senior Vice President, Global Business Development of Halliburton Energy Services, having had responsibility for all worldwide business development activities until his retirement in 2002. Mr. DiPaolo was employed at Halliburton Energy Services from 1976 until his retirement in progressive positions of responsibility.

Robert S. Herlin was appointed a Class I director on September 30, 2003. Mr. Herlin serves on the Audit Committee and chairs the compensation committee. Mr. Herlin serves as a Class I Director for a term that will expire on the date of the annual meeting of stockholders scheduled for calendar year 2007.  Since 2003, Mr. Herlin has served as the President, CEO and a Director of Evolution Petroleum Corporation, a private company involved in the acquisition and redevelopment of oil and gas properties. Since 2003, Mr. Herlin has served as a partner with Tatum Partners, a service company that provides principal executive and accounting officers to clients on a contract basis. Prior to his employment at Evolution Petroleum Corporation, Mr. Herlin was CFO of Intercontinental Tower Corporation, a wireless telecom infrastructure operation in South America from 2000 to 2003. Mr. Herlin earned his MBA from Harvard and engineering degrees from Rice University.

K. Kirk Krist has served as a Class III director since our acquisition of IWC Services on July 29, 1997. Mr. Krist’s term as a class III director will expire on the date of our annual meeting of stockholders in 2009. Mr. Krist served as Chairman of the Board form December 2002 to December 2006. Mr. Krist is a graduate of the University of Texas with a B.B.A. in Business. He has been a self-employed oil and natural gas investor and venture capitalist since 1982.

Cindy B. Taylor became a Class II director on March 3, 2006 for a term that will expire on the date of our annual meeting of stockholders in 2008. Mrs. Taylor also serves on the compensation committee. Since May 2006, Mrs. Taylor has served as President and Chief Operating Officer of Oil States International, Inc. Mrs. Taylor served as Senior Vice President — Chief Financial Officer and Treasurer of Oil States International Inc. from May 2000 to May 2006. Prior to joining Oil States, Mrs. Taylor served as the Chief Financial Officer of L.E. Simmons & Associates, Incorporated from August 1999 to May 2000, the Vice President-Controller of Cliffs Drilling Company from July 1992 to August 1999 and in various positions with Ernst & Young LLP, a public accounting firm, from January 1984 to July 1992. She received a bachelor’s degree of business administration from Texas A&M University and is a Certified Public Accountant.

Robert G. Croyle became a Class I director on January 1, 2007 for a term that will expire on the date of the annual meeting of stockholders scheduled for calendar year 2007. Since 2002, Mr. Croyle has served as vice chairman and Chief Administrative Officer at Rowan Companies, Inc., a major international offshore and land drilling contractor traded on the New York Stock Exchange. Mr. Croyle has held various positions with Rowan Companies, Inc. since 1973, including serving as director since 1998. From 1993 to 2002, he served as Executive Vice President with management responsibility for Rowan’s aviation and manufacturing divisions.

Security Holder Communications. Security holder communications intended for the board of directors or for particular directors (other than stockholder proposals submitted pursuant to Exchange Act Rule 14a-8 and communications made in connection with such proposals) may be sent in care of the Company's Secretary at Boots & Coots International Well Control, Inc., 7908 N. Sam Houston Parkway W., Suite 500, Houston, Texas 77064. The Secretary will forward all such communications to the board of directors or to particular directors as directed without screening such communications.


Code of Business Conduct and Ethics: We have adopted a Code of Business Conduct and Ethics that covers all employees, directors, and officers that relates to the honest and ethical conduct in all business dealings, full, fair, accurate, timely and understandable disclosures in all reports filed by the us with or submitted to the Securities and Exchange Commission and in other public communications, compliance with applicable governmental rules and regulations, and avoidance of conflicts of interest. The Code of Business Conduct and Ethics is available on the ‘Investor Relations’ link at www.boots-coots.com. Copies of the Code of Business Conduct and Ethics may also be obtained upon written request of our corporate Secretary at our principal executive office address.

Audit Committee Independence and Financial Experts: The Audit Committee reviews our financial reporting processes, system of internal controls, and the audit process for monitoring compliance with laws and regulations. In addition, the committee reviews, with our auditors, the scope of the audit procedures to be applied in the conduct of the annual audit, as well as the results of that audit. Our board has determined that each of the Audit Committee members is independent, in accordance with the audit committee requirements of the American Stock Exchange and the Securities and Exchange Commission. Our board has also determined that Messrs. Anderson and Herlin are financial experts within the meaning of Item 401 (h) of Regulation S-K promulgated by the Securities and Exchange Commission.


Item 11. Executive Compensation.

The following discussion of executive compensation contains descriptions of various employment-related agreements and employee benefit plans. These descriptions are qualified in their entirety by reference to the full text of the referenced agreements and plans, which have been included as exhibits to our periodic reports on Forms 10-K, 10-Q and 8-K filed with the U.S. Securities and Exchange Commission.

COMPENSATION DISCUSSION AND ANALYSIS

Introduction

The following discussion provides an overview of the compensation committee of our board of directors, the background and objectives of our compensation programs for our executive management, and the material elements of the compensation of each of the executive officers identified in the following table, whom we refer to as our “named executive officers”:

Named Executive Officers
  
Title
     
Jerry Winchester
  
President and Chief Executive Officer (our principal executive officer)
     
Dewitt Edwards
  
Executive Vice President
     
Gabriel Aldape
  
Chief Financial Officer (our principal financial officer)
     
Don B. Cobb
  
Executive Vice President

Overview of the compensation committee

The compensation committee of our board of directors is comprised entirely of independent directors in accordance with Section 121 of the American Stock Exchange rules governing listed companies. Until our acquisition of HWC on March 12, 2006, our compensation committee was composed of three members: E.J. DiPaolo, Robert S. Herlin and W. Richard Anderson. Upon our acquisition of HWC, our board of directors appointed Cindy B. Taylor, the President and Chief Operating Officer of Oil States International, Inc., to our compensation committee.

The primary duties and responsibilities of our compensation committee are to establish and implement our compensation policies and programs for our executive management and employees, including compensation provided to the named executive officers. Our compensation committee has the authority to engage the services of outside advisors, experts and others to assist it and has done so from time to time. During 2006, our compensation committee engaged Longnecker & Associates to advise us with respect to director compensation and compensation for our chief executive officer in 2007.

The compensation committee works with our Secretary of the board of directors to establish an agenda for each meeting of the compensation committee. Our chief executive officer, general counsel and other members of our management and outside advisors may be invited to attend all or a portion of a compensation committee meeting depending on the nature of the matters to be discussed. Only members of the compensation committee vote on items before the committee; however, the compensation committee and board of directors often solicit the views of the chief executive officer on compensation matters, including as they relate to the compensation of other executives, including the other named executive officers.

Objectives of our compensation program

Our success depends on the continued contributions of our executive management and other key employees. Our compensation program is intended to attract, motivate and retain experienced and qualified personnel by providing compensation that is competitive in relation to our peers while recognizing overall business results and individual merit, and which supports the attainment of our strategic objectives by tying the interests of management and employees to those of our stockholders through the use of performance-based cash incentives and equity-based compensation.


Design of our compensation program

Our compensation program for executive management, including the named executive officers, is designed to:

 
·
provide compensation that is competitive with our compensation peer group;
 
 
·
balance short-term and long-term goals through the use of annual cash incentives and grants of long-term equity incentives; and
 
 
·
deliver a mix of fixed and at-risk compensation that directly relates to increasing stockholder value and our overall performance.
 
Each element of compensation is reviewed and considered with the other elements of compensation to ensure that it is consistent with the goals and objectives of both that particular element of compensation and our overall compensation program. In designing the compensation program and in determining senior management compensation, including the compensation of the named executive officers, we also consider the following:

 
·
the competitive challenges affecting our ability to attract and retain strong management;
 
 
·
our operating and financial performance compared with targeted goals;
 
 
·
each individual’s contributions to our overall results; and.
 
 
·
our size and performance relative to companies in our compensation peer group; and our available resources
 
In establishing compensation, we utilize compensation data (“Survey Data”) regarding the practices of other companies, including our compensation peer group. During 2006, we engaged Longnecker & Associates to provide us with Survey Data regarding director compensation, which we utilized to establish director compensation for 2006. We also utilized survey data prepared by Longnecker & Associates in connection with establishing compensation for our chief executive officer in 2007. Longnecker & Associates provides no other services to us and is otherwise independent. We utilize Survey Data to ensure that our compensation programs are competitive with our compensation peer group. The Survey Data is a compilation of compensation and other data based upon the compensation consultants’ review of our compensation peer group and other companies that participate in industry surveys.

In developing our compensation structure, we review the compensation and benefit practices, as well as levels of pay, of a compensation peer group of companies drawn from oil field service companies of a similar size. While we periodically review, evaluate and update our compensation peer group, for the compensation structure developed for 2006 the compensation peer group consisted of the following companies:

 
·
Allis-Chalmers Energy, Inc.
 
·
Basic Energy Services, Inc.
 
·
Ecology and Environment, Inc.
 
·
Gulfmark Offshore, Inc.
 
·
Infinity, Inc.
 
·
Mark West Energy Partners, L.P.
 
·
OMNI Energy Services Corp.
 
·
Pioneer Drilling Company
 
·
RPC, Inc.
 
·
Superior Well Services, Inc.
 
·
SYNERGX Systems, Inc.
 
·
T-3 Energy Services, Inc.


We target total compensation for our management that falls at the 50th percentile of our compensation peer group, allowing for the fact that we are one of the smallest companies in our peer group.. We believe compensation at this level is required for us to attract and retain talented management in a competitive environment. For 2006, we also considered the compensation practices of HWC, which we acquired in March 2006, in connection with the hiring of Messrs. Aldape and Cobb, both of whom served as executive officers of HWC at the time of the acquisition.

2006 compensation program

Elements of compensation

The principal elements of our executive compensation program are base salary, annual performance-based cash incentives, long-term equity incentives in the form of stock options and restricted stock grants and post-termination severance (under certain circumstances), as well as other benefits and perquisites, consisting of life and health insurance benefits, a qualified 401(k) savings plan, and the reimbursement of automobile expenses for our chief executive officer and chief financial officer.

Base salary

We review base salaries for our chief executive officer and other executives annually to determine if a change is appropriate. In reviewing base salaries, we consider several factors, including a comparison to base salaries paid for comparable positions in our compensation peer group as reflected in the Survey Data, the relationship among base salaries paid to executive officers within our company and each executive’s individual experience and contributions to our business. Our intent is to fix base salaries at levels that we believe are consistent with our objective of attracting, motivating and retaining individuals in a competitive environment.

Base salaries for our named executive officers in 2006 were as follows:
 
Name
  
2006 Base Salary
  
Jerry Winchester
  
$
250,000(1
)
Dewitt Edwards
  
$
220,000
  
Gabriel Aldape
  
$
165,000
  
Don B. Cobb
  
$
200,000
  
         


(1) Mr. Winchester’s base salary for 2007 was increased effective January 1, 2007 to $335,000. See the discussion following this table for additional information.

We have entered into employment agreements with Messrs. Winchester, Edwards and Aldape. Messrs. Edwards and Aldape entered into their employment agreements in April 2006 and March 2006, respectively. Mr. Winchester’s employment agreement was originally entered into on October 1, 2003 and on October 1, 2006 our compensation committee elected to renew the agreement for an additional two year period. For more information regarding the terms of these agreements see “Employment contracts, termination of employment and change-in-control arrangements” below.

During 2006, Mr. Winchester’s employment agreement provided for a base salary of $250,000 per year and an automobile allowance of $18,000 per year. These amounts remained unchanged from October 1, 2003 until March 1, 2007, when we approved an increase in Mr. Winchester’s 2007 base salary to $335,000 per year and Mr. Winchester agreed to forego his automobile allowance, resulting in a net base salary increase of $67,000 per year (25%), all effective as of January 1, 2007. Our compensation committee approved this adjustment to Mr. Winchester’s base salary so as to maintain this component of his compensation at the median of our compensation peer group based upon the Survey Data and the analysis of our compensation consultant.


Messrs. Edwards, Aldape and Cobb each commenced employment with us during 2006. Mr. Edwards was hired by us in April 2006 and had previously been engaged by us as a consultant to assist us with our then proposed acquisition of HWC and related financing transactions. Mr. Edwards’ base salary was established through mutual negotiations while taking into consideration the rates that we had been paying for his services as a consultant. Messrs. Aldape and Cobb were hired by us in March 2006 in connection with our acquisition of HWC. The base salaries for Messrs. Aldape and Cobb were also established through mutual negotiations while taking into consideration the salary paid to them by HWC at the time of our acquisition, the increased demands on their time associated with the integration of HWC with us and the increased responsibilities they would undertake as executive officers of a publicly-held company.

Annual cash incentives

Annual cash incentive compensation is intended to focus and reward executives and other key employees for meeting performance objectives tied to increasing stockholder value. To further this objective for 2006 and 2007, we have implemented an annual performance-incentive plan, or APIP. The annual performance-incentive plan provides for cash incentive payments tied to consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”) targets established for each plan year, which are adjusted as necessary to account for the effects of acquisitions or dispositions of businesses and unusual events.

We believe that EBITDA is a key indicator of our financial and operational success and is the principal measure of performance utilized by investors in valuing our company and our competitors and in assessing the effectiveness of our management. We establish specific EBITDA threshold, goal and stretch targets under the APIP at the beginning of each fiscal year, as well as the award level, as a percentage of base salary, that may be earned by certain employees including the named executives if performance exceeds the threshold, goal or stretch targets. Performance must satisfy the threshold level before any incentive compensation is earned. EBITDA at or in excess of the threshold amount, but less than the APIP goal amount, entitles the executive to a pro rata percentage of the goal award. EBITDA at or in excess of the goal or stretch amount entitles the executive to compensation at the goal award percentage or the stretch award percentage, as applicable. Amounts earned, if any, are generally paid during March of the following year, when our results for the prior year become available upon completion of our annual audit.

EBITDA targets are set at levels that reflect our internal, confidential business plan at the time the awards were established. The threshold target is 80% of our EBITDA goal as reflected in our business plan. The stretch target is 120% of our EBITDA goal. The EBITDA goal and stretch target are intended to be challenging but achievable. For 2006, our consolidated EBITDA exceeded the stretch goal. The award levels (as a percentage of base salary) for Messrs. Winchester, Edwards, Aldape and Cobb were 55-110%, 50-100%, 50-100%, and 50-100%, respectively. We believe that establishing specific attainable goals for management that are consistent with our business plan and that offer the executive the opportunity for meaningful additional cash compensation is the best method to incentivize management to achieve and exceed our business objectives.

The annual cash incentives awarded to the named executive officers for fiscal year 2006 performance are included in the Summary Compensation Table below. The table reflects awards for 2006 performance that were paid during March 2007.

Long-term incentives

Long-term incentives comprise a significant portion of an executive’s compensation package. Long-term incentives are intended to align the interests of our executives with our stockholders and retain the executives through the term of the awards. Long-term incentives are also consistent with our objective of providing an “at-risk” component of compensation. In establishing long-term incentive awards we endeavor to remain consistent with the Survey Data while taking into account each individual’s performance.

At times, our compensation committee has utilized both stock options and restricted stock to provide long-term incentives, each of which is discussed in more detail below. For 2006, our compensation committee utilized only stock options to provide long-term incentives. Our compensation committee approves the individual grants for each executive. Grants are generally made at the time of employment and during March of each year in accordance with procedures established by our compensation committee, which provide that awards are priced based upon the market price on the date of grant. The amounts granted vary each year and are based on management’s performance, the Survey Data and management’s total compensation package. Previous awards and grants, whether vested or unvested, may be considered by our compensation committee in establishing the current year’s awards and grants but generally do not limit the size of the award that may be received, as we do not wish to create any disincentive for an executive to hold shares of our common stock.


Equity Incentive Plans

We may make awards to executives under our 2000 Long Term Incentive Plan (the “2000 Plan”) or our 2004 Long Term Incentive Plan (the “2004 Plan”). The 2000 Plan was approved by our stockholders on October 25, 2000, and the 2004 Plan was approved by our stockholders on April 8, 2004. On March 1, 2006, our stockholders approved an amendment to our 2004 Plan in conjunction with our acquisition of HWC that increased the number of shares available under it to 8,000,000. We refer to the 2000 Plan and the 2004 Plan collectively as the “Plans.”

Subject to certain adjustments that may be required from time to time to prevent dilution or enlargement of the rights of participants under the Plans, as of December 31, 2006, approximately 2.6 million shares were available for new grants under the Plans, and there were approximately 7.2 million shares subject to outstanding benefits under these and predecessor plans.

The Plans facilitate the issuance of future long-term incentive awards as part of our comprehensive compensation structure and are administered by a committee of non-employee directors of our board of directors, currently our compensation committee. The Plans permit the granting of awards in the form of options to purchase our common stock, shares of restricted stock, as well as shares of phantom stock that are settled in cash and cash bonuses. The grant of a cash bonus does not reduce the number of shares of common stock with respect to which awards may be granted pursuant to the Plans.

Our compensation committee from time to time designates the employees and consultants who are granted awards and the amount and type of such award. Our compensation committee has full authority to administer the Plans, including authority to interpret and construe any provision of Plans and the terms of any awards issued under it and to adopt such rules and regulations for administering the Plans as the compensation committee may deem necessary. Our compensation committee may accelerate the date on which any option granted becomes exercisable, extend the date on which any option granted ceases to be exercisable, accelerate the vesting date or issue date of a restricted stock grant, or waive any condition imposed under the Plans with respect to any share of restricted stock granted under the Plans, and accelerate the vesting date or waive any condition imposed under the Plan with respect to any share of phantom stock granted under the Plan. No person is permitted to receive in any year stock options for more than 1,000,000 shares. The 2004 Plan will expire and no awards may be made after March 25, 2014. The 2000 Plan will expire and no awards may be made after September 2, 2010. Awards outstanding under the Plans at the time of termination of the Plans will remain outstanding until they expire under the terms of the agreement governing the award, which is not longer than ten years from the date of grant.

The long-term incentive information related to the named executive officers during fiscal year 2006 is included in the Summary Compensation Table below. Additional information relating to long-term incentive awards is shown in the Grants of Plan Based Awards Table and the Outstanding Equity Awards at Fiscal Year-End Table below.

Stock Options 

An important objective of the long-term incentive program is to strengthen the relationship between the long-term value of our stock price and the potential financial gain for employees. Stock options provide executive management and key employees with the opportunity to purchase our common stock at a price fixed on the grant date regardless of future market price. A stock option becomes valuable only if our common stock price increases above the option exercise price and the holder of the option remains employed during the period required for the option to vest, thus providing an incentive for an option holder to remain employed by us. Stock options link a portion of the option holder’s compensation to stockholders’ interests by providing an incentive to increase the market price of our stock.


Option grants to senior management are generally considered annually, at the same time as grants are considered for the general eligible employee population, in March, after our year-end results become publicly available. Our practice is that the exercise price for each stock option is the market value on the date of grant, which is normally the date that our compensation committee approves the award at a meeting of the compensation committee. Generally, market value means the closing price for a share of common stock on the day of grant or, if such date is not a trading day, the last trading day preceding the day of the grant, as reported by the American Stock Exchange. With respect to employees who are not executive officers, the compensation committee may delegate its authority to make such grants to our chief executive officer by specifying the total number of shares that may be subject to grants and the circumstances under which grants may be made. All proposed stock options to new-hire employees are required to be approved by our compensation committee or chief executive officer pursuant to delegated authority. The grant date in this instance is the later date between the hire date and date of award.

The Plans provide that stock options may be either incentive stock options (“ISOs”) or nonqualified stock options (“NSOs”). We refer to NSOs and ISOs collectively as “stock options.” The term of a stock option may not exceed 10 years. Consultants are not entitled to receive ISOs. The exercise price of any NSO granted under the Plans is not permitted to be less than 50% of the fair market value of a share of common stock on the date on which such NSO is granted or the price required by law, if higher. The exercise price of any ISO may not be less than 100% of the fair market value of a share of common stock on the date on which such ISO is granted. Although the Plans permit otherwise, as a matter of practice we grant NSO’s only at the fair market value of a share of common stock on the date of grant.

Stock options generally vest and become exercisable in annual increments after the original grant date. Our recent grants have included three year vesting periods. Different vesting periods may be utilized depending on the magnitude of the grant, the terms of the executives’ employment agreement, if any, the Survey Data and our compensation objectives. Under certain circumstances stock options may vest on an accelerated basis, such as in the event that we engage in a transaction that effects a change in the control of our company. In this event, all stock options held by the executive may automatically vest and become exercisable in accordance with the terms outlined in the stock option award agreement.

The exercise prices of the stock options granted to the named executive officers during fiscal year 2006 are shown in the Grants of Plan-Based Awards Table on page 45. Additional information on these grants, including the number of shares subject to each grant, also is shown in the Grants of Plan-Based Awards Table.

Restricted Stock Awards

During 2006, we did not grant any restricted stock awards to our named executive officers or other key employees though we have in the past ,and may in the future determine that it is necessary or useful to use these awards either separately or in conjunction with stock options. Restricted stock awards are shares of our common stock that are awarded with the restriction that the executive remain with us through certain “vesting” dates. Prior to the restrictions thereon lapsing, the executive may not sell, transfer, pledge, assign or take any similar action with respect to the shares of restricted stock which he owns. Once the restrictions lapse with respect to shares of restricted stock, the executive owning such shares will hold freely-transferable shares, subject only to any restrictions on transfer contained in our certificate of incorporation, bylaws and insider trading policies, as well as any applicable federal or state securities laws. Despite the restrictions, each executive will have full voting rights and will receive any dividends or other distributions, if any, with respect to the shares of restricted stock which the executive owns.

Restricted stock awards to senior management are generally considered annually, in March, after our year-end results become available, and at the same time as grants to the general eligible employee population are considered.

Restricted stock awards provide the opportunity for capital accumulation and more predictable long-term incentive value. The purpose of granting restricted stock awards is to encourage ownership, encourage retention of our executive management and to provide an incentive for business decisions that increase value to our shareholders. Recognizing that our business is subject to significant cyclical fluctuations that may cause the market value of our common stock to fluctuate, we also intended the awards to provide an incentive for executive management to remain with us throughout business cycles.


Restricted stock awards generally vest one-fourth annually after the original award date. As a consequence, the recipients do not become unconditionally entitled to retain any of the shares of restricted stock until one year following the date of grant, subject to certain exceptions related to acceleration of vesting in the event we engage in a change-in-control transaction. Under this circumstance all restricted stock awards held by the executive may automatically vest in accordance with the terms of the restricted stock award agreement. Any unvested restricted stock awards generally are forfeited if the executive terminates employment with us.

Change in Control Provisions
 
Upon the occurrence of a change in control, all options under the Plans vest and the restrictions on all shares of restricted stock outstanding on the date on which the change in control occurs automatically terminate. This provision is intended to ensure that executives are not unduly influenced by a potential loss of unvested awards during evaluation and negotiation of a potential strategic transaction.
 
For purposes of the Plans, the term “change in control” means that term as it is defined in the federal securities laws; or the occurrence of any of the following events:
 
 
·
any person becomes, after the effective date of the Plans the “beneficial owner” (as defined in Rule 13d-3 promulgated under the Securities Exchange Act of 1934), directly or indirectly, of 20% or more of the combined voting power of our then outstanding securities; provided, that the acquisition of additional voting securities, after the effective date of the Plans, by any person who is, as of the effective date of the Plans, the beneficial owner, directly or indirectly, of 50.1% or more of the combined voting power of our then outstanding securities, will not constitute a “change in control” for purposes of the Plans;
 
 
·
a majority of individuals who are nominated by our board of directors for election to the board of directors on any date, fail to be elected to our board of directors as a direct or indirect result of any proxy fight or contested election for positions on the board of directors; or
 
 
·
the sale, lease, transfer or other disposition of all or substantially all of our assets (other than to one of our wholly owned subsidiaries).
 
The acquisition of our common stock by Oil States Energy Services, Inc., and its affiliates in connection with our acquisition of HWC did not constitute a change in control and therefore did not trigger vesting of awards outstanding at that time.
 
Retirement benefits  

We do not maintain a defined benefit pension plan or retiree medical program that covers our other executive officers. Retirement benefits to our executive officers, are currently provided through a tax-qualified profit sharing and 401(k) plan (our “Savings Plan”), in which eligible salaried employees may participate. Pursuant to the Savings Plan, employees may elect to reduce their current annual compensation up to the lesser of 15% or the statutorily prescribed limit of $15,000 in calendar year 2006 ($15,500 in 2007), plus up to an additional $5,000 in the form of “catch-up” contributions for participants near retirement age, and have the amount of any reduction contributed to the Savings Plan. Our Savings Plan is intended to qualify under sections 401(a) and 401(k) of the Internal Revenue Code, so that contributions by us or our employees to the Savings Plan and income earned on contributions are not taxable to employees until withdrawn from the Savings Plan and so that contributions will be deductible by us when made. We match 50% of the initial 6% contributed by an employee to the Savings Plan, subject to a 15% maximum based on the employee’s compensation as defined in the Savings Plan. Executives participate in the Savings Plan on the same basis as other employees.

The Savings Plan provides for 14 different investment options, for which the participant has sole discretion in determining how both the employer and employee contributions are invested. The independent trustee of the Savings Plan then invests the assets of the Savings Plan as directed by participants. The Savings Plan does not provide our employees the option to invest directly in our securities. The Savings Plan offers in-service withdrawals in the form of after-tax account distributions and age 59.5 distributions.


We believe that the Savings Plan supports the objectives of our compensation structure, including the ability to attract and retain senior and experienced mid- to late-career executives for critical positions within our organization.

We also assumed the HWC 401(k) plan in connection with the acquisition of HWC. Mr. Cobb and Mr. Aldape were covered under the HWC 401(k) plan for 2006. The HWC Plan operates on similar terms to our Savings Plan except that employees may elect to reduce their current annual compensation up to the lesser of 50% or the statutorily prescribed limit of $15,000 in calendar year 2006 ($15,500 in 2007), plus up to an additional $5,000 in the form of “catch-up” contributions for participants near retirement age, and we match 100% of the initial 4% and 50% of the next 2% contributed by an employee to the Savings Plan, subject to the Plan prescribed limits.
 
Perquisites

During 2006, our chief executive officer and chief financial officer received automobile allowances for the use of their personal vehicles while on company business. Our use of perquisites as an element of compensation is limited and is largely based on historical practices and, in the case of our chief financial officer, because we require that he commute on a regular basis from his home in Louisiana to our corporate headquarters in Houston, Texas. We do not view perquisites as a significant element of our compensation structure but do believe that they can be used in conjunction with executive compensation packages to motivate and retain qualified individuals in a competitive environment. The compensation committee annually reviews the perquisites provided to determine if they are appropriate and if any adjustments are warranted. Subsequent to year end 2006, our chief executive officer agreed to terminate his automobile allowance.

Employment contracts, termination of employment and change-in-control arrangements

On October 1, 2003, we entered into an employment agreement with Jerry Winchester, which was renewed October 1, 2006. Effective March 1, 2006, we entered into an employment agreement with Gabriel Aldape, and on April 1, 2006, we entered into an employment agreement with Dewitt Edwards. The employment agreement with Mr. Aldape was negotiated in conjunction with our acquisition of HWC on March 3, 2006. Under certain circumstances, and particularly during periods when we are engaged in transactions that may significantly alter the nature and composition of our business, board of directors and stock ownership, we believe that employment agreements and change of control arrangements may be useful in allowing an executive to continue to focus his attention on our business objectives without undue regard for the consequences the attainment of those objectives may have on his individual compensation or role with our company. We do not currently have an employment agreement or any change-in-control arrangement with Mr. Cobb.

Term of Employment Agreements

The initial term of Mr. Winchester’s employment agreement was three years, with automatic extensions of two years unless either party provides written notice six months prior to expiration of the initial term or any extension. Mr. Winchester’s employment was automatically extended for an additional two years on October 1, 2006. Mr. Edwards’s employment agreement provides for an initial term of two years, with automatic extensions of two years unless either party provides written notice three months prior to expiration of the initial term or any extension. Mr. Aldape’s employment agreement provides for an initial term of one year, with automatic extensions of one year unless either party provides written notice three months prior to expiration of the initial term or any extension.


Compensation and Benefits

The salary payable to each of the named executives is the amount set forth under the heading “2006 Base Salary” in the table above. The salary of each executive is subject to periodic review and may be increased from time to time by our compensation committee. Each executive is eligible to receive grants of stock options, restricted stock or other equity awards as determined in the discretion of our compensation committee from time to time. Each executive is entitled to participate in the APIP, to the extent that our compensation committee approves an APIP and subject to the targets established by our compensation committee and the award percentage established for each executive. Each of the executives is also entitled to reimbursement for reasonable business expenses and to participate in our medical, life, and disability insurance programs, and all other employee benefit plans which we may, from time to time, make available. Mr. Winchester’s agreement requires that we pay premiums on life insurance coverage with a benefit of not less than $1,500,000.

In conjunction with the initial execution of his employment agreement on October 1, 2003, Mr. Winchester received an option to purchase 500,000 shares of our common stock at an exercise price of $1.20 per share which vested immediately upon award on October 1, 2003. At that time Mr. Winchester also received a grant of 300,000 shares of restricted common stock, 60,000 shares of which were issued to him upon his execution of the agreement and the remainder of which were issued to him in four equal annual installments on each succeeding anniversary of the agreement. These grants were made under the 2000 and 2004 Plans. Mr. Winchester was not awarded any equity compensation during 2006. On March 1, 2007, our compensation committee approved an award to Mr. Winchester of 145,632 shares of restricted common stock under the 2004 Plan, the amount of shares approximately equal to $300,000 of value as of the date of the award. The restricted stock will vest in four equal installments on each one-year anniversary of the date of grant, provided that Mr. Winchester has been continuously employed by us through each such anniversary date.

In conjunction with Mr. Edwards’s execution of his employment agreement on April 1, 2006, Mr. Edwards received an option to purchase 120,000 shares of our common stock at an exercise price of $1.71 per share, vesting in three equal annual installments. Mr. Edwards also holds an option to purchase 300,000 shares of common stock at $1.13 per share, which he received in October 2005 as a consequence of the services he performed on our behalf as a consultant. This option vests as to 50% on the first anniversary of the grant date and as to 25% on each of the two succeeding anniversaries of the grant date. These grants were made under the 2004 Plan.

In conjunction with Mr. Aldape’s execution of his employment agreement, on March 2, 2006, Mr. Aldape received an option to purchase 150,000 shares of our common stock at an exercise price of $1.43 per share, vesting in three equal annual installments. This grant was made under the 2004 Plan.

Termination Provisions and Severance Payments

We may terminate each executive’s employment upon his death or disability, or for cause or without cause. Cause is defined to mean generally that the executive has engaged in gross negligence or willful misconduct in the performance of his duties; has refused to perform his duties; has materially breached his employment agreement; commits or is arrested or charged with any felony or crime involving moral turpitude which would impair his ability to perform his duties or impair our business reputation; or misappropriates any of our funds or property. Each executive may terminate his employment based on uncured material breaches of the material provisions of his employment agreement by us, a substantial and material reduction in the scope of his office, duties or responsibilities, or the assignment to him of duties or responsibilities that are materially inconsistent with his office.

Additionally, Messrs. Winchester and Aldape may each terminate employment within twelve months following a change in control of our company, which is defined to include a merger, consolidation or reorganization in which we are not the surviving entity (other than a transaction involving our wholly-owned subsidiaries); any sale, lease, exchange or other transfer of all or substantially all of our assets; our dissolution or liquidation; or the acquisition of 30% or more of our voting securities by any person or group (as contemplated in Section 13(d)(3) of the Securities Exchange Act of 1934) or a contested election in which persons who were directors prior to such election cease to constitute a majority of our board of directors.

If the employment of any of the executives is terminated by us for cause, such executive is not entitled to any further pay or benefits from us.


If the employment of any executive, with the exception of Mr. Cobb, is terminated by us without cause or if we fail to renew such employment agreement at the expiration of the initial term or any renewal term, or if such executive terminates his employment with good reason or following a change of control, such executive will be entitled to a lump sum payment equal to the initial term of his agreement (i.e., two years for Mr. Winchester, one years for Mr. Edwards and one year for Mr. Aldape) multiplied by his then current base salary; a payment equal to any bonus which he would have been eligible to receive in the year in which termination occurs, and the continuation of his participation in our health insurance plans, at our expense, for a time period per his agreement (i.e. twelve months for Mr. Winchester and Mr. Edwards and six months for Mr. Aldape) or (if earlier) the date on which he secures coverage under another plan providing comparable coverage. In addition, Mr. Winchester and Mr. Aldape each is entitled to receive a payment equal to six months of the automobile allowance provided under his employment agreement.

Had each of these executives terminated employment as set forth above as of December 31, 2006, they would have received payments totaling $662,000, $345,000 and $261,000, respectively. In the event that we were to have terminated these executives without cause on such date, each would have also been entitled to receive the full amount of his payment under the APIP plan for 2006.

Each employment agreement provides that for a period of one year after termination the executive will not, directly or indirectly, solicit or induce our employees, customers, or suppliers to terminate their relationships with us. Further, each executive agrees not to directly or indirectly employ any person who was employed by us during the two years preceding the date of termination and who possesses or is reasonably likely to possess confidential information belonging to us.

In our view, having the change of control and severance protections helps to maintain the named executive officer’s objectivity in decision-making and provides another vehicle to align the interests of our named executive officer with the interests of our stockholders.

Indemnification Agreements

We have entered into an indemnification agreement with each of our directors and senior executives, including the named executive officers. These agreements provide for us to, among other things, indemnify such persons against certain liabilities that may arise by reason of their status or service as directors or officers, to advance their expenses incurred as a result of a proceeding as to which they may be indemnified and to cover such person under any directors’ and officers’ liability insurance policy we choose, in our discretion, to maintain. These indemnification agreements are intended to provide indemnification rights to the fullest extent permitted under applicable indemnification rights statutes in the State of Delaware and are in addition to any other rights such person may have under our Certificate of Incorporation, Bylaws and applicable law. We believe these indemnification agreements enhance our ability to attract and retain knowledgeable and experienced executives and independent, non-management directors.

Tax deductibility

Section 162(m) of the Internal Revenue Code limits the deductibility of compensation in excess of $1 million paid to our chief executive officer and our four other highest-paid executive officers unless certain specific and detailed criteria are satisfied. We believe that it is often desirable and in our best interests to deduct compensation payable to our executive officers. However, we also believe that there are circumstances where our interests are best served by maintaining flexibility in the way compensation is provided, even if it might result in the non-deductibility of certain compensation under the Code. In this regard, we consider the anticipated tax treatment to our company and our executive officers in the review and establishment of compensation programs and payments; however, we may from time to time pay compensation to our executives that may not be deductible, including discretionary bonuses or other types of compensation outside of our plans. Our goal is for compensation paid to our executive officers to be fully deductible under the code.

Although equity awards may be deductible for tax purposes by us, the accounting rules pursuant to FAS 123(R) require that the portion of the tax benefit in excess of the financial compensation cost be recorded to paid-in-capital.


COMPENSATION COMMITTEE REPORT

The compensation committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Form 10-K.


 
Respectfully submitted,
 
THE COMPENSATION COMMITTEE
   
 
W. Richard Anderson
 
E. J. DiPaolo
 
Cindy B. Taylor
 
Robert S. Herlin, Chairman


Compensation Committee Interlocks and Insider Participation
 
In the period covered by this report, none of our executive officers served as a board member or member of a compensation committee or similar body for another company that had an executive officer serving as a member of our board of directors or compensation committee.


Summary Compensation Table

The Summary Compensation Table below sets forth certain summary information concerning the compensation earned by our named executive officers during the year ended December 31, 2006.


Name and Principal Position
  
Year
  
Salary ($)
  
Bonus ($)
  
Stock Awards ($)
  
Option Awards (1)($)
  
Non-Equity Incentive Plan Compensation Earnings (2)($)
  
Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)
  
All Other Compensation (4)($)
  
Total (%)($)
  
                                       
Jerry Winchester President and Chief Executive Officer
   
2006
   
250,000
                     
275,000
          
25,135
   
550,135
 
                                                         
Dewitt Edwards Executive Vice President
    
2006
    
216,250
               
171,323
    
222,000
          
6,668
    
616,151
  
                                                         
Gabriel Aldape Chief Financial Officer
    
2006
   
137,769(3
)
              
126,127
    
165,000
          
16,977
    
445,873
 
                                                         
Don B. Cobb Executive Vice President
    
2006
   
151,439(3
)
              
252,253
    
180,000
          
21,245(5
)
  
604,937
  
 
________________________________________
 
(1)
Please see the discussion of the assumptions made in the valuation of these awards in the financial statements and footnotes to the financial statements. We adopted the fair value recognition provisions of SFAS No. 123(R) effective January 1, 2006. Under the SFAS No. 123(R), we recorded compensation expense in our Audited Consolidated Financial Statements for the year ended December 31, 2006 with respect to the awards included in this table. See “Note B Summary of Significant Accounting Policies" in the financial statements for further discussion of the accounting treatment for these options.
 
(2)
These amounts represent cash payments under the 2006 APIP.
 
(3)
Mr. Aldape and Mr. Cobb joined the Company on March 3, 2006, and the salary amounts represent pro rated service.
 
(4)
Includes car allowances, life insurance premiums and matching contributions to 401(k)plans.
 
(5)
Includes $9,798 Algerian payroll taxes.
 

Grants of Plan Based Awards

The table below sets forth information regarding grants of plan-based awards made to our named executive officers during 2006.

       
Estimated Future Payouts Under Equity Incentive Plan Awards
                  
Name
  
Grant Date
  
Threshold
(#)
  
Target
(#)
  
Maxi-mum
(#)
  
All Other Stock Awards: Number of Shares of Stock or Units
(#)
  
All Other Option Awards: Number of Securities Underlying Options
(#)
  
Exercise or Base Price of Option Awards
(1)($ / Sh)
  
Grant Date Fair Value of Option Awards
(2)($)
  
Jerry Winchester
                                  
Dewitt Edwards (3)
    
5/22/06
          
120,000
               
120,000
  
$
1.71
    
164,538
  
Gabriel Aldape (4)
    
3/02/06
          
150,000
                
150,000
  
$
1.43
    
168,169
  
Don B. Cobb (5)
    
3/02/06
          
300,000
                
300,000
  
$
1.43
    
336,338
  

_____________________________________________________________
(1)
Represents closing market price of our common stock on the American Stock Exchange on the date of the grant.

(2)
We adopted the fair value recognition provisions of SFAS No. 123(R) effective January 1, 2006. Accordingly, the grant date fair value for awards made in 2006 are calculated in accordance with SFAS 123(R).

(3)
Effective May 22, 2006, Mr. Edwards received an option to purchase 120,000 shares of common stock, pursuant to the 2004 Long Term Incentive Plan, vesting over three years, 33% on each grant anniversary date in each of 2007, 2008, and 2009..

(4)
Effective March 2, 2006, Mr. Aldape received an option to purchase 150,000 shares of common stock pursuant to the 2004 Long Term Incentive Plan vesting over two years, with 33% vesting immediately and 33% on each grant anniversary date in each of 2007 and 2008.
 
(5)
Effective March 2, 2006, Mr. Cobb received an option to purchase 300,000 shares of common stock pursuant to the 2004 Long Term Incentive Plan vesting over two years, with 33% vesting immediately and 33% on each grant anniversary date in each of 2007 and 2008.


Outstanding Equity Awards at Fiscal Year-End

The following table summarizes the number of securities underlying outstanding plan awards for each named executive officer as of December 31, 2006.

   
Option Awards
  
Stock Awards
  
Name
  
Number of Securities Underlying Unexercised Options
(#)
Exercisable
  
Number of Securities Underlying Unexercised Options
(#)
Unexercisable
  
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options
(#)
  
Option Exercise Price
($)
  
Option Expiration Date
  
Number of Shares of Units of Stock That Have Not Vested
(#)
  
Market Value of Shares or Units of Stock That Have Not Vested
(#)
  
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested
(#)
  
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
($)
  
Jerry Winchester (3)
    
500,000
                
1.20
    
10/01/13
    
60,000(1
)
  
134,400(2
)
            
     
37,500
                
3.00
    
02/15/10
                          
Dewitt Edwards
    
150,000
    
150,000(3
)
        
1.13
    
10/12/11
                          
           
120,000(4
)
        
1.71
    
5/22/12
                          
Gabriel Aldape
    
50,000
    
100,000(5
)
        
1.43
    
3/3/12
                          
Don Cobb
    
100,000
    
200,000(6
)
        
1.43
    
3/3/12
                          


(1)
Effective October 1,2003, Mr. Winchester received a restricted stock award of 1,200,000 pre four to one split shares of common stock, pursuant to the 2000 Long Term Incentive Plan, with 20% vesting immediately and 20% on each grant anniversary date in each of 2004, 2005, 2006 and 2007.
(2)
Market value calculation is the number of shares times the closing market value on the last day of the year.
(3)
75,000 shares will vest on October 12,2007 and 75,000 shares will vest on October 12, 2008.
(4)
40,000 shares will vest on May 22, 2007, 40,000 shares will vest on May 22, 2008, and 40,000 shares will vest on May 22, 2009.
(5)
50,000 shares vested on March 3, 2007, and 50,000 shares will vest on March 3, 2008.
(6)
100,000 shares vested on March 3, 2007, and 100,000 shares will vest on March 3, 2008.
 
Option exercises and stock vested

The following table summarizes stock option exercises by our named executive officers in 2006. There were no options exercise by our named executive officers in 2006.

 
   
Stock Awards
  
Name
  
Number of Shares Acquired on Vesting
(#)
  
Value Realized on Vesting
(1)($)
  
           
Jerry Winchester
    
60,000
    
134,400
  
Dewitt Edwards
              
Gabriel Aldape
              
Don B. Cobb
              
_______________________________________________
(1)
Value realized calculation is the number of shares times the closing market value on the last day of the year.
 

Equity Compensation Plan Information

The following table sets forth certain information as of December 31, 2006 with respect to compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance.

 
Plan Category
  
Number of Securities to be Issued Upon Exercise of Outstanding Options, 
Warrants and Rights(a)
  
Weighted- Average Exercise Price of Outstanding Options, Warrants
and Rights(b)
  
  Number of Securities 
Remaining Available for Future Issuance Under Equity Compensation Plans 
(Excluding Securities Reflected in Column(a))(c)
  
Equity compensation plans approved by security holders(1)
    
6,435,000
  
$
1.27
    
2,564,000
  
Equity compensation plans not approved by security holders
                    
Total
    
6,435,000
  
$
1.27
    
2,564,000
  
 
_______________
 
(1)
Represents shares under the Boots & Coots 2004 Long Term Incentive Plan, 2006 Non-Employee Director Stock Incentive Plan, 2000 Long Term Incentive Plan and Outside Directors Option Plan.


DIRECTOR COMPENSATION

2006 Director Compensation

The table below sets forth certain information concerning the compensation earned in 2006 by our non-employee directors who served in 2006.

Name
 
Fees Earned or Paid in Cash
  
Stock Awards
  
Option Awards
  
Non-Equity Incentive Plan Compensation
  
All Other Compensation
  
Total
  
Douglas Swanson(1)
    
—
    
—
    
—
    
—
    
—
    
—
  
Cindy Taylor(1)
    
—
    
—
    
—
    
—
    
—
    
—
  
K. Kirk Krist
  
$
176,250
  
$
30,000
    
—
    
—
    
—
  
$
206,250
  
Richard Anderson
  
$
52,000
  
$
30,000
    
—
    
—
    
—
  
$
82,000
  
Robert Herlin
  
$
48,250
  
$
30,000
    
—
    
—
    
—
  
$
78,250
  
E.J. DiPaolo
  
$
44,500
  
$
30,000
    
—
    
—
    
—
  
$
74,500
  
______________________
 
 
(1)
Mr. Swanson and Mrs. Taylor have declined to receive payment for service on the board during 2006.
 
(2)
Mr. Krist was compensated under a consulting agreement for his services as non executive chairman until July 15, 2006.


COMPENSATION OF DIRECTORS

Directors who are also employed by us do not generally receive a retainer or fees for service on the board or any committees. During 2005 and through March 31, 2006, the Chairman of the Board and directors who were not employed by us were entitled to receive a fee of $5,000 for attendance at each meeting of the board, $2,500 per committee chaired and $2,500 for each special committee meeting. Both employee and non-employee directors are reimbursed for reasonable out-of-pocket expenses incurred in attending meetings of the board or committees and for other reasonable expenses related to the performance of their duties as directors.


On May 31, 2006, the Board of Directors approved a plan for outside directors that compensates each non-employee director with an annual retainer of $20,000, plus $30,000 of our common stock awarded annually, $5,000 for each board meeting attended and $1,000 for each special board meeting and committee meeting attended. In addition, the Chairman of the Board will receive an additional $25,000 annual fee, the Chairman of the Audit Committee will receive an additional $10,000 annual fee and the Chairman of the Compensation Committee will receive an additional $5,000 annual fee. The plan became effective as of the second quarter of 2006; however, the award of $30,000 worth of common stock was not made until following shareholder approval of the 2006 Non-Employee Director Stock Incentive Plan on September 19, 2006. Mr. Swanson and Mrs. Taylor elected not to receive compensation for their board service for 2006

Non-Employee Director Option Plan. On November 12, 1997, our board of directors adopted the Nonemployee Director Stock Option Plan (the "Directors' Plan") and our stockholders approved such plan on December 8, 1997. The Directors' Plan provides for the issuance each year of an option to purchase 3,750 shares of common stock to each member of the board of directors who is not an employee. The purpose of the Directors' Plan is to encourage the continued service of outside directors and to provide them with additional incentive to assist us in achieving our growth objectives. Options may be exercised over a five-year period with the initial right to exercise starting one year from the date of the grant, provided the director has not resigned or been removed for cause by the board of directors prior to such date. After one year from the date of the grant, options outstanding under the Directors' Plan may be exercised regardless of whether the individual continues to serve as a director. Options granted under the Directors' Plan are not transferable except by will or by operation of law. Options to purchase 48,000 shares of common stock have been granted under the Directors' Plan at an exercise price of $3.00 per share. In addition, each outside director was granted an option for 100,000 shares of common stock at fair market value on September 30, 2003 ($1.24). These options vested over a two-year period beginning on September 30, 2003. Through December 31, 2006, options covering an aggregate of 454,750 shares of common stock have been granted under the Non-Employee Director Option Plan and there were 415,000 shares underlying options outstanding under the plan. In 2006 stcokholders approved the 2006 Non-Employee Director Stock Incentive Plan which amends and restates the plan to permit the issuance of restricted stock as a component of the compensation for outside directors.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table sets forth, as of March 9, 2007, information regarding the ownership of our common stock owned by (i) each person (or "group" within the meaning of Section 13(d)(3) of the Security Exchange Act of 1934) known by us to own beneficially more than 5% of common stock; (ii) each or our directors, (iii) each of our named executive officers and (iv) all of our executive officers and directors of the Company as a group.
 

Name and Address of Beneficial Owner (1)
  
Amount and Nature of Beneficial Ownership
  
Percent of Class
  
           
Oil States Energy Services, Inc. 333 Clay Street, Suite 4620 Houston, Texas 77002
    
26,462,137 (2
)
  
44.5
%
               
Officers and Directors:
              
Douglas E. Swanson
    
--
    
*
  
Jerry L. Winchester  
    
923,132 (3
)
  
1.5
%
W. Richard Anderson 
    
176,912 (4
)
  
*
  
E. J. DiPaolo
    
134,109 (5
)
  
*
  
Robert S. Herlin
    
134,109 (5
)
  
*
  
K. Kirk Krist 
    
321,609 (6
)
  
*
  
Cindy B. Taylor
    
--
    
*
  
Robert G. Croyle
    
13,216 (7
)
  
*
  
Gabriel Aldape
    
100,000 (8
)
  
*
  
Dewitt H. Edwards
    
190,000 (9
)
  
*
  
Don B. Cobb
    
247,500 (10
)
  
*
  
All executive officers and directors as a group (eleven people) 
    
2,240,587 (11
)
  
3.7
%
 
________________
 
*
less than 1%

 
(1)
Unless otherwise noted, the business address for purposes hereof for each person listed is 7908 N. Sam Houston Parkway W., Suite 500, Houston, Texas 77064. Beneficial owners have sole voting and investment power with respect to the shares unless otherwise noted.
 
(2)
Oil States Energy Services Inc. is a wholly owned subsidiary of Oil States International, Inc., which may be deemed to have shared voting and investment power over such shares.
 
(3)
Includes options to purchase 537,500 shares of common stock exercisable within 60 days and 145,632 shares of restricted stock.
 
(4)
Includes options to purchase 141,250 shares of common stock exercisable within 60 days and of 30,359 shares of restricted stock.
 
(5)
Consists of options to purchase 103,750 shares of common stock exercisable within 60 days and of 30,359 shares of restricted stock.
 
(6)
Consists of options to purchase 291,250 shares of common stock exercisable within 60 days and of 30,359 shares of restricted stock.
 
(7)
Consists of 13,216 shares of restricted common stock.
 
(8)
Consists of options to purchase 100,000 shares of common stock exercisable within 60 days.
 
(9)
Consists of options to purchase 190,000 shares of common stock exercisable within 60 days.
 
(10)
Consists of options to purchase 200,000 shares of common stock exercisable within 60 days.
 
(11)
Consists of options to purchase 1,627,500 shares of common stock exercisable within 60 days and 134,652 shares of restricted common stock.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities and Exchange Act of 1934 requires our officers and directors to file reports of ownership and changes in ownership of our common stock with the Securities and Exchange Commission and the American Stock Exchange. Based upon a review of the Forms 3, 4, and 5 presented to it, the company believes that all reports were filed on a timely basis except as follows:

Mr. Aldape was late filing a Form 3 upon joining us on March 3, 2006 as Chief Financial Officer and in reporting the grant in connection with his employment of an option to purchase 150,000 shares of common stock pursuant to our 2004 Long Term Incentive Plan. The Form 3 was filed on July 17, 2006.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

In connection with the HWC acquisition, we issued a $15 million unsecured subordinated debt to Oil States Energy Services, Inc., adjusted to $21.2 million after a $6.2 million working capital adjustment. The note bears interest at a rate of 10% per annum, and requires a one-time principal payment on September 9, 2010.

Item 14. Principal Accounting Fees and Services.

During 2006 and 2005, we incurred the following fees for services performed by UHY LLP (“UHY”):

Fee Type
  
2006
  
2005
  
Audit Fees
  
$
351,000
  
$
190,000
  
Audit Related fees
    
32,000
    
46,000
  
Tax Fees
    
—
    
—
  
Other Fees
    
149,000
    
16,000
  
Total Fees
  
$
532,000
  
$
252,000
  

AUDIT FEES

Audit fees represent the aggregate fees for professional services rendered by UHY for the audit of our annual financial statements for the fiscal years ended December 31, 2006 and December 31, 2005, and the reviews of our financial statements included in our Forms 10-Q for all quarters of fiscal 2006 and 2005.

Audit Related Fees - Audit-related fees include professional services rendered by UHY for audits of our employee benefit plans.

Tax Fees - We use an independent consultant other than UHY to perform all tax related consulting work.

All Other Fees -Other fees paid to UHY during 2006 and 2005 were related to the acquisition of HWC, including the acquisition audit of HWC for the year ended December 31, 2005 that was performed in 2006 and fees for various registration statements during 2006.


Pre Approval Policies and Procedures - The Audit Committee has established written pre-approval policies that require the approval by the Audit Committee of all services provided by UHY as the principal independent accountants and all audit services provided by other independent accountants. All of the services described above provided by UHY to us were approved in accordance with the policy.

Work Performed by Principal Accountant’s Full Time, Permanent Employees - The firm of UHY LLP ("UHY") acts as our principal independent registered public accounting firm. Through December 31, 2006, UHY had a continuing relationship with UHY Advisors, Inc. (“Advisors”) from which it leased auditing staff who were full time, permanent employees of Advisors and through which UHY’s partners provide non-audit services. UHY has no full time employees and therefore, none of the audit services performed were provided by permanent full-time employees of UHY. UHY manages and supervises the audit services and audit staff, and is exclusively responsible for the opinion rendered in connection with its examination.
 
The Selection of Auditors - The Board of Directors appointed UHY as principal independent accountants to audit the financial statements of us for the years ending December 31, 2006, 2005, and 2004. The appointment was made upon the recommendation of the Audit Committee. UHY has advised that neither the firm nor any member of the firm has any direct financial interest or any material indirect interest in us. Also, during at least the past three years, neither the firm nor any member of the firm has had any connection with us in the capacity of promoter, underwriter, voting trustee, Director, officer or employee.
 
PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a)   1.     Consolidated financial statements for the three years in the period ended December 31, 2006, included after signature page.

 
2.
Financial statement schedules included in consolidated financial statements.

 
3.
Exhibit Index

 
(a)
Exhibits
 
Exhibit No. 
 
Document
3.01
—
Amended and Restated Certificate of Incorporation (Incorporated herein by reference to exhibit 3.2 of Form 8-K filed August 13, 1997.)
3.02
—
Amendment to Certificate of Incorporation (Incorporated herein by reference to exhibit 3.3 of Form 8-K filed August 13, 1997.)
3.02(a)
—
Amendment to Certificate of Incorporation (Incorporated herein by reference to exhibit 3.02(a) of Form 10-Q filed November 14, 2001.)
3.03
—
Amended Bylaws ( Incorporated herein by reference to exhibit 3.4 of Form 8-K filed August 13, 1997.)
3.03
—
Amendment to Certificate of Incorporation ( Incorporated herein by reference to exhibit 3.1 of Form 8-K filed March 3, 2006.)
4.01
—
Specimen Certificate for the Registrant’s Common Stock (Incorporated herein by reference to exhibit 3.4 of Form 8-K filed August 13, 1997.)
4.02
—
Certificate of Designation of 10% Junior Redeemable Convertible Preferred Stock (Incorporated herein by reference to exhibit 4.08 of Form 10-QSB filed May 19, 1998.)
4.03
—
Certificate of Designation of Series A Cumulative Senior Preferred Stock (Incorporated herein by reference to exhibit 4.07 of Form 10-K filed July 17, 2000.)
4.04
—
Certificate of Designation of Series B Convertible Preferred Stock (Incorporated herein by reference to exhibit 4.08 of Form 10-K filed July 17, 2000.)
4.05
—
Certificate of Designation of Series C Cumulative Convertible Junior Preferred Stock (Incorporated herein by reference to exhibit 4.09 of Form 10-K filed July 17, 2000.)
 

Exhibit No.
  
Document
4.06
—
Certificate of Designation of Series D Cumulative Junior Preferred Stock (Incorporated herein by reference to exhibit 4.10 of Form 10-K filed July 17, 2000. )
4.07
—
Certificate of Designation of Series E Cumulative Senior Preferred Stock (Incorporated herein by reference to exhibit 4.07 of Form 10-K filed April 2, 2001.)
4.08
—
Certificate of Designation of Series F Convertible Senior Preferred Stock (Incorporated herein by reference to exhibit 4.08 of Form 10-K filed April 2, 2001.)
4.09
—
Certificate of Designation of Series G Cumulative Convertible Preferred Stock (Incorporated herein by reference to exhibit 4.09 of Form 10-K filed April 2, 2001.)
4.10
—
Certificate of Designation of Series H Cumulative Convertible Preferred Stock (Incorporated herein by reference to exhibit 4.10 of Form 10-K filed April 2, 2001.)
4.11
—
Registration Rights Agreement dated March 3, 2006 between Boots & Coots International Well Control, Inc. and HWC Energy Services, Inc. (Incorporated herein by reference to exhibit 4.1 to the Current Report on Form 8-K filed March 9, 2006.)
10.01
—
1997 Incentive Stock Plan (Incorporated herein by reference to exhibit 10.33 of Form 10-Q filed August 16, 1999.)
10.02
—
Outside Directors’ Option Plan (Incorporated herein by reference to exhibit 10.4 of Form 8-K filed August 13, 1997.)
10.03
—
Halliburton Center Sublease (Incorporated herein by reference to exhibit 10.17 of Form 10-KSB filed March 31, 1998.)
10.04
—
Executive Employment Agreement of Jerry Winchester (Incorporated herein by reference to exhibit 10.13 of Form 10-K filed March 30, 2004.)
10.05
—
Form of Warrant issued to Specialty Finance Fund I, LLC and to Turner, Voelker, Moore (Incorporated herein by reference to exhibit 10.47 of Form 10-Q filed November 14, 2000.)
10.06
—
2000 Long Term Incentive Plan (Incorporated herein by reference to exhibit 4.1 of Form 8-K filed April 30, 2001.)
10.07
—
2004 Long Term Incentive Plan (Incorporated herein by reference to exhibit 4.1 of Form S-8 filed September 28, 2004.)
10.08
—
2004 Long Term Incentive Plan (Incorporated herein by reference to exhibit 4.1 of Form S-8 filed September 28, 2004.)
10.09
—
Credit and Security Agreement dated March 3, 2006 by and between Boots & Coots International Well Control, Inc. and Wells Fargo Bank, National Association. (Incorporated herein by reference to exhibit 10.10 of Form 8-K filed March 9, 2006.)
10.10
―
Transaction Agreement by and among Boots & Coots International Well Control, Inc., HWC Acquisition, LLC, HWC Merger Corporation, Hydraulic Well Control, LLC and HWC Energy Services, Inc. dated as of November 21, 2005 (Incorporated herein by reference to exhibit 2.1 to the Current Report on Form 8-K filed March 9, 2006.)
10.11
―
Subordinated Note Agreement with HWC Energy Services dated March 3, 2006 (Incorporated herein by reference to exhibit 4.1 to the Current Report on Form 8-K filed March 9, 2006.)
10.12
―
Executive Employment Agreement of Gabriel Aldape (Incorporated herein by reference to exhibit 10.1 on Form 10-Q filed August 14, 2006.)
10.13
―
Executive Employment Agreement of Dewitt H. Edwards (Incorporated herein by reference to exhibit 10.1 on Form 8-K filed July 7, 2006.)
10.14
―
2004 Long Term Incentive Plan 2,000,000 Share Registration (Incorporated herein by reference to exhibit 4.1 of Form S-8 filed November 14, 2006.)
10.15
—
2006 Non-Employee Directors Stock Incentive Plan (Incorporated herein by reference to exhibit 4.1 of Form S-8 filed November 14, 2006.).
 
 
 Exhibit No.
  
 Document
10.16
  
Amendment to Executive Employment Agreement of Jerry Winchester (Incorporated herein by reference to item 5.02 on Form 8-K filed March 7, 2007.)
*10.17
—
Amendment 1 to the Credit and Security Agreement dated March 3, 2006 by and between Boots & Coots International Well Control, Inc. and Wells Fargo Bank, National Association.
*10.18
—
*10.19
—
*21.01
—
*23.1
―
Consent of UHY LLP 
*31.1
―
*31.2
―
*32.1
―
*32.2
―

*Filed herewith


SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
BOOTS & COOTS INTERNATIONAL WELL
 
CONTROL, INC.
     
 
By:
/s/ Jerry Winchester
   
Jerry Winchester
   
Chief Executive Officer

 
Date: March 23, 2007
 
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.

Signature
  
Title
  
Date
         
By: /s/ DOUGLAS E. SWANSON
  
Chairman of the Board of Directors
  
March 23, 2007
Douglas E. Swanson
  
 
    
         
By: /s/ JERRY WINCHESTER
 
Chief Executive Officer and Director
  
March 23, 2007
Jerry Winchester
  
 
    
         
By: /s/ GABRIEL ALDAPE
  
Chief Financial Officer
  
March 23, 2007
Gabriel Aldape
        
         
By: /s/ ROBERT HERLIN
  
Director
  
March 23, 2007
Robert Stevens Herlin
        
         
By: /s/ E.J. DIPAOLO 
  
Director
  
March 23, 2007
E.J. DiPaolo
        
         
By: /s/ W. RICHARD ANDERSON
  
Director
  
March 23, 2007
W. Richard Anderson
        
         
By: /s/ K. KIRK KRIST 
  
Director
  
March 23, 2007
K. Kirk Krist
        
         
By: /s/ CINDY B. TAYLOR
  
Director
  
March 23, 2007
Cindy B. Taylor
        
         
By: /s/ ROBERT G. CROYLE
  
Director
  
March 23, 2007
Robert G. Croyle
        
 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 

To the Board of Directors and Shareholders of
Boots & Coots International Well Control, Inc.

We have audited the accompanying consolidated balance sheets of Boots & Coots International Well Control, Inc. and subsidiaries (the “Company”) as of December 31, 2006 and 2005, and the related consolidated statements of operations, cash flows and stockholders' equity for each of the three years in the period ended December 31, 2006. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Boots & Coots International Well Control, Inc. and subsidiaries as of December 31, 2006 and 2005, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.
 
As discussed in Note B to the consolidated financial statements, effective January 1, 2006 the Company changed its method of accounting for share based compensation.


/s/ UHY LLP

Houston, Texas
March 23, 2007

 
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.

CONSOLIDATED BALANCE SHEETS
(in thousands except share and per share amounts)

ASSETS

 
 
  
December 31,
2006
  
December 31,
2005
  
           
CURRENT ASSETS:
          
Cash and cash equivalents
  
$
5,033
  
$
2,564
  
Restricted cash
    
303
    
30
  
Receivables — net of allowance for doubtful accounts of $356 and $345 at December 31, 2006 and 2005
    
41,319
    
6,142
  
Inventory
    
965
    
—
  
Prepaid expenses and other current assets
    
4,727
    
1,862
  
Total current assets
    
52,347
    
10,598
  
PROPERTY AND EQUIPMENT, net
    
43,790
    
2,462
  
GOODWILL
    
4,393
    
—
  
OTHER ASSETS
    
487
    
1,707
  
Total assets
  
$
101,017
  
$
14,767
  
               
LIABILITIES AND STOCKHOLDERS' EQUITY
               
CURRENT LIABILITIES:
              
Current maturities of long-term debt
  
$
1,940
  
$
2,250
  
Current portion of accrued interest
    
—
    
259
  
Accounts payable
    
7,475
    
376
  
Foreign income tax payable
    
5,020
    
585
  
Accrued liabilities
    
12,400
    
3,563
  
Total current liabilities
    
26,835
    
7,033
  
               
LONG-TERM DEBT AND NOTES PAYABLE, net of current maturities……
    
29,492
    
3,600
  
ACCRUED INTEREST, net of current portion
    
—
    
339
  
DEFERRED TAXES
    
4,520
    
—
  
OTHER LIABILITIES
    
1,748
    
—
  
               
Total liabilities
    
62,595
    
10,972
  
               
COMMITMENTS AND CONTINGENCIES
    
—
    
—
  
               
STOCKHOLDERS' EQUITY:
              
Preferred stock ($.00001 par value, 5,000,000 shares authorized, 0 and 53,000 shares issued and outstanding at December 31, 2006 and 2005, respectively)
    
—
    
—
  
Common stock ($.00001 par value, 125,000,000 shares authorized, 59,186,000 and 29,594,000 shares issued and outstanding at December 31, 2006 and 2005, respectively)
    
1
    
—
  
Additional paid-in capital
    
94,479
    
71,859
  
Deferred Compensation
    
—
    
(225
)
Accumulated other comprehensive loss
    
(1,234
)
  
(1,234
)
Accumulated deficit
    
(54,824
)
  
(66,605
)
Total stockholders' equity
    
38,422
    
3,795
  
Total liabilities and stockholders' equity
  
$
101,017
  
$
14,767
  

See accompanying notes to consolidated financial statements.


BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share and share amounts)

 
  
Year Ended December 31,
2006
  
Year Ended December 31,
2005
  
Year Ended December 31,
2004
  
               
REVENUES
  
$
97,030
  
$
29,537
  
$
24,175
  
                     
COST OF REVENUES, excluding depreciation and amortization
    
52,281
    
14,488
    
11,929
  
                     
Gross Margin
    
44,749
    
15,049
    
12,246
  
                     
OPERATING EXPENSES
    
15,597
    
7,098
    
6,921
  
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    
4,118
    
2,674
    
3,370
  
FOREIGN CURRENCY TRANSLATION
    
259
    
—
    
—
  
DEPRECIATION AND AMORTIZATION
    
4,883
    
714
    
889
  
     
24,857
    
10,486
    
11,180
  
                     
OPERATING INCOME
    
19,892
    
4,563
    
1,066
  
                     
INTEREST EXPENSE & OTHER, NET
    
2,860
    
655
    
864
  
                     
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
    
17,032
    
3,908
    
202
  
                     
INCOME TAX EXPENSE
    
5,867
    
1,129
    
492
  
                     
INCOME (LOSS) FROM CONTINUING OPERATIONS
  
$
11,165
  
$
2,779
  
$
(290
)
                     
INCOME FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES
    
—
    
—
    
42
  
                     
NET INCOME (LOSS)
  
$
11,165
  
$
2,779
  
$
(248
)
                     
STOCK AND WARRANT ACCRETIONS
    
—
    
—
    
(13
)
PREFERRED DIVIDEND REQUIREMENTS
    
616
    
(874
)
  
(735
)
                     
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS
  
$
11,781
  
$
1,905
  
$
(996
)
                     
BASIC INCOME (LOSS) PER COMMON SHARE:
                    
Continuing operations
  
$
0.22
  
$
0.06
  
$
(0.04
)
Discontinued operations
  
$
—
  
$
—
  
$
—
  
Net income (loss)
  
$
0.22
  
$
0.06
  
$
(0.04
)
                     
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING BASIC
    
53,772,000
    
29,507,000
    
28,142,000
  
                     
DILUTED INCOME (LOSS) PER COMMON SHARE:
                    
Continuing operations
  
$
0.21
  
$
0.06
  
$
(0.04
)
Discontinued operations
  
$
—
  
$
—
  
$
—
  
Net income (loss)
  
$
0.21
  
$
0.06
  
$
(0.04
)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING DILUTED
    
55,036,000
    
31,374,000
    
28,142,000
  

See accompanying notes to consolidated financial statements.

 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 2006, 2005 and 2004
(in Thousands)

                       
Accumulated
      
Total
  
   
Preferred Stock
  
CommonStock
  
Additional Paid in
  
Accumulated
  
Other Comprehensive
  
Deferred
  
Stockholder’s
  
   
Shares
  
Amount
  
Shares
  
Amount
  
Capital
  
Deficit
  
Loss
  
Compensation
  
Equity
  
BALANCES at December 31, 2003
   
53
  
$
—
    
27,300
  
$
—
  
$
68,603
  
$
(67,514
)
$
(439
)
$
(270
)
$
380
  
Common stock options issued for services
    
—
    
—
    
—
    
—
    
72
    
—
    
—
    
—
    
72
  
Common stock issued for debt refinancing
    
—
    
—
    
1,250
    
—
    
1,088
    
—
    
—
    
—
    
1,088
  
Common stock issued for services
    
—
    
—
    
250
    
—
    
237
    
—
    
—
    
—
    
237
  
Restricted common stock issued
    
—
    
—
    
60
    
—
    
—
    
—
    
—
    
—
    
—
  
Preferred stock conversion to common stock
    
—
    
—
    
579
    
—
    
—
    
—
    
—
    
—
    
—
  
Preferred stock dividends accrued
    
—
    
—
    
—
    
—
    
735
    
(735
)
  
—
    
—
    
—
  
Warrant discount accretion
    
—
    
—
    
—
    
—
    
13
    
(13
)
  
—
    
—
    
—
  
Deferred compensation
    
—
    
—
    
—
    
—
    
140
    
—
    
—
    
(140
)
  
—
  
Amortization of deferred compensation
    
—
    
—
    
—
    
—
    
—
    
—
    
—
    
85
    
85
  
Net loss
    
—
    
—
    
—
    
—
    
—
    
(248
)
  
—
    
—
    
(248
)
Foreign currency translation loss
    
—
    
—
    
—
    
—
    
—
    
—
    
(434
)
  
—
    
(434
)
Comprehensive loss
    
—
    
—
    
—
    
—
    
—
    
—
    
—
    
—
    
(682
)
BALANCES at December 31, 2004  
    
53
  
$
—
    
29,439
  
$
—
  
$
70,888
  
$
(68,510
)
$
(873
)
$
(325
)
$
1,180
  
Common stock options exercised
    
—
    
—
    
35
    
—
    
23
    
—
    
—
    
—
    
23
  
Restricted common stock issued
    
—
    
—
    
120
    
—
    
—
    
—
    
—
    
—
    
—
  
Preferred stock dividends accrued
    
—
    
—
    
—
    
—
    
874
    
(874
)
  
—
    
—
    
—
  
Stock Options and restricted stock grant expense
    
—
    
—
    
—
    
—
    
74
    
—
    
—
    
—
    
74
  
Amortization of deferred compensation
    
—
    
—
    
—
    
—
    
—
    
—
    
—
    
100
    
100
  
Net income
    
—
    
—
    
—
    
—
    
—
    
2,779
    
—
    
—
    
2,779
  
Foreign currency translation loss
    
—
    
—
    
—
    
—
    
—
    
—
    
(361
)
  
—
    
(361
)
Comprehensive income
    
—
    
—
    
—
    
—
    
—
    
—
    
—
    
—
    
2,418
  
BALANCES at December 31, 2005
   
53
  
$
—
    
29,594
  
$
—
  
$
71,859
  
$
(66,605
)
$
(1,234
)
$
(225
)
$
3,795
  
Common stock options exercised
    
—
    
—
    
836
    
—
    
639
    
—
    
—
    
—
    
639
  
Warrants exercised
    
—
    
—
    
64
    
—
    
—
    
—
    
—
    
—
    
—
  
Restricted common stock issued
    
—
    
—
    
129
    
—
    
120
    
—
    
—
    
—
    
120
  
Common stock issued for services
    
—
    
—
    
15
    
—
    
21
    
—
    
—
    
—
    
21
  
Common stock issued for acquisition ofbusiness
    
—
    
—
    
26,462
    
1
    
26,461
    
—
    
—
    
—
    
26,462
  
Preferred stock dividends reversed
    
—
    
—
    
—
    
—
    
(616
)
  
616
    
—
    
—
    
—
  
Reversal of deferred compensation with adoptionof SFAS 123(R)
    
—
    
—
    
—
    
—
    
(225
)
  
—
    
—
    
225
    
—
  
Stock based compensation
    
—
    
—
    
150
    
—
    
1,519
    
—
    
—
    
—
    
1,519
  
Redemption of preferred stock and conversion ofpreferred stock to common stock
    
(53
)
  
—
    
1,936
    
—
    
(5,299
)
  
—
    
—
    
—
    
(5,299
)
Net income
    
—
    
—
    
—
    
—
    
—
    
11,165
    
—
    
—
    
11,165
  
BALANCES at December 31, 2006
 
$
—
  
$
—
    
59,186
  
$
1
  
$
94,479
  
$
(54,824
)
$
(1,234
)
$
—
  
$
38,422
  
 
See accompanying notes to consolidated financial statements.
 
 
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

 
  
Year Ended December 31,
2006
  
Year Ended December 31,
2005
  
Year Ended December 31,
2004
  
CASH FLOWS FROM OPERATING ACTIVITIES:
              
Net income (loss)
  
$
11,165
  
$
2,779
  
$
(248
)
Adjustments to reconcile net income (loss) to net cash provided operating activities
                    
Depreciation and amortization
    
4,883
    
714
    
889
  
Deferred tax provision (credit)
    
(590
)
  
98
    
—
  
Stock based compensation
    
1,519
    
—
    
—
  
Bad debt expense (recovery)
    
(230
)
  
(144
)
  
108
  
Troubled debt restructuring interest accrual
    
(598
)
  
—
    
—
  
Amortization of deferred loan cost
    
809
    
202
    
75
  
Other non-cash charges
    
143
    
174
    
85
  
Gain on sale of assets
    
(516
)
  
(14
)
  
(9
)
Equity issued for services and settlements
    
—
    
—
    
309
  
Changes in operating assets and liabilities:
                    
Receivables
    
(20,842
)
  
4,342
    
2,787
  
Inventory
    
(128
)
  
—
    
—
  
Prepaid expenses and current assets
    
(2,782
)
  
(42
)
  
(308
)
Other assets
    
412
    
(368
)
  
(789
)
Accounts payable and accrued liabilities
    
11,155
    
(5,077
)
  
1,712
  
Change in net operating assets of discontinued operations
    
—
    
—
    
(206
)
Net cash provided by operating activities
    
4,400
    
2,664
    
4,405
  
CASH FLOWS FROM INVESTING ACTIVITIES:
                    
Cash acquired in connection with acquisition
    
4,366
    
—
    
—
  
Property and equipment additions
    
(6,882
)
  
(306
)
  
(491
)
Proceeds from sale of property and equipment
    
829
    
16
    
40
  
Net cash used in investing activities
    
(1,687
)
  
(290
)
  
(451
)
CASH FLOWS FROM FINANCING ACTIVITIES:
                    
Payments of senior debt
    
(750
)
  
—
    
—
  
Payment of subordinated debt
    
(5,100
)
  
(900
)
  
(3,635
)
Payments of term loan
    
(1,351
)
  
—
    
—
  
Revolving credit borrowings
    
1,917
    
—
    
—
  
Proceeds from term loan
    
9,700
    
—
    
—
  
Redemption of preferred stock
    
(5,299
)
  
—
    
—
  
Common stock options exercised
    
639
    
23
    
—
  
Net cash used in financing activities
    
(244
)
  
(877
)
  
(3,635
)
Impact of foreign currency on cash
    
—
    
(361
)
  
(434
)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
2,469
    
1,136
    
(115
)
CASH AND CASH EQUIVALENTS, beginning of year
    
2,564
    
1,428
    
1,543
  
CASH AND CASH EQUIVALENTS, end of year
  
$
5,033
 
$
2,564
 
$
1,428
 
SUPPLEMENTAL CASH FLOW DISCLOSURES:
                    
Cash paid for interest
  
$
2,874
  
$
593
  
$
1,421
  
Cash paid for income taxes
    
4,593
    
170
    
1,379
  
NON-CASH INVESTING AND FINANCING ACTIVITIES:
                    
Stock and warrant accretions
    
—
    
—
    
13
  
Deferred Compensation
    
—
    
—
    
140
  
Preferred stock dividends accrued (reversed)
    
(616
)
  
874
    
735
  
Common stock issued for debt modification
    
—
    
—
    
1,088
  
Common stock issued for acquisition of business
    
26,462
    
—
    
—
  
Conversion of preferred stock
    
1,936
    
—
    
—
  
Long-term notes issued for acquisition of business
    
21,166
    
—
    
—
  

See accompanying notes to consolidated financial statements.


BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A.    Business and Organization

Boots & Coots International Well Control, Inc. and subsidiaries (the “Company”), is a global-response oil and gas service company that specializes in responding to and controlling oil and gas well emergencies, including blowouts and well fires. Through our participation in the proprietary insurance program WELLSURE®, we also provide lead contracting and high-risk management services, under critical loss scenarios, to the program’s insured clients. Additionally, the WELLSURE® program designates that we provide certain pre-event prevention and risk mitigation services defined under the program. We also provide snubbing and other high-risk well control management services, including pre-event planning, training and consulting.

In the past, during periods of low critical events, resources dedicated to emergency response were underutilized or, at times, idle, while the fixed costs of operations continued to be incurred, contributing to significant operating losses. To mitigate these consequences, we began to actively expand our non-event service capabilities, with particular focus on well intervention services. Well intervention services include engineering activities, well plan reviews, site audits, and rig inspections. More specifically, we developed the WELLSUREÒ program, which is now providing more predictable and increasing service fee income, and began marketing our SafeGuard program, which provides a full range of prevention services domestically and internationally.

B.    Significant Accounting Policies

Consolidation - The accompanying consolidated financial statements include the financial transactions and accounts of us and our subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation.

Cash and Cash Equivalents - We consider all unrestricted highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. At December 31, 2006, restricted cash totaled $303,000 and relates to letters of credit.

Revenue Recognition - Revenue is recognized on our service contracts primarily on the basis of contractual day rates as the work is completed. Revenue and cost from product and equipment sales is recognized upon delivery, customer acceptance and contract completion.

Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, related workman’s compensation insurance, supplies, tools, repairs and depreciation costs. General and administrative costs are charged to expense as incurred. Fixed assets are depreciated over their useful lives. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.

We recognize revenues under the WELLSURE® program as follows: (a) initial deposits for pre-event type services are recognized ratably over the life of the contract period, typically twelve months (b) revenues and billings for pre-event type services provided are recognized when the insurance carrier has billed the operator and the revenues become determinable and (c) revenues and billings for contracting and event services are recognized based upon our predetermined day rates and sub-contracted work as incurred.  

Allowance for Doubtful Accounts - We perform ongoing evaluations of our customers and generally do not require collateral. We assess our credit risk and provide an allowance for doubtful accounts for any accounts which we deem doubtful of collection.
 
Property and Equipment - Property and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the respective assets as follows: buildings and improvements (15-31 years), well control and firefighting equipment (8 years), shop and other equipment (8 years), vehicles (5 years) and office equipment and furnishings (5 years).

Expenditures for repairs and maintenance are charged to expense when incurred. Expenditures for major renewals and betterments, which extend the useful lives of existing equipment, are capitalized and depreciated over the remaining useful life of the equipment. Upon retirement or disposition of property and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the statement of operations.


Impairment of Long Lived Assets - In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, we evaluate the recoverability of property and equipment, and other long-lived assets, if facts and circumstances indicate that any of those assets might be impaired. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the asset’s carrying amount to determine if an impairment of such property is necessary. The effect of any impairment would be to expense the difference between the fair value of such property and its carrying value. Based on the Company’s review, no such impairment indicators exist for the periods presented.

Goodwill - In accordance with the requirements of SFAS No. 142, “Goodwill and Other Intangible Assets”, goodwill is not being amortized, but is being reviewed at least annually for impairment or more often if changes in facts and circumstances indicate a loss in value may have occurred. Goodwill is entirely associated with the March 2006 acquisition of the hydraulic well control business (HWC) of Oil States International, Inc. and is further described in Note E. The goodwill has been assigned to the Well Intervention segment which is deemed the reporting unit for this review. Fair value of the reporting unit is determined based on internal management estimates using a combination of discounted cash flows and market comparable companies. We perform the annual review for possible impairment in the fourth calendar quarter of each year.  No goodwill impairment was recognized based on the evaluations performed.
 
Foreign currency—Effective January 1, 2006, and related to our acquisition of the hydraulic well control business of Oil States International, Inc. (see “Note E—Business Combination” for more information), we changed our functional currency in Venezuela from the Venezuelan Bolivar to the U.S. Dollar. This change allows us to have one consistent functional currency after the acquisition. Accumulated other comprehensive loss reported in the consolidated statements of stockholders’ equity before January 1, 2006 totaled $1.2 million and consisted solely of the cumulative foreign currency translation adjustment in Venezuela prior to changing our functional currency. In accordance with SFAS No. 52, “Foreign Currency Translation,” the currency translation adjustment recorded up through the date of the change in functional currency will only be adjusted in the event of a full or partial disposition of our investment in Venezuela. The accounts of foreign subsidiaries have been translated into U.S. Dollars in accordance with SFAS No. 52, “Foreign Currency Translation.” Accordingly, foreign currency is translated to U.S. dollars for financial purposes by using the U.S. Dollar as the functional currency and exchange gains and losses, as well as translation gains and losses, are reported in income and expenses. These currency gains or losses are reported as other operating expenses. Monetary balance sheet accounts are translated using the current exchange rate in effect at the balance sheet date for assets and liabilities, and for non-monetary items, the accounts are translated at the historical exchange rate in effect when acquired. Revenues and expenses are translated at the average exchange rate for the period.

Income Taxes - We account for income taxes pursuant to the SFAS No. 109 “Accounting For Income Taxes,” which requires recognition of deferred income tax liabilities and assets for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. Deferred income tax liabilities and assets are determined based on the temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and available tax carry forwards. The domestic tax liabilities are offset by the usage of our net domestic operating loss carry forwards. The provision for tax expense includes foreign income taxes from Algeria and Venezuela and a minimal amount of domestic alternative minimum tax liability (See Note G.).

Earnings Per Share - Basic and diluted income (loss) per common share is computed by dividing net income (loss) attributable to common stockholders by the weighted average common shares outstanding. Diluted income (loss) per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period increased by the number of additional common shares that would have been outstanding if the potential common shares had been issued.

 
The weighted average number of shares used to compute basic and diluted earnings per share for the three years ended December 31, 2006, 2005 and 2004 is illustrated below:
 
 
  
Years Ended December 31
  
 
  
2006
  
2005
  
2004
  
   
(in thousands)
  
Numerator:
              
For basic and diluted earnings per share:
                    
Net income (loss) attributable to common stockholders
  
$
11,781
  
$
1,905
  
$
(996
)
Denominator:
                    
For basic earnings per share- Weighted-average shares
    
53,772
    
29,507
    
28,142
  
Effect of dilutive securities:
                    
Convertible Preferred stock
    
—
    
—
    
—
  
Stock options and warrants
    
1,264
    
1,867
    
—
  
Denominator:
                    
For diluted earnings per share - Weighted-average shares
    
55,036
    
31,374
    
28,142
  

For the year ended December 31, 2004 we incurred a net loss attributable to common stockholders. As a result, the potential dilutive effect of stock options, stock warrants and convertible securities was not included in the calculation of diluted earnings per share because to do so would have been antidilutive for 2004.

The exercise price of our stock options and stock warrants varies from $0.67 to $3.00 per share. Assuming that the exercises and conversions are made at the lowest price provided under the terms of their agreements, the maximum number of potentially dilutive securities at December 31, 2006, 2005 and 2004 would include: (1) 6,435,200, 5,814,690 and 5,202,440 common shares respectively, issuable upon exercise of stock options, (2) 713,245, 2,582,033 and 3,067,355, common shares respectively, issuable upon exercise of stock purchase warrants, (3) 60,000, 270,000 and 330,000 shares of stock to be issued as compensation over a four year vesting period as earned, (4) zero, 98,067 and 88,867 common shares, respectively, issuable upon conversion of convertible preferred stock. The actual numbers may be substantially less depending on the market price of our common stock at the time of conversion.

Share-based compensation - We have adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, consultants and directors; including employee stock options, based on estimated grant date fair values. SFAS No. 123R supersedes our previous accounting under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) for periods beginning in fiscal 2006. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to SFAS No. 123R. We have applied the provisions of SAB 107 in our adoption of SFAS No. 123R.
 
We adopted SFAS No. 123R using the modified prospective transition method, which requires the application of the accounting standard as of January 1, 2006, the first day of our fiscal year 2006. In accordance with the modified prospective transition method, our condensed consolidated financial statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS No. 123R. The balance previously reflected as deferred compensation was eliminated against additional paid-in capital upon adoption of SFAS No. 123R. The effect on our net earnings and earnings per share before and after application of the fair value recognition provision of SFAS No. 123R to stock-based employee compensation for the year ended December 31, 2006 is illustrated below:

   
Year Ended December 31, 2006 (amounts in thousands, except per share data)
  
   
Net Earnings Before Application of SFAS No. 123R
  
Effect of Stock-Based Compensation Expense
  
Net Earnings as Reported
  
Income before income taxes
  
$
18,320
  
$
1,288
  
$
17,032
  
Provision for income taxes
    
5,867
   
—
    
5,867
  
Preferred dividends
    
(616
)
  
—
    
(616
)
Net income attributable to common stockholders
    
13,069
    
1,288
    
11,781
  
Earnings per share:
                    
Basic
    
0.24
    
0.02
    
0.22
  
Diluted
    
0.23
    
0.02
    
0.21
  
 
 
The pro forma effect on net earnings (loss) and net earnings (loss) per share as if we had applied the fair value recognition provision of SFAS No. 123R, to stock-based employee compensation for the year ended December 31, 2005 is illustrated below:
 
   
Year ended
December 31, 2005
  
Year ended
December 31, 2004
  
Net income (loss) attributable to common stockholders as reported
  
$
1,905
  
$
(996
)
Less total stock based employee compensation expense determined under fair value based method for all awards, net of tax related effects
    
(929
)
  
(382
)
Pro forma net (loss) attributable to common stockholders
  
$
976
  
$
(1,378
)
Basic net income (loss) per share:
              
As reported
  
$
0.06
  
$
(0.04
)
Pro forma
  
$
0.03
  
$
(0.05
)
Diluted net income (loss) per share:
              
As reported
  
$
0.06
  
$
(0.04
)
Pro forma
  
$
0.03
  
$
(0.05
)

We used the Black-Scholes option pricing model to estimate the fair value of options on the date of grant. The following weighted average assumptions were applied in determining the fair values of option grants:
 
   
Year Ended December 31,
  
   
2006
  
2005
  
2004
  
Risk-free interest rate
    
4.64
%
  
3.6
%
  
3.4
%
Expected dividend yield
    
―
    
―
    
―
  
Expected option life
    
6.3 yrs
    
3.0 yrs
    
3.0 yrs
  
Expected volatility
    
96.8
%
  
79.3
%
  
62.4
%
Weighted average fair value of options granted at market value
  
$
1.19
  
$
0.56
  
$
0.33
  
Forfeiture rate
    
3.04
%
  
0.0
%
  
0.0
%

Fair Value of Financial Instruments - The Company’s financial instruments consist of cash and cash equivalents, receivables, payables, and debt. The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short term nature of those instruments. We use available market rates to estimate the fair value of debt.

Use of Estimates - The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires our management to make estimates and assumptions that affect the amounts reported in these consolidated financial statements and accompanying notes. Significant estimates made by management include the allowance for doubtful accounts, the valuation allowance for deferred tax assets and assumptions used in share based compensation valuation models.

Reclassifications - Certain reclassifications have been made to the prior period consolidated financial statements to conform to the current year presentation.


C.    Recently Issued Accounting Standards

In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“ FIN48”), an interpretation of FASB Statement No. 109. FIN48 establishes the threshold for recognizing the benefits of tax-return positions in the financial statements as more-likely-than-not to be sustained by the taxing authorities, and prescribes a measurement methodology for those positions meeting the recognition threshold. The Company has not yet determined the estimated impact on its financial condition or results of operations, if any, of adopting FIN48 which becomes effective for the fiscal year beginning after December 15, 2006.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current practice. The Company has not yet determined the estimated impact on its financial condition or results of operations, if any, of adopting SFAS No. 157, which becomes effective for the fiscal years beginning after November 15, 2007.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115.” SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments. The Company has not yet determined the estimated impact on its financial condition or results of operations, if any, of adopting SFAS No. 159, which becomes effective for the fiscal years beginning after November 15, 2007.


D.
Detail of Certain Balance Sheet Accounts:

   
December 31,
  
 
  
2006
  
2005
  
Accounts receivable, net:
          
Trade
  
$
27,301
  
$
4,676
  
Unbilled Revenue
    
13,656
    
1,772
  
Other
    
718
    
39
  
Allowance for doubtful accounts
    
(356
)
  
(345
)
   
$
41,319
  
$
6,142
  

 
   
December 31,
  
   
2006
  
2005
  
Property and equipment, net:
          
Land
  
$
571
  
$
136
  
Leasehold
    
2,895
   
734
  
Equipment
    
35,840
    
114
  
Firefighting equipment
    
5,841
    
6,115
  
Furniture, fixtures and office
    
1,316
    
970
  
Computer systems
    
568
    
568
  
Vehicles
    
1,308
    
612
  
Construction in progress
    
5,995
    
−
  
               
Total property and equipment
    
54,334
    
9,249
  
Less: Accumulated depreciation
    
(10,544
)
  
(6,787
)
 
  
$
43,790
  
$
2,462
  

Depreciation expense was $4,883,000, $714,000 and $889,000 for the years ended December 31, 2006, 2005 and 2004, respectively.

 
   
December 31,
 
 
  
2006
  
2005
  
Prepaid expenses and other assets:
          
Prepaid taxes
  
$
1,509
  
$
203
  
Prepaid insurance
    
1,794
    
546
  
Other prepaid expenses and current assets
    
1,424
    
1,113
  
 
  
$
4,727
  
$
1,862
  
 
   
December 31,
  
 
  
2006
  
2005
  
Accrued liabilities:
          
Accrued compensation and benefits
  
$
4,914
  
$
860
  
Accrued insurance
    
1,046
    
-
  
Accrued taxes, other than foreign income tax
    
2,617
    
706
  
Other accrued liabilities
    
3,823
    
1,997
  
 
  
$
12,400
  
$
3,563
  

E.
Business Combination

On March 3, 2006, we acquired the hydraulic well control business (HWC) of Oil States International, Inc. (NYSE: OIS). The transaction was effective for accounting and financial purposes as of March 1, 2006. As consideration for the acquisition, we issued approximately 26.5 million shares, or approximately 45%, of our common stock and subordinated promissory notes with an aggregate balance of $15 million, adjusted to $21.2 million during the quarter ended June 30, 2006 to reflect a $6.2 million adjustment for working capital acquired.

In accordance with SFAS No. 141, “Business Combinations”, we used the purchase method to account for this transaction. Under the purchase method of accounting, the assets acquired and liabilities assumed from HWC were recorded at the date of acquisition at their respective fair values. In connection with the acquisition, we engaged a valuation firm to assist in the determination of the fair value of certain assets and liabilities of HWC. The purchase price, including direct acquisition costs, exceeded the fair value of acquired assets and assumed liabilities, resulting in the recognition of goodwill of approximately $4.4 million. The total purchase price, including direct acquisition costs of $1.4 million less cash acquired of $4.4 million, was $44.7 million. The total purchase price decreased by $0.4 million in the quarter ended June 30, 2006 due to the settlement of the working capital adjustment, pursuant to the purchase agreement. The operating results of HWC are included in the condensed consolidated financial statements subsequent to the March 1, 2006 effective date.
The fair values of the assets acquired and liabilities assumed effective March 1, 2006 were as follows:

Current assets (excluding cash) 
  
$
15,298
  
Property and equipment 
  
$
39,645
  
Goodwill 
  
$
4,393
  
Total assets acquired 
  
$
59,336
  
         
Current liabilities 
  
$
9,572
  
Deferred taxes 
  
$
5,110
  
Total liabilities assumed 
  
$
14,682
  
         
Net assets acquired 
  
$
44,654
  

      The following unaudited pro forma financial information presents the combined results of operations of the Company and HWC as if the acquisition had occurred as of the beginning of the periods presented. The unaudited pro forma financial information is not necessarily indicative of what our consolidated results of operations actually would have been had we completed the acquisition at the dates indicated. In addition, the unaudited pro forma financial information does not purport to project the future results of operations of the combined company.

 
 
 
  
Year Ended
December 31,
  
 
  
2006
  
2005
  
   
 (unaudited)
  
Revenue 
  
$
105,571
  
$
69,654
  
Operating Income 
  
$
21.556
  
$
10,354
  
Net Income 
  
$
12,097
  
$
3,925
  
Basic Earnings Per Share 
  
$
0.21
  
$
0.07
  
Diluted Earnings Per Share 
  
$
0.20
  
$
0.07
  
               
Basic Shares Outstanding
    
58,569
    
58,505
  
Diluted Shares Outstanding
    
59,833
    
60,372
  


F.
Long-Term Debt and Notes Payable:

Long-term debt and notes payable consisted of the following:

   
December 31,
 
   
2006
  
2005
  
           
U.S. revolving credit facility, with available commitments up to $10.3 million, a borrowing base of $7.9 million and an average interest rate of 8.1% for the year ended December 31, 2006
  
$
1,917
  
$
−
  
U.S. term credit facility with initial borrowings of $9.7 million, payable over 60 months and an average interest rate of 8.6% for the year ended December 31, 2006
    
8,349
    
−
  
Subordinated unsecured debt issued to Oil States Energy Services, Inc. with a fixed interest rate of 10%
    
21,166
    
−
  
Senior secured debt with Specialty Finance Fund I, LLC, which was acquired by San Juan Investments with a fixed interest rate of 7%
    
-
    
750
  
Subordinated unsecured notes payable with Prudential with a fixed interest rate of 12%
    
−
    
5,100
  
Total debt
    
31,432
    
5,850
  
Less: current maturities
    
(1,940
)
  
(2,250
)
Total long-term debt
  
$
29,492
  
$
3,600
  


In December 2000, the refinancing of our debt with Prudential qualified as a troubled debt restructuring under the provisions of SFAS 15. As a result of the application of this accounting standard, the total indebtedness due to Prudential, inclusive of accrued interest, was reduced by the cash and fair market value of securities (determined by independent appraisal) issued by us, and the residual balance of the indebtedness was recorded as the new carrying value of the subordinated note due to Prudential. Consequently, the $7,200,000 face value of the 12.0% Senior Subordinated Note with an initial maturity date of 2005 was recorded on our balance sheet at $11,520,000. The additional carrying value of the debt effectively represented an accrual of future interest due on the face value of the subordinated note due to Prudential. The remaining excess of amounts previously due Prudential over the new carrying value was $2,444,000 and was recognized as an extraordinary gain in 2000.
 
On August 13, 2004, we restructured our subordinated facility with Prudential. The principal balance of $9,635,000 would have been due on December 30, 2005. Under the amended terms, we paid principal of $2,000,000 on August 13, 2004 plus accrued interest of $28,667. We were also required to pay down approximately $1,635,000 of principal on December 15, 2004. The December 31, 2005 remaining balance of $5,100,000 was to be paid in equal quarterly installments over the next four years with a final maturity of December 31, 2009. This restructuring also extended the amortization period of the remaining troubled debt restructuring related credit over the life of the restructured facility. In connection with our amended loan agreement, Prudential also exchanged its remaining 582 shares of our Series E preferred stock for 55,429 shares of our common stock and surrendered its warrants to purchase 2,418,000 shares of common stock, and we issued Prudential 1,250,000 shares of our common stock valued at $1,088,000 as well as 524,206 shares of common stock to pay accrued and unpaid dividends owed on Series E and Series G preferred stock.  


In conjunction with the acquisition of HWC on March 3, 2006, we entered into a Credit Agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association, which established a revolving credit facility capacity totaling $10.3 million, subject to an initial borrowing base of $6.0 million, and a term credit facility totaling $9.7 million. The term credit facility is payable monthly over a period of sixty months and is payable in full on March 3, 2010, subject to extension under certain circumstances to March 3, 2011. The revolving credit facility is due and payable in full on March 3, 2010, subject to a year-to-year renewal thereafter. We utilized initial borrowings under the Credit Agreement totaling $10.5 million to repay senior and subordinated debt in full and to repurchase all of our outstanding shares of preferred stock and for other transaction related expenses. The loan balance outstanding on December 31, 2006 was $8.3 million on the term credit facility and $1.9 million on the revolving credit facility.

At our option, borrowings under the Credit Agreement bear interest at either (i) Wells Fargo’s prime commercial lending rate plus a margin ranging, as to the revolving credit facility up to 1.00%, and, as to the term credit facility, from 0.50% to 1.50% or (ii) the London Inter-Bank Market Offered Rate plus a margin ranging, as to the revolving credit facility, from 2.50% to 3.00% per annum, and, as to the term credit facility, from 3.00% to 3.50%, which margin increases or decreases based on the ratio of the outstanding principal amount under the Credit Agreement to our consolidated EBITDA. The interest rate applicable to borrowings under the revolving credit facility and the term credit facility at December 31, 2006 was 8.25% and 8.75%, respectively. Interest is accrued and payable monthly for both agreements. Fees on unused commitments under the revolving credit facility are due monthly and range from 0.25% to 0.50% per annum, based on the ratio of the outstanding principal amount under the Credit Agreement to our consolidated EBITDA.

Substantially all of our assets are pledged as collateral under the Credit Agreement. The Credit Agreement contains various restrictive covenants and compliance requirements, including: (1) maintenance of a minimum book net worth through December 31, 2006 equal to 90% of the pro forma book net worth calculated on March 1, 2006, but in no event less than $25 million, or, for each fiscal year thereafter, equal to the greater of the minimum book net worth required for the preceding fiscal year or 85% of book net worth on the last day of the preceding fiscal year (for these purposes “book net worth” means the aggregate of our common and preferred stockholders’ equity on a consolidated basis); (2) maintenance of a minimum ratio of our consolidated EBITDA less unfinanced capital expenditures to principal and interest payments required under the Credit Agreement, on a trailing twelve month basis, of 1.50 to 1.00; (3) notice within five (5) business days of making any capital expenditure exceeding $500,000, and (4) limitation on the incurrence of additional indebtedness except for indebtedness arising under the subordinated promissory notes issued in connection with the HWC acquisition. We were in compliance with these covenants at December 31, 2006 and through the date of this report.

The $15 million of unsecured subordinated debt issued to Oil States Energy Services, Inc. in connection with the HWC acquisition has been adjusted to $21.2 million after a $6.2 million adjustment for working capital acquired. The note bears interest at a rate of 10% per annum, and requires a one-time principal payment on September 9, 2010. Interest is accrued monthly and payable quarterly.

G.
Income Taxes


The amounts of income (loss) before income taxes attributable to domestic and foreign operations are as follows:


   
Year Ended December 31,
  
 
  
2006
  
2005
  
2004
  
   
(in thousands)
  
Domestic 
    
11,487
    
3,171
    
(1,302
)
Foreign
    
5,545
    
737
    
1,504
  
 
  
$
17,032
  
$
3,908
  
$
202
  
 
The provision (benefit) for income taxes shown in the consolidated statements of operations is made up of current and deferred taxes as follows:

 
   
Year Ended December 31,
  
   
2006
  
2005
  
2004
  
   
(in thousands)
  
Current
              
Domestic
  
$
1,533
  
$
—
  
$
—
  
State
    
412
    
—
    
—
  
Foreign
    
4,512
    
1,031
    
492
  
Deferred
                    
Domestic
    
(590
)
  
98
    
—
  
Foreign
    
—
    
—
    
—
  
   
$
5,867
  
$
1,129
  
$
492
  

The provision (benefit) for income taxes differs from the amount that would be computed if the income (loss) from continuing operations before income taxes were multiplied by the federal income tax rate (statutory rate) as follows:


   
Year Ended December 31,
  
   
2006
  
2005
  
2004
  
   
(in thousands)
  
Income tax provision at statutory rates 
  
$
5,961
  
$
1,328
  
$
69
  
State tax expense, net of federal benefits
    
267
    
—
    
—
  
Net change in foreign tax rates
    
(446
)
  
—
    
—
  
Return to provision adjustment
    
1,559
    
—
    
—
  
Foreign income tax rate differential
    
(806
)
  
80
    
103
  
Adjustment to net operating loss from continuing operations
    
—
    
(978
)
  
—
  
Nondeductible expenses
    
950
    
28
    
29
  
Change in valuation allowance
    
(1,618
)
  
671
    
291
  
Net income tax provision
  
$
5,867
  
$
1,129
  
$
492
  

 
As of December 31, 2006, 2005 and 2004, we had net domestic operating loss carry forwards of approximately $37,685,000, $43,308,000 and $41,351,000, respectively, expiring in various amounts beginning in 2011 and ending in 2026. The net operating loss carry forwards, along with the other timing differences, generate a net deferred tax asset in each year.

The Financial Accounting Standards Board (“FASB”) issued the revised SFAS No. 123, Share-Based Payment (“SFAS No. 123(R)”). SFAS 123(R) is a revision of SFAS No. 123 and supersedes APB No. 25. The revised provisions of SFAS No. 123(R) were effective January 1, 2006. For companies that have NOL carryforwards, SFAS No. 123R affects the manner in which stock-based compensation tax deductions are treated for financial reporting purposes. We may claim stock-based compensation deductions in our federal corporate income tax returns in an amount equal to the related income that is included in our employees’ reported federal taxable income subject to any other applicable limitations. Under SFAS No. 123R, tax benefits generated in 2006 and subsequent reporting periods related to the excess of tax deductible stock-based compensation over the amount recognized for financial accounting purposes, may not be recorded to additional paid-in-capital (“APIC”) for financial reporting purposes until the stock-based compensation deductions actually reduce our cash income tax liability. Any tax benefits attributable to these deductions will not be recorded to APIC for financial reporting purposes until such time as all existing and future NOL carryforwards have been fully utilized. As a result of the provisions of SFAS No. 123R, at December 31, 2006, we have excluded $891,400 of stock-based compensation deductions from our NOL carryforwards for financial reporting purposes
 
In addition, prior to the effective date of SFAS No. 123R, the Company was permitted to record the tax benefit associated with the excess of tax deductible stock-based compensation over the amount recognized for financial accounting purposes in its financial statement NOL, subject to SFAS No. 109’s realization criteria. Accordingly, the tax return reporting and financial statement NOL carryforward amounts described above include excess tax benefits recognized in 2005 and prior years related to the exercise of non-qualified employee stock options and vested stock awards. The full amount of the related tax benefits have been offset through our deferred tax asset valuation allowance. The associated excess tax benefits will be charged to equity upon the reversal of the associated valuation allowances in future periods.


In each period, the Company assesses the likelihood that its deferred taxes will be recovered from the existing deferred tax liabilities or future taxable income in each jurisdiction. To the extent that the Company believes that it does not meet the test that recovery is “more likely than not,” it established a valuation allowance. We have recorded valuation allowances for the net deferred tax assets since management believes it is more likely than not that these assets will not be realized.

Due to the acquisition of HWC, there was a change in control of the Company pursuant to IRC section 382. Under these rules the Company will be limited in the future use of its preacquisition NOL.

The temporary differences representing deferred tax assets and liabilities are as follows:
 
   
December 31,
  
 
  
2006
  
2005
  
   
(in thousands)
  
Deferred tax assets
          
Net operating loss carry forward
  
$
12,878
  
$
14,630
  
Depreciation
    
—
    
389
  
Allowance for doubtful accounts
    
124
    
117
  
Merger and acquisition costs
    
—
   
—
  
Share based compensation
    
461
    
—
  
Accruals
    
40
    
27
  
Foreign tax credit
    
2,176
    
1,957
  
Alternative minimum tax credit
    
98
    
118
  
Total gross deferred tax assets
  
$
15,777
  
$
17,238
  
               
Deferred tax liabilities
              
Depreciation
    
59
    
—
  
Merger and acquisition costs
    
98
    
—
  
Property and equipment, purchase accounting
    
4,520
    
—
  
Total gross deferred tax liabilities
    
4,677
    
—
  
               
Net deferred tax assets
    
11,100
    
17,238
  
Valuation allowance
  
$
(15,620
)
$
(17,238
)
Net deferred income tax asset(liability)
  
$
( 4,520
)
$
—
  


The Company has not provided deferred taxes on the unremitted earnings of its foreign subsidiaries as it considers these amounts to be permanently reinvested. The FASB adopted FIN 48 “Accounting for Uncertainty in Income Taxes” effective for years beginning after December 15, 2006. The Company is currently evaluating the effect of FIN 48, if any, on the financial statements for the fiscal year beginning 2007.

H.
Stockholders’ Equity

Common and Preferred Stock
 
Under our Amended and Restated Certificate of Incorporation, the board of directors has the power, without further action by the holders of common stock, to designate the relative rights and preferences of our preferred stock, when and if issued. Such rights and preferences could include preferences as to liquidation, redemption and conversion rights, voting rights, dividends or other preferences, over shares of common stock. The board of directors may, without further action by our stockholders , issue shares of preferred stock which it has designated. The rights of holders of common stock will be subject to, and may be adversely affected by or diluted by, the rights of holders of preferred stock.

On April 15, 1999, we completed the sale of 50,000 shares of $.00001 par value per share with a face value of $100 of Series A Cumulative Senior Preferred Stock ("Series A Stock") to Halliburton Energy Services, Inc. ("Halliburton"), a wholly-owned subsidiary of Halliburton Company. The Series A Stock had a dividend requirement of 6.25% per annum payable quarterly until the fifth anniversary at the date of issuance, whereupon the dividend requirement increased to the greater of prime plus 6.25% or 14% per annum, which was subject to adjustment for stock splits, stock dividends and certain other events. At December 31, 2005 there were 50,000 shares of our Series A preferred stock issued and outstanding. This preferred stock was paid in full in connection with closing the HWC acquisition.


On April 28, 2000, we adopted the Certificate of Designation of Rights and Preferences of the Series B Preferred Stock, which designates this issue to consist of 100,000 shares of $.00001 par value per share with a face value of $100 per share; have a dividend requirement of 10% per annum, payable semi-annually at the election of us in additional shares of our Series B Preferred Stock in lieu of cash; have voting rights equivalent to 100 votes per share; and, may be converted at the election of us into shares of our common stock on the basis of a $3.00 per share conversion rate. Since year ended December 31, 2005 there have been no shares of series B preferred stock issued and outstanding.

On May 30, 2000 we adopted the Certificate of Designation of Rights and Preferences of the Series C Cumulative Convertible Preferred Stock (“Series C Preferred Stock”) that designates this issue to consist of 50,000 shares of $.00001 par value per share with a face value of $100 per share; have a dividend requirement of 10% per annum, payable quarterly at the election of us in additional shares of our Series C Preferred Stock in lieu of cash; have voting rights excluding the election of directors equivalent to one vote per share of common stock into which preferred shares are convertible, and may be converted at the election of us into shares of our common stock on the basis of a $3.00 per share conversion rate. After eighteen months from the issuance date a holder of Series C Preferred Stock may elect to have future dividends paid in cash. At December 31, 2005 there were 2,943, shares of series C preferred stock issued and outstanding. This preferred stock was paid in full in connection with closing the HWC acquisition.

On December 29, 2000, we adopted the Certificate of Designation of Rights and Preferences of Series H Cumulative Convertible Preferred Stock (“Series H Preferred Stock”) that designates this issue to consist of 89,117 shares of $.00001 par value per share with a face value of $100 per share; have a dividend requirement of 10% per annum compounded, payable semi-annually at the election of the us in additional shares of our Series H Preferred Stock in lieu of cash; have voting rights excluding the election of directors equivalent to one vote per share of common stock into which preferred shares are convertible, and may be converted at the election of us into shares of our common stock on the basis of a $3.00 per share conversion rate. Since year ended December 31, 2005 there have been no shares of series H preferred stock outstanding.

For the years ended December 31, 2006, 2005 and 2004, we accrued $(616,000), $874,000 and $735,000, respectively, for dividends relating to all series of preferred stock. All 5,000,000 shares of the authorized Preferred stock are available for any future issue in any class of preferred stock.

Stockholder Rights Plan:

On November 29, 2001 we adopted a stockholder rights plan in order to provide protection for the stockholders in the event of an attempted potential acquisition of us. Under the plan, we have declared a dividend of one right on each share of our common stock. Each right will entitle the holder to purchase one one-hundredth of a share of a new Series I Junior Participating Preferred Stock of us at an exercise price of $20.00. The rights are not currently exercisable and will become exercisable only after a person or group acquires 15% or more of the outstanding common stock of us or announces a tender offer or exchange offer which would result in ownership of 15% or more of the outstanding common stock. The rights are subject to redemption by us for $0.001 per right at any time, subject to certain limitations. In addition, the Board of Directors is authorized to amend the Rights plan at any time prior to the time the rights become exercisable. The rights will expire on December 17, 2011.

If the rights become exercisable, each right will entitle its holder (other than such person or members of such group) to purchase, at the right’s then current exercise price, a number of our shares of common stock having a market value of twice such price or, if we are acquired in a merger or other business combination, each right will entitle its holder to purchase, at the right’s then current exercise price, a number of the acquiring Company’s shares of common stock having a market value of twice such price. Prior to an acquisition of ownership of 50% or more of the common stock by a person or group, the Board of Directors may exchange the rights (other than rights owned by such person or group, which will have become null and void and nontransferable) at an exchange ratio of one share of common stock (or one one-hundredth of a share of Series I Preferred Stock) per right. The Board of Directors waived this requirement for the HWC acquisition.

A summary of warrants outstanding as of December 31, 2006 is as follows:

 
 
Expiration Date
  
Exercise Price Per Share
  
Number of Shares
  
           
04/25/2007
    
1.44
    
32,462
  
06/30/2007
    
1.44
    
43,283
  
07/18/2008
    
1.40
    
37,500
  
10/03/2008
    
0.88
    
600,000
  
           
713,245
  

In connection with closing of the HWC acquisition, 1,464,213 warrants priced at $2.35 were eliminated.

Stock Options:

A summary of stock option plans under which stock options remain outstanding as of December 31, 2006 follows:

1997 Incentive Stock Plan authorizing the Board of Directors to provide key employees with incentive compensation commensurate with their positions and responsibilities. The 1997 Incentive Stock Plan permits the grant of incentive equity awards covering up to 368,750 shares of common stock. Grants may be in the form of qualified or non qualified stock options, restricted stock, phantom stock, stock bonuses and cash bonuses. As of December 31, 2006, stock options covering an aggregate of 368,750 shares of common stock have been made under the 1997 Incentive Stock Plan. Such options vest ratably over a five-year period from the date of grant. These incentive stock options are exercisable for a period of 10 years from the original date of grant at an exercise price of ranging from $1.72 to $3.00 per share. As of December 31, 2006, there were 6,725 stock options outstanding under the plan.

1997 Outside Directors’ Option Plan authorizing the issuance each year of an option to purchase 3,750 shares of common stock to each member of the Board of Directors who is not an employee. The purpose of the Directors’ Plan is to encourage the continued service of outside directors and to provide them with additional incentive to assist us in achieving our growth objectives. Options may be exercised over a five-year period with the initial right to exercise starting one year from the date of the grant, provided the director has not resigned or been removed for cause by the Board of Directors prior to such date. After one year from the date of the grant, options outstanding under the Directors’ Plan may be exercised regardless of whether the individual continues to serve as a director. Options granted under the Directors’ Plan are not transferable except by will or by operation of law. Through December 31, 2006, grants of stock options covering an aggregate of 454,750 shares of common stock have been made under the 1997 Outside Directors’ Option Plan. At December 31, 2006, there were 415,000 stock options outstanding under the plan.

2000 Long-Term Incentive Plan authorizes the Board of Directors to provide full time employees and consultants (whether full or part time) with incentive compensation in connection with their services to us. The plan permits the grant of incentive equity awards covering up to 1,500,000 shares of common stock. Grants may be in the form of qualified or non qualified stock options, restricted stock, phantom stock, stock bonuses and cash bonuses. As of the date hereof, stock option grants covering an aggregate of 783,125 shares of common stock have been made under the 2000 Long-Term Incentive Plan. Such options vest ratably over a five-year period from the date of grant. Options granted to consultants are valued using the Black Scholes pricing model and expensed over the vesting period. At December 31, 2006, there were 595,850 stock options outstanding under the plan.

In April 2000, we voided stock options covering an aggregate of 752,000 shares of common stock by agreement with the option holders with the understanding that the stock options would be repriced and reissued. During the third quarter of 2000, options covering an aggregate of 710,250 shares of common stock were reissued at an exercise price of $3.00. No compensation expense was required to be recorded at the date of issue. However, the reissuance of these options was accounted for as a variable plan, and we were subject to recording compensation expense if our stock price rose above $3.00. In April 2001, Messrs. Ramming, Winchester and Edwards agreed to voluntarily surrender 522,000 of these options at the request of the Compensation Committee of the Board, because of the potential variable plan accounting associated with these options. In October 2001 these individuals received fully vested options to purchase 522,000 shares at an exercise price of $2.20 per share. As of December 31, 2006, options to purchase 58,350 shares pursuant to the reissuance in the third quarter of 2000 remain subject to variable plan accounting.

On October 1, 2003 we granted 500,000 options at market price on that day, vesting immediately, as a result of the new employment agreement with our Chief Executive Officer. We also granted 300,000 shares of restricted stock at no cost, vested over a four year period with 20% vesting immediately. This resulted in a compensation expense of $72,000 in 2006, 2005 and 2004


On July 15, 2004 we granted 400,000 options at market price on that day, of which 250,000 vested immediately and the remaining 150,000 vested over a two year period, as a result of the new contract agreement with our Chairman of the Board. We also granted 300,000 shares of restricted stock at no cost with 150,000 shares vesting on August 13, 2004 and the remainder to be vested over a four year period conditioned upon continued consulting at the time of each vesting. This resulted in a compensation expense of $102,000, $58,000 and $81,000 in 2006, 2005 and 2004, respectively.

2004 Long-Term Incentive Plan authorizes the Board of Directors to provide full time employees and consultants (whether full or part time) with incentive compensation in connection with their services to us. The plan permits the grant of incentive equity awards covering up to 6,000,000 shares of common stock. Grants may be in the form of qualified or non qualified stock options, restricted stock, phantom stock, stock bonuses and cash bonuses. As of the date hereof, stock option grants covering an aggregate of 5,812,000 shares of common stock have been made under the 2004 Long-Term Incentive Plan. Such options vest ratably over a five-year period from the date of grant. Options granted to consultants are valued using the Black Scholes pricing model and expensed over the vesting period. At December 31, 2006, there were 5,165,750 stock options outstanding under the plan. An additional 2,000,000 of our stock options were authorized by the Board of Directors and approved by a majority vote of the stockholders on March 1, 2006. In connection with the acquisition of HWC on March 3, 2006, an additional 895,000 of our stock options, priced at $1.50 per option were approved to be issued to employees of HWC.

Stock option activity for the years ended December 31, 2006, 2005 and 2004 was as follows:

 
 
 
 
  
Number of Shares (in thousands)
  
Weighted Average Exercise Price Per Share
  
Outstanding December 31, 2003 
    
823
  
$
1.96
  
Granted
    
4,434
    
0.75
  
Exercised
    
—
    
—
  
Cancelled
    
(55
)
  
3.84
  
Outstanding December 31, 2004
    
5,202
  
$
0.90
  
Granted
    
873
    
1.10
  
Exercised
    
(35
)
  
0.67
  
Cancelled
    
(225
)
  
1.34
  
Outstanding December 31, 2005
    
5,815
  
$
1.02
  
Granted
    
1,630
    
1.57
  
Exercised
    
(836
)
  
0.77
  
Cancelled
    
(174
)
  
1.01
  
Outstanding December 31, 2006 
    
6,435
  
$
1.09
  
 

Summary information about our stock options outstanding at December 31, 2006:

Outstanding
    Exercisable  
 Range of Exercise Prices
  
 Number Outstanding at December 31, 2006 (in thousands)
  
Weighted Average Remaining Contractual Life in Years
  
 Weighted Average Exercise Price
  
Number Exercisable At December 31, 2006 (in thousands)
  
 Weighted Average Exercise Price
  
$0.67
    
2,811
    
3.84
  
$
0.67
    
1,987
  
$
0.67
  
$0.92
    
15
    
3.38
  
$
0.92
    
15
  
$
0.92
  
$0.93
    
150
    
2.64
  
$
0.93
    
150
  
$
0.93
  
$1.04
    
100
    
4.52
  
$
1.04
    
50
  
$
1.04
  
$1.08
    
50
    
5.01
  
$
1.08
    
—
  
$
1.08
  
$1.11
    
50
    
4.79
  
$
1.11
    
25
  
$
1.11
  
$1.13
    
300
    
4.78
  
$
1.13
    
150
  
$
1.13
  
$1.20
    
500
    
6.76
  
$
1.20
    
500
  
$
1.20
  
$1.24
    
400
    
1.75
  
$
1.24
    
400
  
$
1.24
  
$1.26
    
300
    
4.67
  
$
1.26
    
99
  
$
1.26
  
$1.43
    
450
    
5.17
  
$
1.43
    
150
  
$
1.43
  
$1.45
    
445
    
5.18
  
$
1.45
    
—
  
$
1.45
  
$1.60
    
150
    
5.75
  
$
1.60
    
—
  
$
1.60
  
$1.63
    
100
    
5.49
  
$
1.63
    
—
  
$
1.63
  
$1.71
    
120
    
5.39
  
$
1.71
    
—
  
$
1.71
  
$1.72
    
2
    
.42
  
$
1.72
    
2
  
$
1.72
  
$1.94
    
315
   
5.95
  
$
1.94
    
—
  
$
1.94
  
$3.00
    
177
    
2.77
  
$
3.00
    
177
  
$
3.00
  
$0.67-$3.00
    
6,435
    
4.35
  
$
1.09
    
3,705
  
$
1.00
  
 
 
I.
Employee Benefit Plans

401(k) Plan:

We sponsor a 40l (k) Plan adopted in 2000 for eligible employees having six months of service and being at least twenty-one years of age. Employees can make elective contributions of 1% to 15% of compensation, as defined. Employees over fifty years old may contribute an additional $4,000 and $5,000 in 2005 and 2006, respectively. During the years ended December 31, 2006, 2005 and 2004, we contributed approximately $401,000, $88,000 and $72,000, respectively, under the Plan.

J.
Commitments and Contingencies

Leases

We lease vehicles, equipment, office and storage facilities under operating leases with terms in excess of one year.

At December 31, 2006, future minimum lease payments, under these non-cancelable operating leases are as follows:

Year Ending December 31,
  
Amount
  
   
(in thousands)
  
2007
  
$
470
  
2008
    
377
 
2009
    
383
  
2010
    
380
  
2011
    
388
  
Thereafter
    
2,176
  
   
$
4,174
  

Rent expense for the years ended December 31, 2006, 2005 and 2004 was approximately $418,000, $32,000 and $50,000, respectively.
 
Litigation

We are involved in or threatened with various legal proceedings from time to time arising in the ordinary course of business. We do not believe that any liabilities resulting from any such proceedings will have a material adverse effect on its operations or financial position.

K.
Business Segment Information, Revenues from Major Customers and Concentration of Credit Risk

Segments:

Our current business segments are Well Intervention and Response. Intercompany transfers between segments were not material. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. For purposes of this presentation, operating expenses and depreciation and amortization have been charged to each segment based upon specific identification of expenses and a pro-rata allocation of remaining non segment specific expenses are assigned to segments based upon relative revenues.  Selling, general and corporate expenses have been allocated between segments pro rata based on relative revenues. Special Services and Abasco are presented as discontinued operations in the condensed consolidated financial statements and are therefore excluded from the segment information for all periods presented.
 
Our well intervention segment consists of services that are designed to enhance production for oil and gas operators and reduce the number and severity of critical well events such as oil and gas well fires, blowouts, or other losses of control at the well. This segment includes services performed by hydraulic workover/snubbing units that are used to enhance production of oil and gas wells. These units are used for underbalanced drilling workover, well completions and plugging and abandonment services. This segment also includes services that are designated to reduce the number and severity of critical well events offered through our SafeGuard and WELLSURE® risk management programs, including training, contingency planning, well plan reviews, audits, inspection services and engineering services.

The Response segment consists of personnel, equipment and services provided during an emergency response such as a critical well event or a hazardous material response. These services also include snubbing and pressure control services provided during a response which are designed to minimize response time and mitigate damage while maximizing safety. Information concerning operations in our two different business segments for the years ended December 31, 2006, 2005 and 2004 is presented below. Certain reclassifications have been made to the prior periods to conform to the current presentation.
 
Information concerning operations in the two business segments for the years ended December 31, 2006, 2005 and 2004 is presented below. General and corporate are included in the calculation of identifiable assets and are included in the Well Intervention and Response segments.

 
 
  
Well Intervention
  
Response
  
Consolidated
  
Year Ended December 31, 2006
             
Net operating revenues
  
$
76,653
  
$
20,377
  
$
97,030
  
Operating income
    
11,835
    
8,057
    
19,892
  
Identifiable operating assets
    
89,334
    
11,683
    
101,017
  
Capital expenditures
    
6,279
    
603
    
6,882
  
Depreciation and amortization
    
4,637
    
246
    
4,883
  
Interest expense
    
2,398
    
638
    
3,036
  
                     
Year Ended December 31, 2005
                    
Net operating revenues
  
$
13,860
  
$
15,677
  
$
29,537
  
Operating income
    
2,538
    
2,025
    
4,563
  
Identifiable operating assets
    
6,929
    
7,838
    
14,767
  
Capital expenditures
    
—
    
306
    
306
  
Depreciation and amortization
    
310
    
404
    
714
  
Interest expense
    
274
    
310
    
584
  
                     
Year Ended December 31, 2004
                    
Net operating revenues
  
$
8,050
  
$
16,125
  
$
24,175
  
Operating income (loss)
    
(225
)
  
1,291
    
1,066
  
Identifiable operating assets
    
6,125
    
12,268
    
18,393
  
Capital expenditures
    
—
    
491
    
491
  
Depreciation and amortization
    
261
    
628
    
889
  
Interest expense
    
148
    
295
    
443
  


Revenue from major customers and concentration of credit risk:

During the years presented below, the following customers represented significant concentrations of consolidated revenues:

   
Year Ended December 31,
  
 
  
2006
  
2005
  
2004
  
Customer A
    
—
    
45
%
  
36
%
Customer B
    
14
%
  
12
%
  
—
  
Customer C
    
19
%
  
11
%
  
21
%

Our revenues are generated geographically as follows:

   
Year Ended December 31,
  
 
  
2006
  
2005
  
2004
  
United States
    
26
%
  
19
%
  
35
%
Foreign
    
74
%
  
81
%
  
65
%

The nature of our revenue stream is cyclical from year to year such that this history of geographic split does not represent any trend, but is more related to where the response related events occur during any one year. Of the 2006 Foreign revenues presented above, 24% and 21% were generated from Algeria and Venezuela, respectively. Of the 2005 Foreign revenues presented above, 41% and 12% were generated from Iraq and Venezuela, respectively. Of the 2004 Foreign revenues presented above, 32% and 28% were generated from Iraq and Venezuela, respectively.

Accounts Receivable:

Three of our customers at December 31, 2006 accounted for 71% of outstanding accounts receivable. Three of our customers at December 31, 2005 accounted for 64% of outstanding accounts receivable. One customer at December 31, 2004 accounted for 68% of the outstanding accounts receivable.

Cash:


We maintain deposits in banks which may exceed the amount of federal deposit insurance available. Management believes that any possible deposit loss is minimal. In connection with the acquisition on March 3, 2006, all of our investments were used as a source of cash for the credit agreement so we no longer have a material sum on deposit in banks earning interest income.

L.
Quarterly Financial Data (Unaudited)

The table below summarizes the unaudited quarterly results of operations for 2006 and 2005:

   
Quarter Ended
  
2006
  
March 31, 2006
  
June 30, 2006
  
September 30, 2006
  
December 31, 2006
  
Revenues
  
$
11,520
  
$
23,472
  
$
28,293
  
$
33,745
  
Income from continuing operations
    
678
    
2,632
    
3,369
    
4,486
  
Net income
    
678
    
2,632
    
3,369
    
4,486
  
Net income attributable tocommon stockholders
    
1,294
    
2,632
    
3,369
    
4,486
  
Net income per common share:
                          
Basic
    
0.03
    
0.05
    
0.06
    
0.08
  
Diluted
    
0.03
    
0.04
    
0.05
    
0.07
  

 
   
Quarter Ended
  
2005
  
March 31, 2005
  
June 30, 2005
  
September 30, 2005
  
December 31, 2005
  
Revenues
  
$
14,290
  
$
4,762
  
$
4,612
  
$
5,873
  
Income (loss) from continuing operations
    
2,473
    
(663
)
  
(469
)
  
1,438
  
Net income (loss)
    
2,473
    
(663
)
  
(469
)
  
1,438
  
Net income (loss) attributable to common stockholders
    
2,262
    
(879
)
  
(691
)
  
1,213
  
Net income (loss) per common share:
                          
Basic
    
0.08
    
(0.03
)
  
(0.02
)
  
0.04
  
Diluted
    
0.07
    
(0.03
)
  
(0.02
)
  
0.04
  

 
Basic and diluted earnings (loss) per common share for each of the quarters presented above is based on the respective weighted average number of common and dilutive potential common shares outstanding for each period and the sum of the quarters may not necessarily be equal to the full year basic and diluted earnings (loss) per common share amounts.

M.
Subsequent Events

On Tuesday, March 20, 2007, we amended our Credit and Security Agreement with Wells Fargo Bank. The amendment was effective as of December 31, 2006, and it amended certain administrative covenants including capital expenditures, travel advances, and prepaid limits.
 
 
F-22
 EX-10.17 2 ex10_17.htm EXHIBIT 10.17 Exhibit 10.17
EXHIBIT 10.17
 
FIRST AMENDMENT TO CREDIT AND SECURITY AGREEMENT

THIS FIRST AMENDMENT TO CREDIT AND SECURITY AGREEMENT (this "Amendment"), dated as of May 11, 2006, is made by and between IWC SERVICES, LLC, a Texas limited liability company ("Borrower") and WELLS FARGO BANK, National Association ("Lender"), acting through its WELLS FARGO BUSINESS CREDIT operating division.

RECITALS

Borrower, Boots & Coots International Well Control, Inc. ("BNC") and Lender are parties to the Credit and Security Agreement dated as of March 3, 2006 (the "Credit Agreement").

Borrower has requested that certain amendments and waivers be made to the Credit Agreement, which Lender is willing to make pursuant to the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, it is agreed as follows:

1.    Consent to Assignment of Certain Intellectual Property Rights.  As of the Effective Date, Lender consents to HWCES' execution and delivery of the Assignment, identical in form and content to Exhibit A attached hereto (the "HWCES Assignment"), notwithstanding any limitation in the Credit Agreement regarding a Credit Party's disposition of assets (including, without limitation, any notification requirement or other restriction under Sections 6.1(m) or 6.17 of the Credit Agreement). To the extent that Lender's lien securing the Obligations now encumbers the Intellectual Property Rights to be transferred pursuant to the HWCES Assignment, Lender agrees that its lien and security interest shall be released there from as of the Effective Date.

2.    Amendment to Section 6.8 of the Credit Agreement.  As of the Effective Date, Section 6.8 of the Credit Agreement shall be amended and restated, in its entirety, to read as follows:

Salaries. BNC and Borrower will not, and will not permit any other Credit Party to, pay excessive or unreasonable salaries, bonuses, royalties, license fees, commissions, consultant fees or other compensation; or increase the salary, bonus, commissions, consultant fees or other compensation of any Director, Officer or consultant, or any member of their respective families, either individually or for all such Persons in the aggregate, if such increase would have or could be reasonably expected to have a Material Adverse Effect.


3.    Amendment to Article V of the Credit Agreement.  As of the Effective Date, Section 5.24 shall be added to the end of Article V of the Credit Agreement to read as follows:

Section 5.24 Houseboat.  The boat owned by IWC Services, as successor by merger to HWC, registered under Louisiana Registration Number LA-7368-FJ (the "Houseboat"), has not constituted or qualified as a "vessel" under the United States Ship Mortgage Act. Further, the Houseboat has not been subject to the jurisdiction of the United States Surface Transportation Board. No filing other than the filing of Lender's financing statement against IWC Services with the Secretary of State of the State of Texas is necessary for Lender have a valid and perfected security interest in the Houseboat.

4.    Amendment to Article VI of the Credit Agreement.  As of the Effective Date, Section 6.30 shall be added to the end of Article VI of the Credit Agreement to read as follows:

Section 6.30 Houseboat. BNC and Borrower may not, and will not permit any of the Credit Parties to, cause the Houseboat to constitute or qualify as a "vessel" under the United States Ship Mortgage Act or to become subject to the jurisdiction of the United States Surface Transportation Board.

5.    Amendment to Post-Closing Agreement.  As of the Effective Date, the table on Exhibit A to the Post-Closing Agreement shall be amended and restated, in its entirety, as follows:

Requirement
Delivery Date
Deliver to Lender evidence of the satisfaction, and release of all presently effective judgments and Liens encumbering BNC's and its Domestic Subsidiary's assets (other than those Liens in favor of Lender) and deliver to Lender new judgment and lien search reports from the appropriate jurisdictions for BNC and each of its Domestic Subsidiaries reflecting the satisfaction and release of those judgments and Liens.
 
May 31, 2006
Deliver to Lender an access and lien waiver agreement from the lessor of the mobile trailers located at BNC's Houston, Texas headquarters whereby the lessor agrees to waive all liens against the contents of the trailers and permit Lender to retrieve the contents following the repossession of the trailers or the termination of the applicable rental agreement.
 
May 18, 2006
 
-2-

Deliver to Lender (i) an original of the certificate evidencing 65.1% of all issued and outstanding Equity Interests in HWC Limited C.A. and reflecting HWC Limited as the owner of such Equity Interests along with the appropriate transfer powers duly executed in blank and (ii) transfer powers duly executed in blank in connection with the pledge of 65% of all issued and outstanding Equity Interests in Boots & Coots Services de Mexico S. de R.L. de C.V. by Boots & Coots Services, Inc. and IWC Services, LLC, the two owners of such Equity Interests.
 
May 18, 2006

6.    No Other Changes.  Except as explicitly amended by this Amendment, all of the terms and conditions of the Credit Agreement and the other Loan Documents shall remain in full force and effect.

7.    Conditions Precedent.  This Amendment shall be effective when Lender shall have received an executed original hereof, together with each of the following, each in substance and form acceptable to Lender in its sole discretion (the date on which these conditions are satisfied shall be the "Effective Date"):

(a)    Originals of the Acknowledgment and Agreement of Guarantors and the Acknowledgment and Agreement of Subordinated Creditor set forth at the end of this Amendment, duly executed by each Guarantor and the Subordinated Creditor.

(b)    Such other matters as Lender may require in its Permitted Discretion.

8.    Representations and Warranties.  Borrower hereby represents and warrants to Lender as follows:

(a)    Borrower and each Guarantor have all requisite power and authority to execute this Amendment and the Acknowledgement and Agreement of Guarantors, as applicable and to perform all of their obligations under this Amendment and the Acknowledgement and Agreement of Guarantors, and this Amendment and the Acknowledgement and Agreement of Guarantors have been duly executed and delivered by Borrower and the Guarantors, as applicable, and constitute the legal, valid and binding obligations of such parties, enforceable in accordance with their respective terms.

(b)    The execution, delivery and performance by Borrower and Guarantors of this Amendment and the Acknowledgement and Agreement of Guarantors have been duly authorized by all necessary action and do not (i) require any authorization, consent or approval by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) violate any provision of any law, rule or regulation or of any order, writ, injunction or decree presently in effect, having applicability to Borrower or any Guarantor, or any governing document of Borrower or any Guarantor, or (iii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which Borrower or any Guarantor is a party or by which it or its properties may be bound or affected.

-3-

(c)    The Intellectual Property Rights to be transferred pursuant to me HWCES Assignment are not necessary for the conduct of Borrower's or any other Credit Party's business operations, and no Material Adverse Effect will occur after giving effect to the HWCES Assignment.

(d)    All of the representations and warranties contained in Article V of the Credit Agreement are correct on and as of the date hereof as though made on and as of such, date, except to the extent that such representations and warranties relate solely to an earlier date.

9.    References.  All references in the Credit Agreement to "this Agreement" shall be deemed to refer to the Credit Agreement as amended hereby; and any and all references in the Security Documents to the Credit Agreement shall be deemed to refer to the Credit Agreement as amended hereby.

10.     No Other Waiver.  Except as set forth in Section 1 hereof, the execution of this Amendment and acceptance of any documents related hereto shall not be deemed to be a waiver of any Default or Event of Default under the Credit Agreement or breach, default or event of default under any Security Document or other document held by Lender, whether or not known to Lender and whether or not existing on the date of this Amendment.

11.    Release.  BORROWER, AND EACH GUARANTOR BY SIGNING THE ACKNOWLEDGMENT AND AGREEMENT OF GUARANTORS SET FORTH BELOW, EACH HEREBY ABSOLUTELY AND UNCONDITIONALLY RELEASES AND FOREVER DISCHARGES LENDER, AND ANY AND ALL PARTICIPANTS, PARENT CORPORATIONS, SUBSIDIARY CORPORATIONS, AFFILIATED CORPORATIONS, INSURERS, INDEMNITORS, SUCCESSORS AND ASSIGNS THEREOF, TOGETHER WITH ALL OF THE PRESENT AND FORMER DIRECTORS, OFFICERS, ATTORNEYS, AGENTS AND EMPLOYEES OF ANY OF THE FOREGOING, FROM ANY AND ALL CLAIMS, DEMANDS OR CAUSES OF ACTION OF ANY KIND, NATURE OR DESCRIPTION, WHETHER ARISING IN LAW OR EQUITY OR UPON CONTRACT OR TORT OR UNDER ANY STATE OR FEDERAL LAW OR OTHERWISE, WHICH BORROWER OR SUCH GUARANTOR HAS HAD, NOW HAS OR HAS MADE CLAIM TO HAVE AGAINST ANY SUCH PERSON FOR OR BY REASON OF ANY ACT, OMISSION, MATTER, CAUSE OR THING WHATSOEVER ARISING FROM THE BEGINNING OF TIME TO AND INCLUDING THE EFFECTIVE DATE, WHETHER SUCH CLAIMS, DEMANDS AND CAUSES OF ACTION ARE MATURED OR UNMATURED OR KNOWN OR UNKNOWN, INCLUDING, WITHOUT LIMITATION, ALL CLAIMS, DEMANDS OR CAUSES OF ACTION ARISING IN WHOLE OR PART FROM THE NEGLIGENCE OR STRICT LIABLITY OF LENDER OR ANY OTHER RELEASED PARTY.

-4-

12.     Severability.  If any term or provision of this Amendment is adjudicated to be invalid under applicable laws or regulations, such provision shall be inapplicable to the extent of such invalidity without affecting the validity or enforceability of the remainder of this Amendment which shall be given effect so far as possible.

13.     Binding Effect.  This Amendment shall be binding upon and inure to the benefit of Borrower and Lender and their respective successors and assigns, except that Borrower shall not have the right to assign any rights thereunder or any interest therein without Lender's prior written consent.

15.     Costs and Expenses.  Borrower hereby reaffirms its agreement under the Credit Agreement to pay or reimburse Lender on demand for all costs and expenses incurred by Lender in connection with the Loan Documents, including without limitation all reasonable fees and disbursements of legal counsel. Without limiting the generality of the foregoing, Borrower specifically agrees to pay all fees and disbursements of counsel to Lender for the services performed by such counsel in connection with the preparation of this Amendment and the documents and instruments incidental hereto. Borrower hereby agrees that Lender may, at any time or from time to time in its sole discretion and without further authorization by Borrower, make a loan to Borrower under the Credit Agreement, or apply the proceeds of any loan, for the purpose of paying any such fees, disbursements, costs and expenses.

16.     Miscellaneous.  This Amendment, the Acknowledgment and Agreement of Guarantors and the Acknowledgment and Agreement of Subordinated Creditor (i) may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original and all of which counterparts, taken together, shall constitute one and the same instrument and (ii) AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES, AND THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES. Capitalized terms used in this Amendment and the Acknowledgments attached hereto have the meanings given to them in the Credit Agreement unless otherwise specified. This Amendment shall be governed and construed in accordance with the laws of the State of Texas.

[SIGNATURE PAGE FOLLOWS]
 
-5-

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first written above to be effective as of the Effective Date.
 

IWC SERVICES, LLC, a Texas limited liability company 
  
     
By:
 /s/ Dewitt Edwards  
Name: Dewitt Edwards
  
Title: Vice President
  
     
     
WELLS FARGO BANK, NATIONAL ASSOCIATION,
  
acting through its Wells Fargo Business Credit operating division 
  
   
By: 
 /s/ Mark L Odle  
Name: Mark L. Odle 
  
Title: Vice President 
  
 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first written above to be effective as of the Effective Date.
 

IWC SERVICES, LLC, a Texas limited liability company
  
     
By:
 /s/ Jerry Winchester   
Name: Jerry Winchester 
  
Title: President and CEO 
  
     
     
WELLS FARGO BANK, NATIONAL ASSOCIATION
acting through its Wells Fargo Business Credit operating division 
  
     
By: 
 /s/ Mark L. Odle  
Name: Mark L. Odle 
  
Title: Vice President 
  


ACKNOWLEDGMENT AND AGREEMENT OF GUARANTORS

Each undersigned, each a guarantor of the indebtedness and other obligations of Borrower to Lender pursuant to a separate Guaranty each dated as of March 3, 2006 (each a "Guaranty"), hereby (i) acknowledges receipt of the foregoing Amendment; (ii) consents to the terms (including without limitation the release set forth in Section 8 of the Amendment) and execution thereof; (iii) reaffirms its obligations to Lender pursuant to the terms of its Guaranty; and (iv) acknowledges that Lender may amend, restate, extend, renew or otherwise modify the Credit Agreement and any indebtedness or agreement of Borrower, or enter into any agreement or extend additional or other credit accommodations, without notifying or obtaining the consent of the undersigned and without impairing the liability of the undersigned under its Guaranty for all of Borrower's present and future indebtedness and otter obligations to Lender.

BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
BOOTS & COOTS SERVICES, INC.
BOOTS & COOTS SPECIAL SERVICES, INC.
ELMAGCO, INC.
HELL FIGHTERS, INC.
HWC LIMITED
IWC ENGINEERING, INC.


By:
  
/s/Dewitt Edwards
    
Name:
Dewitt Edwards
    
Title:
Senior Vice President and Chief Financial Officer of Boots & Coots and Boots & Coots International Well Control, Inc. Vice President of each other entity above
    
 

ACKNOWLEDGMENT AND AGREEMENT OF SUBORDINATED CREDITORS

The undersigned, a subordinated creditor of BNC pursuant to each Senior Subordinated Promissory Note, hereby (i) acknowledges receipt of the foregoing Amendment; (ii) consents to the terms and execution thereof; (iii) reaffirms the terms of each Senior Subordinated Promissory Note; and (iv) acknowledges that Lender may amend, restate, extend, renew or otherwise modify the Loan Documents and any indebtedness or agreement of Borrower or enter into any agreement or extend additional or other credit accommodations (in each case subject to any limitations set forth in the respective Senior Subordinated Promissory Note), without notifying or obtaining the consent of the undersigned except as may be expressly required under the terms of each Senior Subordinated Promissory Note.

OIL STATES ENERGY SERVICES, INC.
  
(formerly known as HWC Energy Services, Inc.)
  
     
     
     
By:
    /s/ Larry B. Wolod  
Name:
Larry B. Wolod
 
Title: 
Vice President and Assistant Secretary
  
 

Exhibit: A to First Amendment to Credit and Security Agreement

ASSIGNMENT

WHEREAS, HWCES International, a Cayman Islands corporation (hereinafter "ASSIGNOR"), is the owner of the right, title and interest in certain United States patents (hereinafter "Patents") and is the owner of the right, title and interest in certain Canadian patent applications (hereinafter "Applications"), which Patents and Applications are listed in Schedule A attached hereto;

WHEREAS, Oil States Energy Services, Inc., a Delaware corporation formerly known as HWC Energy Services, Inc., having a business address of c/o Oil States International, Inc, Three Allen Center, 333 Clay Street, Suite 4620, Houston, Texas 77002 (hereinafter "ASSIGNEE"), and ASSIGNOR previously entered into that certain Assignment dated as of February 28, 2006 (the "Initial Assignment"), pursuant to which ASSIGNOR assigned to ASSIGNEE the entire right, title and interest in and to certain United States and Canadian patents and patent applications listed in a schedule thereto;

WHEREAS, ASSIGNOR and ASSIGNEE intended for the Patents and the Applications to have been assigned from ASSIGNOR to ASSIGNEE pursuant to the terms of the Initial Assignment;

WHEREAS, the Patents and the Applications were inadvertently excluded from the schedule of assigned patents and patent applications attached to the Initial Assignment;

WHEREAS, ASSIGNOR and ASSIGNEE now desire to evidence their agreement that all right, title and interest in and to the Patents and Applications, and in and to the inventions disclosed therein (the "Inventions"), be assigned to ASSIGNEE;

NOW, THEREFORE, for and in consideration of One Dollar ($1.00) each and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by ASSIGNOR and ASSIGNEE, effective as of the 28th day of February, 2006, ASSIGNOR has assigned, sold, transferred and set over and by these presents does assign, sell transfer and set over unto said ASSIGNEE the entire right, title and interest in and to (a) said Inventions and worldwide rights therein; (b) said Applications, including all divisions, continuations and substitutions thereof; and (c) all Patents, including United States and Canadian patents which shall have issued on said Inventions, including all reissues, renewals and extensions thereof, for the United States, its territories and possessions and all foreign countries, including the right to file corresponding applications for Letters Patent on said Inventions in any and all foreign countries, and to claim priority under any and all treaties and conventions to which the United States of America and Canada are signatories including the Paris Convention for the Protection of Industrial Property for such corresponding applications, or any division, continuation or substitution thereof, the same to be held and enjoyed by said ASSIGNEE, its assigns and successors, as fully and entirely as the same would have been held and enjoyed by ASSIGNOR, had this assignment not been made.

ASSIGNOR hereby authorizes and requests that all Letters Patent based on said Applications and each division, continuation, substitution, reissue, renewal and extension thereof be issued to said ASSIGNEE, its successors and assigns.


The terms and conditions of this Assignment shall inure to the benefit of ASSIGNEE, its successors, assigns and other legal representatives, and shall be binding upon ASSIGNOR, its successor, assigns and other legal representatives.
 
[Signature page follows]


IN WITNESS WHEREOF, this Assignment has been duly executed on the date as indicated below.


 
ASSIGNOR:
     
 
HWCES INTERNATIONAL 
     
     
 
By: 
 /s/ Don B. Cobb
 
Name: 
 Don B. Cobb
 
Title: 
 President
     
 
Date: 
June 27th, 2006 
 
STATE OF TEXAS 
§ 
 
§ 
COUNTY OF HARRIS
§

On the above date, the above named person acting in the capacity of President of HWCES International, appeared before me, and known by me to be the same person described in and who executed the foregoing instrument, and acknowledged that he executed the same, of his own free will and with the authority and for the purposes set forth.
 
  /s/ Stefanie B. Ford  
 
Notary Public in and for 
  
 
THE STATE OF TEXAS 
  
       
 
ASSIGNEE: 
  
       
 
OIL STATES ENERGY SERVICES, INC. 
  
 
By: 
 /s/ Larry B. Wolod  
 
Name: 
Larry B. Wolod 
  
 
Title: 
Vice President and Assistant Secretary 
  
 
Date: 
May 12, 2006
  
 
STATE OF TEXAS 
§ 
   
§
COUNTY OF HARRIS 
§
 
On the above date, the above named person acting in the capacity of Vice President and Assistant Secretary of Oil States Energy Services, Inc., personally appeared before me, and known by me to be the same person described in and who executed the foregoing instrument, and acknowledged that he executed the same, of his own free will and with the authority and for the purposes set forth.

  /s/ Linda Deleon
 
Notary Public in and for 
 
THE STATE OF TEXAS 
 

SCHEDULE A

CANADIAN PATENT APPLICATIONS
 
Application No. 
Filing Date
Title 
2,512,128 
July 14, 2005 
High Pressure Threaded Union With Metal-To-Metal Seal, And Metal Ring Gasket For Same 
2,512,263 
July 15, 2005 
Cup Tool For A High Pressure Mandrel And Method Of Using Same 
2,512,264 
July 15, 2005 
Slip Spool Assembly And Method Of Using Same 
 
U.S. PATENTS

Patent No. 
Issue Date 
Title 
5,012,865 
May 7, 1991 
Annular and Concentric Flow Wellhead Isolation Tool 
5,261,487 
November 16, 1993 
Packoff Nipple 
5,285,852 
February 15, 1994 
Wellhead Isolation Tool and Method of Use Thereof 
5,396,956 
March 14, 1995 
Wellhead Isolation Tool Sealing Nipple Testing Apparatus And Method of Pressure Testing Isolation Tool Sealing Nipple Seals When in Position On A Well 
 
 
EX-10.18 3 ex10_18.htm EXHIBIT 10.18 Exhibit 10.18
EXHIBIT 10.18
 
SECOND AMENDMENT TO CREDIT AND SECURITY AGREEMENT
 
THIS SECOND AMENDMENT TO CREDIT AND SECURITY AGREEMENT (this “Amendment”), dated as of November 30, 2006, is made by and between IWC SERVICES, LLC, a Texas limited liability company (“Borrower”) and WELLS FARGO BANK, National Association (“Lender”), acting through its WELLS FARGO BUSINESS CREDIT operating division.

RECITALS

Borrower, Boots & Coots International Well Control, Inc. (“BNC”) and Lender are parties to the Credit and Security Agreement dated as of March 3, 2006 (as amended, restated, amended and restated or extended from time to time, the “Credit Agreement”).

Borrower has requested that certain amendments and a waiver be made to the Credit Agreement in connection with HWCES’ proposed acquisition of the Rig Assist Unit - 460K unit and related equipment from Odfjell Drilling AS, a Norwegian company (the “RAS Equipment”) on or about November 30, 2006, with the RAS Equipment to be acquired using HWCES’ available cash on-hand for an aggregate purchase price not to exceed U.S. $3,600,000 plus the related transportation and set-up costs not to exceed $200,000 in the aggregate and free of any Liens thereon (the “RAS Equipment Acquisition”), which Lender is willing to make pursuant to the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, it is agreed as follows:

1.    Consent to Acquisition of RAS Equipment. As of the Effective Date, Lender consents to the RAS Equipment Acquisition and waives the Default arising solely on account of HWCES contracting to incur the Capital Expenditures for the RAS Equipment Acquisition before the Effective Date.
 
2.    Amendments to the Credit Agreement. As of the Effective Date, the Credit Agreement shall be amended as follows:
 
(a)    The definition of “Unfinanced Capital Expenditures” appearing in Section 1.1 of the Credit Agreement shall be amended and restated, in its entirety, to read as follows:

“Unfinanced Capital Expenditures” means Capital Expenditures paid in cash (other than cash that constitutes the proceeds of Indebtedness). However, for purposes of this definition, Capital Expenditures incurred using the proceeds of a Revolving Advance shall constitute Unfinanced Capital Expenditures, and the RAS Equipment Capital Expenditures shall not constitute Unfinanced Capital Expenditures.

 
(b)    A definition for “RAS Equipment Acquisition” shall be added to Section 1.1 of the Credit Agreement in its proper alphabetical location:

“RAS Equipment Acquisition” means HWCES’ acquisition of the Rig Assist Unit - 460K unit and related equipment from Odfjell Drilling AS, a Norwegian company (the “RAS Equipment”) on or about November 30, 2006, with the RAS Equipment to be acquired using HWCES’ available cash on-hand for an aggregate purchase price not to exceed U.S. $3,600,000 (said purchase price, together with the costs for transporting the RAS Equipment from Bergen, Norway to Qatar and other costs to place the RAS Equipment in service not to exceed $200,000 in the aggregate, being collectively the “RAS Equipment Capital Expenditures”) and free of any Liens thereon.

(c)    Section 6.2(c) of the Credit Agreement shall be amended and restated, in its entirety, to read as follows:

(c)    Capital Expenditures. BNC and its Subsidiaries, including Borrower, will not incur (i) Unfinanced Capital Expenditures of more than $4,500,000 in the aggregate during any fiscal year and (ii) Capital Expenditures (whether financed or Unfinanced Capital Expenditures) of more than $10,000,000 in the aggregate plus the RAS Equipment Capital Expenditures incurred during any fiscal year.
 
3.    No Other Changes. Except as explicitly amended by this Amendment, all of the terms and conditions of the Credit Agreement and the other Loan Documents shall remain in full force and effect.
 
4.    Conditions Precedent. This Amendment shall be effective when Lender shall have received an executed original hereof, together with each of the following, each in substance and form acceptable to Lender in its sole discretion (the date on which these conditions are satisfied shall be the “Effective Date”):
 
(a)    Originals of the Acknowledgment and Agreement of Guarantors and the Acknowledgment and Agreement of Subordinated Creditor set forth at the end of this Amendment, duly executed by each Guarantor and the Subordinated Creditor.
 
(b)    All representations and warranties made under this Amendment shall be true, correct and complete.
 
(c)    Such other matters as Lender may require in its Permitted Discretion.
 
5.    Representations and Warranties. Borrower hereby represents and warrants to Lender as follows:

- 2 -
 
(a)    Borrower and each Guarantor have all requisite power and authority to execute this Amendment and the Acknowledgement and Agreement of Guarantors, as applicable and to perform all of their obligations under this Amendment and the Acknowledgement and Agreement of Guarantors, and this Amendment and the Acknowledgement and Agreement of Guarantors have been duly executed and delivered by Borrower and the Guarantors, as applicable, and constitute the legal, valid and binding obligations of such parties, enforceable in accordance with their respective terms.
 
(b)    The execution, delivery and performance by Borrower and Guarantors of this Amendment and the Acknowledgement and Agreement of Guarantors have been duly authorized by all necessary action and do not (i) require any authorization, consent or approval by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) violate any provision of any law, rule or regulation or of any order, writ, injunction or decree presently in effect, having applicability to Borrower or any Guarantor, or any governing document of Borrower or any Guarantor, or (iii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which Borrower or any Guarantor is a party or by which it or its properties may be bound or affected.
 
(c)    Except for the Default to be waived pursuant to Section 1 hereof, no Default or Event of Default exists under the Credit Agreement before or after giving effect to this Amendment.
 
(d)    All of the representations and warranties contained in Article V of the Credit Agreement are correct on and as of the date hereof as though made on and as of such date, except to the extent that such representations and warranties relate solely to an earlier date.
 
6.    References. All references in the Credit Agreement to “this Agreement” shall be deemed to refer to the Credit Agreement as amended hereby; and any and all references in the Security Documents to the Credit Agreement shall be deemed to refer to the Credit Agreement as amended hereby.
 
7.    No Other Waiver. Except as set forth in Section 1 hereof, the execution of this Amendment and acceptance of any documents related hereto shall not be deemed to be a waiver of any Default or Event of Default under the Credit Agreement or breach, default or event of default under any Security Document or other document held by Lender, whether or not known to Lender and whether or not existing on the date of this Amendment.

- 3 -
 
8.    Release. BORROWER, AND EACH GUARANTOR BY SIGNING THE ACKNOWLEDGMENT AND AGREEMENT OF GUARANTORS SET FORTH BELOW, EACH HEREBY ABSOLUTELY AND UNCONDITIONALLY RELEASES AND FOREVER DISCHARGES LENDER, AND ANY AND ALL PARTICIPANTS, PARENT CORPORATIONS, SUBSIDIARY CORPORATIONS, AFFILIATED CORPORATIONS, INSURERS, INDEMNITORS, SUCCESSORS AND ASSIGNS THEREOF, TOGETHER WITH ALL OF THE PRESENT AND FORMER DIRECTORS, OFFICERS, ATTORNEYS, AGENTS AND EMPLOYEES OF ANY OF THE FOREGOING, FROM ANY AND ALL CLAIMS, DEMANDS OR CAUSES OF ACTION OF ANY KIND, NATURE OR DESCRIPTION, WHETHER ARISING IN LAW OR EQUITY OR UPON CONTRACT OR TORT OR UNDER ANY STATE OR FEDERAL LAW OR OTHERWISE, WHICH BORROWER OR SUCH GUARANTOR HAS HAD, NOW HAS OR HAS MADE CLAIM TO HAVE AGAINST ANY SUCH PERSON FOR OR BY REASON OF ANY ACT, OMISSION, MATTER, CAUSE OR THING WHATSOEVER ARISING FROM THE BEGINNING OF TIME TO AND INCLUDING THE EFFECTIVE DATE, WHETHER SUCH CLAIMS, DEMANDS AND CAUSES OF ACTION ARE MATURED OR UNMATURED OR KNOWN OR UNKNOWN, INCLUDING, WITHOUT LIMITATION, ALL CLAIMS, DEMANDS OR CAUSES OF ACTION ARISING IN WHOLE OR PART FROM THE NEGLIGENCE OR STRICT LIABLITY OF LENDER OR ANY OTHER RELEASED PARTY.
 
9.    Severability. If any term or provision of this Amendment is adjudicated to be invalid under applicable laws or regulations, such provision shall be inapplicable to the extent of such invalidity without affecting the validity or enforceability of the remainder of this Amendment which shall be given effect so far as possible.
 
10.    Binding Effect. This Amendment shall be binding upon and inure to the benefit of Borrower and Lender and their respective successors and assigns, except that Borrower shall not have the right to assign any rights thereunder or any interest therein without Lender’s prior written consent.
 
12.    Costs and Expenses. Borrower hereby reaffirms its agreement under the Credit Agreement to pay or reimburse Lender on demand for all costs and expenses incurred by Lender in connection with the Loan Documents, including without limitation all reasonable fees and disbursements of legal counsel. Without limiting the generality of the foregoing, Borrower specifically agrees to pay all fees and disbursements of counsel to Lender for the services performed by such counsel in connection with the preparation of this Amendment and the documents and instruments incidental hereto. Borrower hereby agrees that Lender may, at any time or from time to time in its sole discretion and without further authorization by Borrower, make a loan to Borrower under the Credit Agreement, or apply the proceeds of any loan, for the purpose of paying any such fees, disbursements, costs and expenses.

- 4 -
 
13.    Miscellaneous. This Amendment, the Acknowledgment and Agreement of Guarantors and the Acknowledgment and Agreement of Subordinated Creditor (i) may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original and all of which counterparts, taken together, shall constitute one and the same instrument and (ii) AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES, AND THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES. Capitalized terms used in this Amendment and the Acknowledgments attached hereto have the meanings given to them in the Credit Agreement unless otherwise specified. This Amendment shall be governed and construed in accordance with the laws of the State of Texas.
 
[SIGNATURE PAGE FOLLOWS]

- 5 -
 
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first written above to be effective as of the Effective Date.

IWC SERVICES, LLC, a Texas limited liability company  
     
By:
/s/ Jerry Winchester
  
Name: Jerry Winchester  
Title: President and CEO  
     
WELLS FARGO BANK, NATIONAL ASSOCIATION, acting through its Wells Fargo Business Credit operating division  
     
By:
/s/ John Wattinger
  
Name:  John Wattinger  
Title: Vice-President  

 
ACKNOWLEDGMENT AND AGREEMENT OF GUARANTORS

Each undersigned, each a guarantor of the indebtedness and other obligations of Borrower to Lender pursuant to a separate Guaranty each dated as of March 3, 2006 (each a “Guaranty”), hereby (i) acknowledges receipt of the foregoing Amendment; (ii) consents to the terms (including without limitation the release set forth in Section 8 of the Amendment) and execution thereof; (iii) reaffirms its obligations to Lender pursuant to the terms of its Guaranty; and (iv) acknowledges that Lender may amend, restate, extend, renew or otherwise modify the Credit Agreement and any indebtedness or agreement of Borrower, or enter into any agreement or extend additional or other credit accommodations, without notifying or obtaining the consent of the undersigned and without impairing the liability of the undersigned under its Guaranty for all of Borrower’s present and future indebtedness and other obligations to Lender.

BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
BOOTS & COOTS SERVICES, INC.
BOOTS & COOTS SPECIAL SERVICES, INC.
ELMAGCO, INC.
HELL FIGHTERS, INC.
HWC LIMITED
IWC ENGINEERING, INC.


By:
/s/ Jerry Winchester
  
Name: Jerry Winchester  
Title: President and CEO of each entity above  


ACKNOWLEDGMENT AND AGREEMENT OF SUBORDINATED CREDITORS

The undersigned, a subordinated creditor of BNC pursuant to each Senior Subordinated Promissory Note, hereby (i) acknowledges receipt of the foregoing Amendment; (ii) consents to the terms and execution thereof; (iii) reaffirms the terms of each Senior Subordinated Promissory Note; and (iv) acknowledges that Lender may amend, restate, extend, renew or otherwise modify the Loan Documents and any indebtedness or agreement of Borrower or enter into any agreement or extend additional or other credit accommodations (in each case subject to any limitations set forth in the respective Senior Subordinated Promissory Note), without notifying or obtaining the consent of the undersigned except as may be expressly required under the terms of each Senior Subordinated Promissory Note.
 
 
OIL STATES ENERGY SERVICES, INC.
(formerly known as HWC Energy Services, Inc.)
 
 
By:
 /s/ Cindy Taylor  
Name:
 Cindy Taylor  
Title:
 President  
 
 
 EX-10.19 4 ex10_19.htm EXHIBIT 10.19 Exhibit 10.19
EXHIBIT 10.19
THIRD AMENDMENT TO CREDIT AND SECURITY AGREEMENT

THIS THIRD AMENDMENT TO CREDIT AND SECURITY AGREEMENT (this “Amendment”), dated as of March 20, 2007, is made by and between IWC SERVICES, LLC, a Texas limited liability company (“Borrower”) and WELLS FARGO BANK, National Association (“Lender”), acting through its WELLS FARGO BUSINESS CREDIT operating division.
 
RECITALS
 
Borrower, Boots & Coots International Well Control, Inc. (“BNC”) and Lender are parties to the Credit and Security Agreement dated as of March 3, 2006 (as amended, restated, amended and restated or extended from time to time, the “Credit Agreement”).

Borrower has requested that certain amendments be made to the Credit Agreement as more particularly set forth herein, which Lender is willing to make pursuant to the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, it is agreed as follows:

1.    Amendments to the Credit Agreement. Effective as of December 31, 2006 upon satisfaction of the Conditions Precedent, the Credit Agreement shall be amended as follows:

(a)    Section 1.1 of the Credit Agreement shall be amended by adding the following new definition in its proper alphabetical order:

“’Eligible Joint Venture’ means any joint venture proposed to be entered into by any Credit Party, provided that (i) the terms of which shall have been furnished to Lender in writing prior to the effectiveness thereof, (ii) upon the reasonable request of Lender and if the joint venture relationship is or will be governed by the laws of the United States or any political subdivision thereof, such Credit Party shall pledge its ownership interests in such joint venture to Lender as additional Collateral for the Obligations, and (iii) prior to or simultaneous with any contribution to such joint venture of Eligible Equipment or any other Equipment financed with an Equipment Term Advance, Borrower shall prepay the Equipment Term Note by an amount equal to at least eighty percent (80%) of the value of such Equipment as set forth in the most recent appraisal delivered to Lender in accordance with this Agreement.”

(b)    Section 2.4(a)(i) of the Credit Agreement shall be amended to replace “$1,000,000” with “$2,000,000.”

(c)    Section 6.2(c) of the Credit Agreement shall be amended and restated, in its entirety, to read as follows:

 
(c)    Capital Expenditures. BNC and its Subsidiaries, including Borrower, will notify Lender within five (5) Business Days of making any Capital Expenditure exceeding $500,000, and such notice shall include sufficient detail to describe the amount expended and the asset or assets acquired pursuant to such expenditure.

(d)    Section 6.6(b) of the Credit Agreement shall be amended and restated, in its entirety, to read as follows:

(b)    Travel advances or loans to Borrower’s Officers and employees not exceeding at any one time (i) an aggregate of $45,000 per occurrence per Person, or (ii) $450,000 in the aggregate outstanding at any time;

(e)    Section 6.6(c) of the Credit Agreement shall be amended and restated, in its entirety, to read as follows:

(c)    Prepaid rent or security deposits made in the ordinary course of business and in accordance with generally accepted commercial business practices;

(f)    Section 6.6 of the Credit Agreement further shall be amended to replace the punctuation mark “.” in paragraph (d) thereof with “; and”, and to add a new paragraph (e) which shall read as follows:

(e)    Investments in Eligible Joint Ventures.

(g)    The first sentence of Section 6.17 of the Credit Agreement shall be amended and restated, in its entirety, to read as follows:

BNC and Borrower will not, and will not permit any other Credit Party to, sell, lease, assign, transfer or otherwise dispose of (i) the stock of any Subsidiary (other than Director’s qualifying shares issued in BNC or shares of a Foreign Subsidiary (that do not dilute or affect Lender’s pledge of the Equity Interests in the Foreign Subsidiary) required or deemed advisable to be issued to a foreign national in connection with any Foreign Subsidiary), (ii) all or a substantial part of its assets (a “substantial part” shall be triggered if the value of any contemplated sale, lease, assignment, transfer or other disposition when aggregated all other similar transactions occurring in any fiscal year would exceed five percent (5%) of the then applicable Book Net Worth), or (iii) any Collateral or any interest therein (whether in one transaction or in a series of transactions) to any other Person other than the sale of Inventory in the ordinary course of business or the disposition of (a) Equipment (other than Eligible Equipment or any other Equipment financed with an Equipment Term Advance) that is used, obsolete, worn out or surplus (the proceeds of which shall be paid to reduce the Obligations unless used immediately for the purchase of like Equipment) or (b) Equipment contributed by any Credit Party to an Eligible Joint Venture and will not liquidate, dissolve or suspend business operations, except that any Subsidiary that is an Inactive Subsidiary may liquidate or dissolve if (i)  BNC determines in good faith that such liquidation or dissolution is in the best interests of BNC, (ii) the liquidation or dissolution shall not have a Material Adverse Effect, and (iii) any assets of the Inactive Subsidiary are distributed to Borrower.

- 2 -
 
2.    No Other Changes. Except as explicitly amended by this Amendment, all of the terms and conditions of the Credit Agreement and the other Loan Documents shall remain in full force and effect.

3.    Conditions Precedent. This Amendment shall be effective when Lender shall have received an executed original hereof, together with each of the following, each in substance and form acceptable to Lender in its sole discretion (these conditions being collectively, the “Conditions Precedent”):

(a)    Originals of the Acknowledgment and Agreement of Guarantors and the Acknowledgment and Agreement of Subordinated Creditor set forth at the end of this Amendment, duly executed by each Guarantor and the Subordinated Creditor.

(b)    All representations and warranties made under this Amendment shall be true, correct and complete.

(c)    In consideration for entering into this Amendment, Lender shall have received from Borrower in immediately available funds an amendment fee of $10,000, which fee shall be duly earned and nonrefundable upon execution of this Amendment.

(d)    Such other matters as Lender may require in its Permitted Discretion.

4.    Representations and Warranties. Borrower hereby represents and warrants to Lender as follows:

(a)    Borrower and each Guarantor have all requisite power and authority to execute this Amendment and the Acknowledgement and Agreement of Guarantors, as applicable and to perform all of their obligations under this Amendment and the Acknowledgement and Agreement of Guarantors, and this Amendment and the Acknowledgement and Agreement of Guarantors have been duly executed and delivered by Borrower and the Guarantors, as applicable, and constitute the legal, valid and binding obligations of such parties, enforceable in accordance with their respective terms.

(b)    The execution, delivery and performance by Borrower and Guarantors of this Amendment and the Acknowledgement and Agreement of Guarantors have been duly authorized by all necessary action and do not (i) require any authorization, consent or approval by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) violate any provision of any law, rule or regulation or of any order, writ, injunction or decree presently in effect, having applicability to Borrower or any Guarantor, or any governing document of Borrower or any Guarantor, or (iii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which Borrower or any Guarantor is a party or by which it or its properties may be bound or affected.

- 3 -
 
(c)    No Default or Event of Default exists under the Credit Agreement before or after giving effect to this Amendment.

(d)    All of the representations and warranties contained in Article V of the Credit Agreement are correct on and as of the date hereof as though made on and as of such date, except to the extent that such representations and warranties relate solely to an earlier date.

5.    References. All references in the Credit Agreement to “this Agreement” shall be deemed to refer to the Credit Agreement as amended hereby; and any and all references in the Security Documents to the Credit Agreement shall be deemed to refer to the Credit Agreement as amended hereby.

6.    No Other Waiver. The execution of this Amendment and acceptance of any documents related hereto shall not be deemed to be a waiver of any Default or Event of Default under the Credit Agreement or breach, default or event of default under any Security Document or other document held by Lender, whether or not known to Lender and whether or not existing on the date of this Amendment.

7.    Ratification. Except as specifically amended hereby, the Credit Agreement and the other Loan Documents shall remain in full force and effect and hereby are ratified and confirmed by Borrower and each Guarantor as so amended. Borrower and each Guarantor hereby ratify and confirm all of the Obligations pursuant to the Credit Agreement and other Loan Documents to which it is a party and confirm and ratify the liens and security interests granted in favor of Lender in the Collateral to secure the repayment and performance of all Obligations.

8.    Release. BORROWER, AND EACH GUARANTOR BY SIGNING THE ACKNOWLEDGMENT AND AGREEMENT OF GUARANTORS SET FORTH BELOW, EACH HEREBY ABSOLUTELY AND UNCONDITIONALLY RELEASES AND FOREVER DISCHARGES LENDER, AND ANY AND ALL PARTICIPANTS, PARENT CORPORATIONS, SUBSIDIARY CORPORATIONS, AFFILIATED CORPORATIONS, INSURERS, INDEMNITORS, SUCCESSORS AND ASSIGNS THEREOF, TOGETHER WITH ALL OF THE PRESENT AND FORMER DIRECTORS, OFFICERS, ATTORNEYS, AGENTS AND EMPLOYEES OF ANY OF THE FOREGOING, FROM ANY AND ALL CLAIMS, DEMANDS OR CAUSES OF ACTION OF ANY KIND, NATURE OR DESCRIPTION, WHETHER ARISING IN LAW OR EQUITY OR UPON CONTRACT OR TORT OR UNDER ANY STATE OR FEDERAL LAW OR OTHERWISE, WHICH BORROWER OR SUCH GUARANTOR HAS HAD, NOW HAS OR HAS MADE CLAIM TO HAVE AGAINST ANY SUCH PERSON FOR OR BY REASON OF ANY ACT, OMISSION, MATTER, CAUSE OR THING WHATSOEVER ARISING FROM THE BEGINNING OF TIME TO AND INCLUDING THE DATE OF EXECUTION OF THIS AMENDMENT, WHETHER SUCH CLAIMS, DEMANDS AND CAUSES OF ACTION ARE MATURED OR UNMATURED OR KNOWN OR UNKNOWN, INCLUDING, WITHOUT LIMITATION, ALL CLAIMS, DEMANDS OR CAUSES OF ACTION ARISING IN WHOLE OR PART FROM THE NEGLIGENCE OR STRICT LIABLITY OF LENDER OR ANY OTHER RELEASED PARTY.

- 4 -
 
9.    Severability. If any term or provision of this Amendment is adjudicated to be invalid under applicable laws or regulations, such provision shall be inapplicable to the extent of such invalidity without affecting the validity or enforceability of the remainder of this Amendment which shall be given effect so far as possible.

10.    Binding Effect. This Amendment shall be binding upon and inure to the benefit of Borrower and Lender and their respective successors and assigns, except that Borrower shall not have the right to assign any rights thereunder or any interest therein without Lender’s prior written consent.

11.    Costs and Expenses. Borrower hereby reaffirms its agreement under the Credit Agreement to pay or reimburse Lender on demand for all costs and expenses incurred by Lender in connection with the Loan Documents, including without limitation all reasonable fees and disbursements of legal counsel. Without limiting the generality of the foregoing, Borrower specifically agrees to pay all fees and disbursements of counsel to Lender for the services performed by such counsel in connection with the preparation of this Amendment and the documents and instruments incidental hereto. Borrower hereby agrees that Lender may, at any time or from time to time in its sole discretion and without further authorization by Borrower, make a loan to Borrower under the Credit Agreement, or apply the proceeds of any loan, for the purpose of paying any such fees, disbursements, costs and expenses.

12.    Miscellaneous. This Amendment, the Acknowledgment and Agreement of Guarantors and the Acknowledgment and Agreement of Subordinated Creditor (i) may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original and all of which counterparts, taken together, shall constitute one and the same instrument and (ii) AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES, AND THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES. Capitalized terms used in this Amendment and the Acknowledgments attached hereto have the meanings given to them in the Credit Agreement unless otherwise specified. This Amendment shall be governed and construed in accordance with the laws of the State of Texas.

[SIGNATURE PAGE FOLLOWS]

- 5 -
 
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first written above.

IWC SERVICES, LLC, a Texas limited liability company  
     
By:
/s/ Jerry Winchester
  
Name: Jerry Winchester  
Title: President and CEO  
     
WELLS FARGO BANK, NATIONAL ASSOCIATION, acting through its Wells Fargo Business Credit operating division  
     
By:
/s/ John Wattinger
  
Name: John Wattinger  
Title:   Vice President  

 
ACKNOWLEDGMENT AND AGREEMENT OF GUARANTORS

Each undersigned, each a guarantor of the indebtedness and other obligations of Borrower to Lender pursuant to a separate Guaranty each dated as of March 3, 2006 (each a “Guaranty”), hereby (i) acknowledges receipt of the foregoing Amendment; (ii) consents to the terms (including without limitation the release set forth in Section 8 of the Amendment) and execution thereof; (iii) reaffirms its obligations to Lender pursuant to the terms of its Guaranty; and (iv) acknowledges that Lender may amend, restate, extend, renew or otherwise modify the Credit Agreement and any indebtedness or agreement of Borrower, or enter into any agreement or extend additional or other credit accommodations, without notifying or obtaining the consent of the undersigned and without impairing the liability of the undersigned under its Guaranty for all of Borrower’s present and future indebtedness and other obligations to Lender.
 
 
BOOTS & COOTS INTERNATIONAL WELL CONTROL, INC.
BOOTS & COOTS SERVICES, INC.
BOOTS & COOTS SPECIAL SERVICES, INC.
ELMAGCO, INC.
HELL FIGHTERS, INC.
HWC LIMITED
IWC ENGINEERING, INC.
 
 
By:
/s/ Jerry Winchester
  
Name: Jerry Winchester  
Title: President and CEO of each entity above  
 

ACKNOWLEDGMENT AND AGREEMENT OF SUBORDINATED CREDITORS

The undersigned, a subordinated creditor of BNC pursuant to each Senior Subordinated Promissory Note, hereby (i) acknowledges receipt of the foregoing Amendment; (ii) consents to the terms and execution thereof; (iii) reaffirms the terms of each Senior Subordinated Promissory Note; and (iv) acknowledges that Lender may amend, restate, extend, renew or otherwise modify the Loan Documents and any indebtedness or agreement of Borrower or enter into any agreement or extend additional or other credit accommodations (in each case subject to any limitations set forth in the respective Senior Subordinated Promissory Note), without notifying or obtaining the consent of the undersigned except as may be expressly required under the terms of each Senior Subordinated Promissory Note.
 
 
OIL STATES ENERGY SERVICES, INC.
(formerly known as HWC Energy Services, Inc.)
 
 
By:
  /s/ Cindy B. Taylor  
 
       Cindy B. Taylor, President
  

 
 EX-21.01 5 ex21_01.htm EXHIBIT 21.01 Exhibit 21.01
 
   
     
     
Subsidiaries
Jurisdiction of
Name under which
 
Incorporation
business conducted
     
IWC Services, L.L.C.
Texas
Boots & Coots Services
 
 
 
Boots & Coots Services, Inc.
Delaware
 
 
 
 
Boots & Coots/IWC
British Virgin
 
Overseas, Inc.
Islands
 
 
 
 
Boots & Coots Canada, Ltd.
Alberta, Canada
 
 
 
 
Boots & Coots/IWC
 
 
De Venezuela, S.A.
Venezuela
 
 
 
 
HWCES International
Cayman Islands
 
 
 
 
HWC Limited
Louisiana
 
 
 
 
Boots & Coots Services de
Mexico
 
Mexico S. de R.L. de C.V.
 
 
 
 
 EX-23.1 6 ex23_1.htm EXHIBIT 23.1 Exhibit 23.1
 
 
CONSENT OF UHY LLP
 
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Registration Nos. 333-119342, 333-119343, 333-138691 and 333-138690) and on Form S-3 (Registration No. 333-140590) of our report dated March 23, 2007, with respect to the consolidated financial statements of Boots & Coots International Well Control, Inc. and subsidiaries as of December 31, 2006 and 2005 and for each of the three years in the period ended December 31, 2006  included in this Annual Report on Form 10-K for the year ended December 31, 2006.
 
 
 /s/ UHY LLP
 
 
Houston, Texas
March 23, 2007
 
 
EX-31.1 7 ex31_1.htm EXHIBIT 31.1 Exhibit 31.1
EXHIBIT 31.1


CERTIFICATION BY JERRY WINCHESTER PURSUANT TO
SECURITIES EXCHANGE ACT RULE 13A-14


I, Jerry Winchester, certify that:

1.
I have reviewed this annual report on Form 10-K of Boots & Coots International Well Control, Inc.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

 
a)
Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

 
b)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures; and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

 
c)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrants’ fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and

5.
The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

 
a)
All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and

 
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 23, 2007

/s/ Jerry Winchester
Jerry Winchester
Chief Executive Officer
 
 
EX-31.2 8 ex31_2.htm EXHIBIT 31.2 Exhibit 31.2
EXHIBIT 31.2


CERTIFICATION BY GABRIEL ALDAPE PURSUANT TO
SECURITIES EXCHANGE ACT RULE 13A-14

I, Gabriel Aldape, certify that:

1.
I have reviewed this annual report on Form 10-K of Boots & Coots International Well Control, Inc.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

 
a)
Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

 
b)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures; and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

 
c)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrants’ fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and

5.
The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

 
a)
All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and

 
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 23, 2007

/s/ Gabriel Aldape
Gabriel Aldape
Chief Financial Officer
 
 
EX-32.1 9 ex32_1.htm EXHIBIT 32.1 Exhibit 32.1
EXHIBIT 32.1


CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of Boots & Coots International Well Control, Inc. (the Company) on Form 10-K for the year ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Jerry Winchester, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 23, 2007


/s/Jerry Winchester
Jerry Winchester
Chief Executive Officer
 
 
 
EX-32.2 10 ex32_2.htm EXHIBIT 32.2 Exhibit 32.2
EXHIBIT 32.2


CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of Boots & Coots International Well Control, Inc. (the Company) on Form 10-K for the year ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Gabriel Aldape, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 23, 2007

/s/ Gabriel Aldape
Gabriel Aldape
Chief Financial Officer
 
 
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