UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC
20549
SCHEDULE 14D-9
(RULE 14d-101)
SOLICITATION/RECOMMENDATION
STATEMENT UNDER SECTION 14(d)(4)
OF THE SECURITIES EXCHANGE ACT
OF 1934
W-H Energy Services,
Inc.
(Name of Subject
Company)
W-H Energy Services,
Inc.
(Name of Person Filing
Statement)
COMMON STOCK, PAR VALUE $0.0001 PER SHARE
(Title of Class of
Securities)
92925E108
(CUSIP Number of Class of
Securities)
Ernesto Bautista, III
Vice President and Chief Financial Officer
W-H Energy Services, Inc.
2000 West Sam Houston Parkway South, Suite 500
Houston, Texas 77042
(713) 974-9071
(Name, address and telephone
number of person authorized to receive
notice and communications on
behalf of the person filing statement)
With copies to:
Michael S. Telle
Edgar J. Marston III
Bracewell & Giuliani LLP
711 Louisiana St., Suite 2300
Houston, Texas 77002
(713) 223-2300
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Check the box if the filing relates to preliminary
communications made before the commencement date of a tender
offer.
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ITEM 1.
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SUBJECT
COMPANY INFORMATION
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The name of the subject company is
W-H Energy
Services, Inc., a Texas corporation (W-H). The
address of W-Hs principal executive offices is
2000 West Sam Houston Parkway South, Suite 500,
Houston, Texas 77042, and the telephone number of W-Hs
principal executive offices is
(713) 974-9071.
The class of equity securities to which this
Schedule 14D-9
relates is the common stock, par value $0.0001 per share,
of
W-H (the
W-H Common
Stock), and the associated rights to purchase
Series A Junior Participating Preferred Stock, par value
$0.01 per share (the Rights), issued pursuant to the
Rights Agreement, dated as of May 31, 2002, as amended,
between
W-H and
Computershare Trust Company, Inc., as Rights Agent
(together with the
W-H Common
Stock, the Shares). As of the close of business on
June 23, 2008, there were issued and outstanding
30,711,232 Shares, 260,084 unvested restricted Shares and
options to purchase 1,411,838 Shares.
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ITEM 2.
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IDENTITY
AND BACKGROUND OF FILING PERSON
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W-H is
the filing person. The name, business address and business
telephone number of
W-H are
set forth in Item 1. Subject Company
Information.
This
Schedule 14D-9,
which has been filed with the Securities and Exchange Commission
(SEC) pursuant to the Securities Exchange Act of
1934, as amended (the Exchange Act), relates to the
offer by Smith International, Inc., a Delaware corporation
(Smith), through its wholly owned subsidiary,
Whitehall Acquisition Corp., a Texas corporation (the
Offeror), to acquire each outstanding Share of
W-H (including
each restricted Share and each Share issued upon the exercise of
outstanding stock options). The terms and conditions of the
offer are set forth in Smiths prospectus/offer to exchange
(the Prospectus), which is part of a Registration
Statement on
Form S-4
that Smith has filed on the date hereof with the SEC, and which,
with the related letter of election and transmittal, together
constitute the Offer.
As more fully described in the Offer, each W-H shareholder may
elect to receive, for each outstanding Share validly tendered
and not properly withdrawn in the Offer, at the election of the
holder of such Share:
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$56.10 in cash, without interest, and 0.48 shares of Smith
common stock, par value $1.00 per share, including the
associated preferred share purchase rights (Smith Common
Stock) (the Mixed Consideration); or
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$93.55 in cash, without interest (the All-Cash
Consideration); or
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1.1990 shares of Smith Common Stock (the All-Stock
Consideration),
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subject in each case to the election procedures and, in the case
of elections of the All-Cash Consideration or the All-Stock
Consideration, to the proration procedures described in the
Prospectus.
The Offer was commenced by Offeror on June 24, 2008 and
expires at 12:00 midnight, New York City time, at the end of
July 22, 2008, unless extended by Offeror. The Offer is
conditioned on, among other things, (i) there being validly
tendered and not properly withdrawn before the expiration of the
Offer at least
66
2
/
3
%
of the Shares outstanding on a fully diluted basis,
(ii) the expiration or termination of any applicable
waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and any other applicable
similar foreign laws or regulations and (iii) Smiths
Registration Statement on Form S-4 having become effective.
The Offer and the Mergers (as defined below) are being
undertaken pursuant to an Agreement and Plan of Merger dated as
of June 3, 2008 among
W-H,
Smith
and Offeror (as such agreement may be amended from time to time,
the Merger Agreement). The Merger Agreement has been
filed herewith as an exhibit and is incorporated herein by
reference. A more complete description of the Merger Agreement
is contained in, and a copy of the Merger Agreement is attached
as Annex A to, the Prospectus.
The purpose of the Offer is for Smith to acquire control of, and
ultimately the entire equity interest in, W-H. The Offer is the
first step in Smiths plan to acquire all of the
outstanding Shares. Promptly after completion of the Offer,
Smith intends to consummate a merger of Offeror with and into
W-H, with W-H surviving the merger (this merger is referred to
herein as the Merger and W-H after the Merger is
sometimes referred to as the Surviving Corporation).
The purpose of the Merger is for Smith to acquire all Shares not
acquired in the Offer. After the
1
Merger, the Surviving Corporation will be a wholly owned
subsidiary of Smith and the former W-H shareholders will no
longer have any direct ownership interest in the Surviving
Corporation.
As promptly as practicable following the Merger, Smith intends
to cause the Surviving Corporation to merge with and into a
wholly owned subsidiary of Smith, with such wholly owned
subsidiary surviving such merger (we refer to this second merger
as the Post-Closing Merger and together with the
Merger, the Mergers). The Post-Closing Merger is
intended to cause the Offer and the Mergers, taken together, to
qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as
amended (the Code). Please read the discussion under
the caption The Offer Material
U.S. Federal Income Tax Consequences in the
Prospectus. Immediately before the Post-Closing Merger, Smith
will be the sole owner of the Surviving Corporation, and none of
the former W-H shareholders will have any direct economic
interest in, or approval or other rights with respect to, the
Post-Closing Merger.
In the Merger, each issued and outstanding Share (except for
Shares held in W-Hs treasury, Shares beneficially owned by
any direct or indirect wholly owned subsidiary of
W-H and
Shares beneficially owned directly or indirectly by Smith or
Offeror, including Shares acquired in the Offer) will be
converted into the right to receive the Mixed Consideration,
without interest, subject (1) to such adjustments as are
necessary to preserve the status of the Offer and the Mergers,
taken together, as a reorganization within the meaning of
Section 368(a) of the Code and (2) to dissenters
rights under Texas law as described in Item 8.
Additional Information The Merger; Dissenters
Rights (the Merger Consideration).
Neither this
Schedule 14D-9
nor the Information Statement attached as Annex A
constitutes a solicitation of proxies for any meeting of
shareholders.
W-H
is not
asking for a proxy and you are requested not to send
W-H
a proxy.
Any solicitation of proxies that Smith or W-H might make will be
made only pursuant to separate proxy solicitation materials
complying with the requirements of Section 14(a) of the
Exchange Act.
W-H
shareholders should contact MacKenzie Partners, Inc.,
Smiths information agent, at 105 Madison Avenue, New
York, New York 10016, 212-929-5500 (collect), 800-322-2885
(toll-free) or tenderoffer@mackenziepartners.com with any
questions about the Offer or the Mergers or to request copies of
the Prospectus or other documents.
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ITEM 3.
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PAST
CONTACTS, TRANSACTIONS, NEGOTIATIONS AND
AGREEMENTS
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In considering the recommendation of the
W-H Board
of Directors with respect to the Merger Agreement and the
transactions contemplated thereby, including the Offer and the
Merger, and the fairness of the consideration to be received in
the Offer and the Merger, shareholders should be aware that
certain executive officers and directors of
W-H have
interests in the Offer and the Merger which may constitute
conflicts of interest. Please read the information set forth
below in this Item 3 and in the Information Statement
pursuant to Section 14(f) of the Exchange Act and
Rule 14f-1
thereunder (the Information Statement) that is
attached hereto as Annex A, as such documents disclose
important additional information regarding compensation to
directors and officers and payments they will receive as a
result of the transactions contemplated by the Merger Agreement.
For purposes of all of the
W-H agreements
and plans described below, the consummation of the Offer will
constitute a Change in Control.
The W-H Board of Directors was aware of all such contracts,
agreements, arrangements or understandings and any actual or
potential conflicts of interest and considered them along with
other matters described below in Item 4. The
Solicitation or Recommendation Reasons for the
Boards Recommendation.
Treatment
of Stock Options, Restricted Shares and
W-H Benefit
Plans
Stock Options.
Immediately prior to the
consummation of the Offer (or, to the extent required, at such
earlier time as may be administratively necessary to allow
optionholders to participate in the Offer), each outstanding
stock option issued by
W-H
(each, a
W-H Option)
will become fully vested and exercisable. Any W-H Options that
remain outstanding and unexercised immediately prior to the
effective time of the Merger will, at the effective time of the
Merger, be assumed by Smith and converted into an option to
purchase, on the same terms and conditions as applied to each
such
W-H Option
immediately prior to the effective time of the Merger, the
number of whole shares
2
of Smith Common Stock that is equal to the number of Shares
subject to such
W-H Option
immediately prior to the effective time of the Merger multiplied
by the All-Stock Consideration (rounded down to the nearest
whole share), at an exercise price per share of Smith Common
Stock (rounded up to the nearest whole penny) equal to the
per-share exercise price of such
W-H Option
divided by the All-Stock Consideration.
As of June 13, 2008, the following directors and executive
officers of
W-H had
outstanding options to purchase the number of Shares specified
below, all of which, to the extent they do not previously vest
in accordance with their terms, will vest immediately prior to
the consummation of the Offer:
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Vesting upon
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Consummation
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of the Offer
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Vesting Status
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(Assuming a
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Options
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Exercise
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Prior to the
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Consummation
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Name
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Title
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Outstanding
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Price
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Offer
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Date of July 22, 2008)
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Kenneth T. White, Jr.
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Chairman, President,
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345,000
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$
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4.55
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Vested
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0
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Chief Executive Officer
and Director
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75,000
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$
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22.95
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18,750 Unvested
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18,750
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John R. Brock
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Director
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2,500
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$
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17.57
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Vested
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0
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2,875
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$
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21.04
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Vested
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0
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10,000
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$
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22.95
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2,500 Unvested
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2,500
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James D. Lightner
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Director
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10,000
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$
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21.75
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2,500 Unvested
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2,500
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10,000
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$
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22.95
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2,500 Unvested
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2,500
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Christopher Mills
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Director
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10,000
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$
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17.57
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Vested
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0
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10,000
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$
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21.04
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Vested
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0
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25,000
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$
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22.88
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Vested
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0
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10,000
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$
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22.95
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2,500 Unvested
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2,500
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Milton L. Scott
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Director
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10,000
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$
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17.57
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Vested
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0
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10,000
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$
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21.04
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Vested
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0
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10,000
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$
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22.95
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2,500 Unvested
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2,500
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Robert H. Whilden, Jr.
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Director
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10,000
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$
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17.57
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Vested
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0
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10,000
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$
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21.04
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Vested
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0
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25,000
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$
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22.88
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Vested
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0
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10,000
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$
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22.95
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2,500 Unvested
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2,500
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Ernesto Bautista, III
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Vice President and
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20,000
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$
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15.28
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Vested
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0
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Chief Financial Officer
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1,250
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$
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16.50
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Vested
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0
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10,000
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$
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18.64
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Vested
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0
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18,750
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$
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22.95
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6,250 Unvested
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6,250
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William J. Thomas III
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Vice President
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30,000
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$
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15.28
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Vested
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0
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15,000
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$
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18.64
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Vested
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0
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25,000
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$
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22.95
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6,250 Unvested
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6.250
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Glen J. Ritter
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Vice President
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20,000
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$
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18.06
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Vested
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0
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50,000
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$
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22.88
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Vested
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0
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25,000
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$
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22.95
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6,250 Unvested
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6,250
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Jeffrey L. Tepera
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Vice President and
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40,000
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$
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15.28
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Vested
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0
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Chief Operating Officer
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40,000
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$
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16.50
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Vested
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0
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40,000
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$
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18.64
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Vested
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0
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30,000
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$
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22.88
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Vested
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0
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50,000
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$
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22.95
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12,500 Unvested
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12,500
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3
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Vesting upon
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Consummation
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of the Offer
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Vesting Status
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(Assuming a
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Options
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Exercise
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Prior to the
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Consummation
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Name
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Title
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Outstanding
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Price
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Offer
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Date of July 22, 2008)
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Stuart J. Ford
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Vice President and
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6,250
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$
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22.95
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3,125 Unvested
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3,125
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Intellectual Property Counsel
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Restricted Shares.
Holders of restricted
Shares will be entitled to tender their restricted Shares in the
Offer, notwithstanding any transfer restrictions, in the same
manner as any other outstanding Shares. Any restricted Shares
that are not validly tendered and accepted for exchange in the
Offer and which are outstanding immediately prior to the
effective time of the Merger will be converted into the right to
receive the Merger Consideration in the same manner as any other
Shares which are outstanding immediately prior to the effective
time of the Merger.
As of June 13, 2008, the following directors and executive
officers of
W-H held
the outstanding restricted Shares specified below, all of which,
to the extent they do not previously vest in accordance with
their terms, will vest in full upon consummation of the Offer:
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Restricted
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Name
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Title
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Shares
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Kenneth T. White, Jr.
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Chairman, President,
Chief Executive Officer and Director
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13,334
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John R. Brock
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Director
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3,750
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James D. Lightner
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Director
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3,750
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Christopher Mills
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Director
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3,750
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Milton L. Scott
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Director
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3,750
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Robert H. Whilden, Jr.
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Director
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3,750
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Ernesto Bautista, III
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Vice President and Chief Financial Officer
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14,000
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William J. Thomas III
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Vice President
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15,500
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Glen J. Ritter
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Vice President
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15,500
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Jeffrey L. Tepera
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Vice President and Chief Operating Officer
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23,500
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Stuart J. Ford
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Vice President and Intellectual Property Counsel
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6,250
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W-H Benefit
Plans.
Pursuant to the Merger Agreement, Smith
has agreed that, after the Merger, it will assume and honor all
W-H employee
plans in accordance with their terms and will, through
December 31, 2008, provide current
W-H employees
with substantially comparable compensation and employee benefits
as provided by
W-H prior
to the consummation of the Offer and the Merger. The executive
officers of
W-H are
treated no differently in this regard than any other employee
of W-H.
Employment
Agreements
Under the terms of an amended and restated employment agreement
between
W-H and
Kenneth T. White, Jr., effective as of January 1,
2008, if Mr. Whites employment is terminated
(A) by
W-H other
than due to his death or incapacity or for certain
cause-type reasons, (B) by Mr. White for
certain good reason-type reasons or (C) by
Mr. White for any reason during the
180-day
period following a Change in Control, then
(a) Mr. White will be entitled to receive (i) his
salary through the date of termination and (ii) a lump sum
cash payment equal to 250% of the sum of his base salary and his
highest annual bonus in the three years preceding his
termination; (b) any outstanding stock options, restricted
stock awards and other equity based awards held by
Mr. White will become fully vested and immediately
exercisable on the date of his termination;
(c) Mr. White will be entitled to enter into an
agreement to perform consulting services for W-H, or its
successor, for up to 20 hours per month for five years for
the consideration of $25,000 per year; and
(d) Mr. White will be entitled to continue to
participate in all
W-H health,
medical and insurance plans that may be in effect from time to
time for five years from his date of termination.
4
Under the terms of amended and restated employment agreements
with Messrs. Bautista, III, Thomas III, Ritter, Tepera
and Ford, if the executives employment is terminated
(A) by
W-H other
than due to the executives death or incapacity or for
certain cause-type reasons, (B) by the
executive for certain good reason-type reasons or
(C) by the executive for any reason during the
180-day
period following a Change in Control, then (a) the
executive will be entitled to receive (i) his salary
through the date of termination and (ii) a lump sum cash
payment equal to 200% of the sum of his base salary and his
highest annual bonus in the three years preceding his
termination and (b) any outstanding stock options,
restricted stock awards and other equity based awards held by
the terminating officer become fully vested and immediately
exercisable on the date of his termination.
Pursuant to each of the employment agreements, in the event that
an executive becomes subject to the excise tax under
Section 4999 of the Code, he will be entitled to a gross-up
payment such that he will be placed in the same after-tax
position as if no such excise tax had been imposed.
Assuming that the Offer is completed on July 22, 2008 and
the executive experiences a qualifying termination of employment
immediately thereafter (which would include a resignation by the
executive for any reason), the executive officers would be
entitled to receive the following estimated cash severance
payments:
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Multiple of
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Salary and
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Applicable
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Executive Officer
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Bonus
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Kenneth T. White, Jr.
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$
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3,625,000
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Ernesto Bautista, III
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$
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1,066,000
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William J. Thomas III
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$
|
1,700,000
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Glen J. Ritter
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|
$
|
1,700,000
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Jeffrey L. Tepera
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|
$
|
1,531,350
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Stuart J. Ford
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|
$
|
1,046,000
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It is not currently expected that any gross-up payments will be
owed to the executive officers, whether or not they experience a
qualifying termination of employment after completion of the
Offer.
Board
Appointment
Pursuant to the terms of the Merger Agreement and subject to the
requirements of the Exchange Act, promptly following the
consummation of the Offer,
W-H has
agreed to take all actions necessary to cause such number of
persons designated by Offeror to be appointed to the
W-H Board
of Directors as will give Offeror representation on the
W-H Board
of Directors equal to the ratio of the number of Shares
purchased by Offeror in the Offer to the total number of Shares
outstanding.
W-H has
also agreed to cause persons designated by Offeror to constitute
a majority of each committee of the
W-H Board
of Directors, other than any committee established to take
certain actions with respect to the Merger Agreement and the
Offer and the Mergers. Notwithstanding the foregoing,
W-H has
agreed to use all reasonable efforts to ensure that at least
three of the members of the
W-H Board
of Directors who are reasonably satisfactory to Offeror and who
qualify as independent directors for purposes of the continued
listing requirements of the New York Stock Exchange (the
NYSE) and SEC rules and regulations to remain
members of the
W-H Board
of Directors until the consummation of the Merger in order to
take certain actions with respect to the Merger Agreement and
the Offer and the Mergers.
Directors
and Officers Indemnification and Insurance
Under the Merger Agreement, Smith will cause the company
surviving the Post-Closing Merger (the Ultimate Surviving
Company) to indemnify and hold harmless, to the fullest
extent required or permitted under applicable law, each current
and former director and officer of
W-H and
its subsidiaries against liabilities in connection with claims
based on or arising out of the fact that such person is or was
such an officer or director or pertaining to the Merger
Agreement. In addition, for a period of six years following the
effective time of the Merger, the organizational documents of
the Ultimate Surviving Company must contain provisions no less
favorable with respect to indemnification and exoneration of
present and former directors and officers of
W-H
and its
subsidiaries with respect to
5
matters occurring through the effective time of the Merger than
are presently set forth in W-Hs articles of incorporation
and bylaws.
For six years after the effective time of the Merger, the
Ultimate Surviving Company will maintain in effect the current
policies of directors and officers liability
insurance maintained by W-H. However, if the annual aggregate
premium payments for this insurance exceed 200% of the annual
premiums paid as of the date of the Merger Agreement by
W-H for
such insurance, Smith shall only be obligated to cause the
Ultimate Surviving Company to provide such coverage as shall be
available at an annual premium equal to 200% of the current rate.
Under the Merger Agreement, instead of the insurance described
above, effective as of the effective time of the Merger, Smith
may require the Ultimate Surviving Company to purchase a
directors and officers liability insurance
tail insurance program for a period of six years
after the effective time of the Merger with respect to wrongful
acts or omissions committed or allegedly committed at or prior
to the effective time of the Merger. In the event that
W-H purchases
such a tail policy prior to the effective time of
the Merger, Smith shall cause the Ultimate Surviving Company to
maintain such tail policy in full force and effect
and continue to honor its obligations thereunder.
Arrangements
with Smith
Mr. Milton L. Scott is an officer and director of a company
that is a party to an arms length supply agreement with
Wilson International, Inc., a wholly owned subsidiary of Smith.
No transactions have occurred pursuant to this supply agreement.
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ITEM 4.
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THE
SOLICITATION OR RECOMMENDATION
|
The
Boards Recommendation
The
W-H Board
of Directors unanimously adopted resolutions, among other
things, (i) deeming the Merger Agreement and the
transactions contemplated thereby, including the Offer and the
Mergers, to be in the best interests of the
W-H shareholders, (ii) approving the Merger Agreement
and the transactions contemplated thereby, including the Offer
and the Mergers, in all respects and (iii) recommending
that
W-H
shareholders accept the Offer and tender their Shares thereunder
to Offeror and, if applicable, that the W-H shareholders
approve and adopt the Merger Agreement and the Merger. Such
recommendation may be withdrawn, modified or amended only to the
extent permitted by Section 5.3 of the Merger Agreement. A
letter to W-Hs shareholders communicating the
recommendation of the
W-H Board
of Directors is filed herewith as Exhibit (a)(3) to this
Schedule 14D-9
and is incorporated herein by reference.
THE
W-H BOARD
OF DIRECTORS RECOMMENDS THAT W-H SHAREHOLDERS ACCEPT
THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE
OFFER
While the W-H Board of Directors believes that the blend of cash
and common stock consideration and the All-Cash Consideration
and the All-Stock Consideration election options are favorable
aspects of the Offer, the proration mechanism that may apply to
W-H shareholders that elect either of these options is complex.
Accordingly, the W-H Board of Directors urges W-H shareholders
to read and understand the material appearing under the caption
The Offer in the Prospectus so that they will
appreciate the possible proration consequences of electing the
All-Cash Consideration or the All-Stock Consideration options.
This and other sections of the Prospectus point out, among other
things, that:
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W-H shareholders electing the Mixed Consideration will not be
subject to proration under any circumstances;
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W-H shareholders electing the All-Stock Consideration or the
All-Cash Consideration may be subject to proration if W-H
shareholders, in the aggregate, elect to receive more or less
than the aggregate amount of cash consideration
($1.636 billion) to be paid in the Offer;
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as a consequence of the operation of the proration mechanism, a
W-H shareholder may receive more stock and less cash or more
cash and less stock than such shareholder initially elected;
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6
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the number of additional shares of Smith Common Stock issuable
as a result of the application of the proration mechanism will
be computed at the rate applicable to the All-Stock
Consideration election option, and the amount of cash
deliverable as a result of application of the proration
mechanism will be computed at the rate payable pursuant to the
All-Cash Consideration election option;
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the implied value of the Mixed Consideration and the All-Stock
Consideration options will fluctuate because of the Smith Common
Stock component of the consideration offered pursuant to these
options, and as a consequence, W-H shareholders should
obtain current market price information before tendering their
Shares; and
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W-H shareholders should understand that the implied value of the
consideration received by W-H shareholders making different
elections (or not making any election) may differ depending upon
the market price of the Smith Common Stock at the expiration of
the Offer and the elections made by other W-H shareholders, and
that such difference could be significant.
|
Background
for the Boards Recommendation
As a part of the continuous evaluation of its business,
W-H
has
regularly considered various strategic alternatives, including
the possibility of engaging in a business combination
transaction with another oilfield services company or a
financial buyer. In addition, from time to time
W-H
has
received unsolicited inquiries regarding possible business
combination transactions.
In late 2006, a prospective financial buyer, referred to herein
as Party A, which expressed an interest in exploring
strategic alternatives with
W-H,
entered
into a confidentiality agreement with
W-H
and
conducted preliminary business and financial due diligence on
W-H.
In
mid-November 2006, after conducting this preliminary due
diligence, Party A provided
W-H
with an
acquisition proposal valuing
W-H
at
between $51.00 and $53.00 per share subject to further due
diligence.
W-H
rejected
this proposal as inadequate in view of managements and the
W-H
Board of
Directors view of the long-term prospects of
W-H.
The
average closing price of the Shares on the NYSE during November
2006 was $46.24.
In early 2007, Mr. Kenneth T. White, Jr.,
W-Hs
Chairman, President and Chief Executive Officer, met with the
chief executive officer of a large oilfield services company
referred to herein as Party B, and during such
meeting the possibility of a business combination involving the
two companies was discussed. Following this discussion, Party B
entered into a confidentiality agreement with
W-H
and
began conducting due diligence.
During the time Party B was conducting due diligence, another
large oilfield services company, referred to herein as
Party C, sent a letter to
W-H
expressing its interest in discussing a possible business
combination transaction with
W-H.
The
letter, which was received on March 20, 2007, stated that
it did not constitute a firm offer but that, based solely on
public information, Party C expected that an offer for
W-H
would be
in a range of $56.00 to $61.00 per share. On the preceding
business day, the closing price of the Shares on the NYSE was
$42.85 per share.
W-Hs
management and the
W-H
Board of
Directors had concerns with respect to Party C because Party C
competes with
W-H
in a
number of product and service offerings; nevertheless,
W-H
subsequently entered into a confidentiality agreement with Party
C pursuant to which it provided Party C with due diligence
information.
On March 28, 2007, Party B informed
W-H
that it
would be prepared to discuss a transaction valuing
W-H
at
$53.00 per share. On the preceding business day, the closing
price of the Shares on the NYSE was $45.91 per share.
Also during this time, Party A contacted
W-H
to
discuss the possibility of a leveraged recapitalization of, or
other transaction involving,
W-H.
The
W-H
Board of
Directors, after receiving the advice of UBS Securities LLC,
W-Hs
investment banker (UBS), and Bracewell &
Giuliani LLP,
W-Hs
outside legal counsel (Bracewell), determined that
Party A would be constrained in making an offer for
W-H
which
would be competitive with the range offered by Party B and Party
C in light of
W-Hs
high capital expenditure requirements and Party As lack of
synergies. Accordingly, the
W-H
Board of
Directors determined not to explore further discussions with
Party A.
During the months of March and April of 2007, Party B and Party
C conducted due diligence examinations of
W-H.
On
May 15, 2007, each of Party B and Party C informed
W-H
that
neither company planned to submit a formal valuation proposal.
Both parties informed
W-H
that,
because
W-Hs
stock price had increased more than 25% since
7
early April 2007, they believed that the
W-H
stock
was fully valued and did not believe they could offer a premium
to the current market price. The closing price of the Shares on
the NYSE on May 14, 2007 was $60.22. Party C also expressed
concerns about integrating
W-H
with
Party C following an acquisition. Following discussion,
including consideration of the advice of UBS and Bracewell, the
W-H
Board of
Directors determined to take no further action at that time with
regard to a business combination transaction involving either
Party B or Party C.
In late February 2008, at the suggestion of UBS, Mr. White
met with Mr. Douglas Rock, Smiths Chairman and Chief
Executive Officer, and discussed industry conditions generally,
their respective businesses and the possibility of a business
combination transaction involving Smith and
W-H.
Mr. Rock informed Mr. White that Smith was interested
in conducting a due diligence investigation of
W-H
and
potentially proposing a business combination. Mr. White
discussed this conversation with the
W-H
Board of
Directors which authorized
W-H
to enter
into a confidentiality agreement to permit Smith to conduct due
diligence, and on March 10, 2008
W-H
and
Smith entered into a confidentiality agreement.
On March 18, 2008, the
W-H
Board of
Directors held a special meeting at which Mr. White
provided an update regarding the initial conversations
concerning a potential business combination of Smith and
W-H.
Mr. White described the discussions that had occurred to
date with Mr. Rock. The
W-H
Board of
Directors directed Mr. White to continue discussions with
Smith about the possibility of a business combination.
On March 26, 2008, a lengthy due diligence meeting and
management presentation was held for several senior executive
officers of Smith, including Mr. Rock.
On March 31, 2008, the
W-H
Board of
Directors held a special meeting at which Mr. White
provided an update regarding the March 26, 2008 due
diligence and management presentation meeting between Smith and
W-H.
The
W-H
Board of
Directors again directed Mr. White to continue working with
Smith to provide a valuation proposal.
On April 24 and 25, 2008, the
W-H
Board of
Directors held a regularly scheduled quarterly meeting. During
such meeting, Mr. White, together with representatives of
Bracewell and UBS, updated the
W-H
Board of
Directors as to the status of the discussions with Smith. The
W-H
Board of
Directors directed Mr. White to continue working with Smith
to secure a valuation proposal.
On May 6, 2008, Mr. Rock contacted Mr. White and
advised him that Smith was prepared to make a preliminary
acquisition proposal for
W-H.
Mr. Rock advised Mr. White that Smith would be sending
a letter, and proceeded to summarize the proposal as
representing a per share value that day of approximately $93.50,
consisting of $56.10 in cash and .461 shares of Smith
Common Stock for each outstanding Share. Mr. Rock stated
Smiths desire to execute a definitive merger agreement by
May 30, 2008 and consummate the transaction within
90 days. Mr. Rock advised Mr. White that Smith
would be requesting a 5%
break-up
fee
and a no shop provision and that Smiths proposal was
expressly conditioned on a
30-day
exclusive period in which to negotiate a definitive merger
agreement. Smiths proposal of $56.10 in cash and
.461 shares of Smith Common Stock for each Share
represented a 22.8% premium to the closing price of the Shares
on the NYSE on May 6, 2008 of $76.10 per share.
On May 7, 2008, Mr. Richard E. Chandler, Jr.,
Smiths Senior Vice President and General Counsel,
representatives of Bracewell and representatives of Wachtell,
Lipton, Rosen & Katz (Wachtell),
Smiths outside legal counsel, discussed the terms of the
proposed business combination transaction by telephone in more
detail, including a discussion of the terms of the transaction,
the proposed timeline, the state of Smiths due diligence
investigation of
W-H,
the
proposed
break-up
fee
and the possibility of structuring the transaction as an
exchange offer followed by a second step merger. The
representatives of Bracewell advised the representatives of
Smith that
W-H
desired
to further negotiate the price and
break-up
fee. The Smith representatives advised that Smith would be
unwilling to consider an increase in price.
Later that day, Bracewell received a letter from Smith
containing Smiths preliminary views concerning an
acquisition/business combination proposal on the following terms:
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the transaction would be a tax-free reorganization with
consideration consisting of a fixed exchange ratio of
0.461 shares of Smith Common Stock and $56.10 in cash for
each Share (with Smith allowing the holders to elect between
cash and stock, subject to proration);
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there would be no financing condition;
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8
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the
break-up
fee would be 5% of the transaction value, plus expenses; and
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the merger agreement would contain a customary no shop provision.
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The letter stated that Smith would require
W-H
to agree
to a
30-day
exclusivity period. The letter also stated that Smith desired to
execute an agreement no later than May 30, 2008 and close
within 90 days. The letter stated that the transaction was
subject to approval by the Smith Board of Directors, completion
of due diligence and the negotiation and execution of a
definitive acquisition agreement. The letter further stated that
no material regulatory or other impediments were anticipated by
Smith, no Smith shareholder vote was required and the proposal
was confidential and would terminate if publicly disclosed.
On the evening of May 7, 2008, the
W-H
Board of
Directors held a special meeting to consider Smiths
preliminary acquisition proposal. Representatives of Bracewell
and UBS were also present. Mr. White updated the members of
the
W-H
Board of Directors regarding his May 6, 2008 call with
Mr. Rock, and a Bracewell representative summarized the
May 7, 2008 letter from Smith containing the preliminary
acquisition proposal. The Bracewell representative also
described for the
W-H
Board of
Directors the telephone call that had occurred with Smiths
legal representatives, including a discussion of Smiths
position regarding its unwillingness to further negotiate price.
Following discussion, the
W-H
Board of
Directors decided that the Smith proposal warranted moving
forward, but that further discussions regarding, among other
things, the price and
break-up
fee, would be required.
On May 8, 2008, Mr. White contacted Mr. Rock to
advise him of the results of the prior evenings board
meeting. Mr. White advised Mr. Rock that the Smith
proposal had generally been well received by the
W-H
Board of
Directors, but that the price and
break-up
fee
would require further negotiation. Mr. Rock and
Mr. White agreed that the parties would continue their
discussions and Smith would proceed with more detailed due
diligence.
On May 12, 2008,
W-H
and
Smith executed an exclusivity letter as contemplated by
Smiths May 7, 2008 preliminary acquisition proposal.
The letter, which was dated May 9, 2008, prohibited
W-H
from
discussing or entering into a business combination transaction
with any party other than Smith until June 8, 2008.
On May 20, 2008, Mr. White received a telephone call
from Mr. Rock in which Mr. Rock expressed Smiths
desire for a response to the economic terms proposed by Smith
and confirmation that
W-H
was
willing to proceed on substantially the basis Smith had
initially presented before Smith expended additional resources
pursuing a proposed transaction. Mr. White told
Mr. Rock he would take the matter up with the
W-H
Board of
Directors.
On May 21, 2008, the
W-H
Board of
Directors met to discuss the status of the negotiations and
Smiths request regarding the consideration payable in the
potential transaction. Representatives of Bracewell and UBS were
also present. Mr. White summarized for the
W-H
Board of
Directors his May 20, 2008 telephone call with
Mr. Rock and Smiths desire for a response from
W-H
regarding Smiths preliminary acquisition proposal.
Representatives of Bracewell then reviewed the fiduciary duties
of the
W-H
Board of Directors in the context of the preliminary acquisition
proposal from Smith. The
W-H
Board of
Directors then considered and discussed the advisability of
contacting Party A, Party B or Party C following the expiration
of the exclusivity period. The W-H Board of Directors also
considered and discussed the inability of Party A to make a
competitive offer for
W-H
in light
of
W-Hs
high capital expenditure requirements and the lack of synergies
and difficulties that Party A or any other financial buyer would
have in financing a transaction in the current capital markets
environment. The
W-H
Board of
Directors also discussed the integration and competitive
concerns with respect to Party C and the fact that both Party B
and Party C had expressed the view that the Shares were fully
valued at a time when they were trading at considerably lower
levels than in May 2008 and had failed to submit valuation
proposals near the level of value that was being proposed by
Smith. UBS also informed the
W-H
Board of
Directors that they did not believe any of these parties or
others would be interested in exploring a transaction at a
valuation higher than the Smith proposal. Bracewell discussed
with the
W-H
Board of Directors that any definitive merger agreement would
provide the Board with the ability to terminate the agreement in
favor of a superior proposal and that W-H should attempt to
negotiate a lower
break-up
fee
so as not to preclude any such proposal.
After discussion, the
W-H
Board of
Directors determined to present to Smith the following
non-binding counterproposal, subject to completion of due
diligence by
W-H
of
Smith, the receipt by the
W-H
Board of
Directors of a fairness opinion from UBS, and the negotiation
and execution of a mutually satisfactory definitive
9
agreement that is approved by the
W-H
Board of
Directors: (1) cash per Share to remain the same at $56.10;
(2) .50 shares of Smith Common Stock for each Share; and
(3) a 2.5%
break-up
fee, plus expenses. The
W-H
Board of
Directors also determined that the exchange offer followed by a
second step merger, which had been proposed by Smith on
May 7, 2008, would be an advantageous method for
structuring the transaction because it would accelerate the time
at which
W-H
shareholders would receive payment and because it gave each
W-H
shareholder the right to accept or reject the Offer.
Later in the day on May 21, 2008, Messrs. White and
Trauber met with Mr. Rock at Mr. Rocks offices
to deliver
W-Hs
counterproposal.
At a meeting of Smiths Board of Directors on May 22,
2008, Mr. Rock informed the Smith Board of Directors of the
status of negotiations with
W-H
and
Mr. Whites counterproposal. After discussion, the
Smith Board of Directors authorized Mr. Rock to discuss a
revised proposal to acquire
W-H
via an
exchange offer with the lower
break-up
fee
that
W-H
was
seeking and an increase in the exchange ratio to .48 shares of
Smith Common Stock for each Share, with the cash portion
remaining at $56.10 per Share.
On May 22, 2008, Mr. Rock contacted Mr. White by
telephone to advise him that Smith was agreeable to the 2.5%
break-up
fee, plus expenses, and that Smith was willing to increase the
stock component of the transaction to .48 shares of Smith
Common Stock for each Share. Mr. White committed to discuss
the revised proposal with the
W-H
Board of
Directors. Mr. White reminded Mr. Rock that due
diligence was still ongoing and that a transaction could only
occur following negotiation of a mutually agreeable definitive
agreement and approval of the same by the
W-H
Board of
Directors.
On May 27, 2008, Mr. Rock contacted Mr. White
regarding the proposed exchange ratio and Smiths desire to
have a response with regard to price. He emphasized that Smith
was unwilling to deliver an initial draft of a merger agreement
until such response was received.
On May 28, 2008, the
W-H
Board of
Directors held a special meeting. Representatives of Bracewell
were also present. Mr. White reviewed with the
W-H
Board of
Directors the negotiations that had occurred over the prior
weeks and also provided a summary of his May 27, 2008 call
with Mr. Rock, in which Mr. Rock indicated
Smiths desire to achieve an understanding regarding the
exchange ratio. Mr. White reminded the
W-H
Board of
Directors that a merger agreement had not yet been provided by
Smith and that the definitive terms of the merger agreement
would need to be negotiated and approved by the
W-H
Board of
Directors.
Following a discussion with management, the
W-H
Board of
Directors gave Mr. White the authority to reach a
preliminary pricing understanding of $56.10 in cash and
.48 shares of Smith Common Stock for each Share, subject to
satisfactory completion of due diligence on Smith and
negotiation and execution of a definitive agreement approved by
the
W-H
Board of Directors that incorporated a
break-up
fee
of 2.5%, plus expenses. The
W-H
Board of
Directors conditioned its willingness to reach an understanding
on price on the conditions that a definitive agreement
satisfactory to the
W-H
Board of
Directors would be executed on or prior to June 2, 2008 and
that
W-Hs
due diligence review of Smith would be completed to
W-Hs
satisfaction.
Later in the day on May 28, 2008, Mr. White spoke to
Mr. Rock and advised him of the conclusions reached by the
W-H
Board of
Directors. On the evening of May 28, 2008, Wachtell
provided an initial draft of the merger agreement to Bracewell,
and over the next several days representatives of Bracewell and
representatives of Wachtell discussed the agreement and
exchanged drafts. Bracewell circulated a draft of the merger
agreement to Wachtell and to the
W-H
Board of
Directors on May 30, 2008.
On the morning of June 2, 2008, the
W-H
Board of
Directors held a special meeting. Representatives of Bracewell
and UBS were also present. A representative of Bracewell gave a
brief overview of the negotiations between
W-H
and
Smith that had occurred since the initial draft of the merger
agreement had been circulated and discussed the current draft of
the merger agreement. A UBS representative presented a financial
analysis of the proposed transaction. The UBS representative
also described the steps that had been taken in order to
complete due diligence of Smith over the weekend, the status of
UBS analysis and its ability to render a fairness opinion
if and when requested to do so.
10
In the afternoon of June 2, the Compensation Committee of
the
W-H
Board of Directors held a meeting. At this meeting, the
Compensation Committee recognized that the offer would
constitute a change in control event under
W-Hs
employment contracts with its senior officers and selected key
personnel. The Compensation Committee also approved the
acceleration of the vesting of all unvested outstanding stock
options, restricted share awards and cash awards under
W-Hs
long-term cash incentive plan effective immediately prior to the
consummation of the offer and exempted the participation by the
holders of such restricted shares and shares issuable upon the
exercise of the foregoing options from Section 16(b) of the
Exchange Act as contemplated by SEC
Rule 16b-3
thereunder. The Compensation Committee determined that the
foregoing changes and payments were being made or paid as
compensation for past services performed, future services to be
performed or future services to be refrained from being
performed and were not being calculated based on the number of
securities tendered or to be tendered in the offer, all as
permitted by SEC
Rule 14d-10(b)(2).
Later on the afternoon of June 2, the
W-H
Board of
Directors held a second special meeting. Representatives of
Bracewell and UBS were also present. Management of
W-H
summarized for the
W-H
Board of
Directors their due diligence of Smith, and a representative of
Bracewell provided the
W-H
Board of
Directors with an update regarding the status of the
negotiations with Smith and its legal counsel. The Bracewell
representative indicated that agreement still needed to be
reached on the expense reimbursement. He described Smiths
initial proposal of $25 million,
W-Hs
counterproposal of $10 million and Smiths current
proposal of a $17.5 million expense reimbursement.
Discussion ensued between the
W-H
Board of
Directors and representatives of UBS. Thereafter, the
W-H
Board of
Directors concluded that the
break-up
fee
of 2.5%, together with the $17.5 million flat fee expense
reimbursement was reasonable, and not excessive when compared
with the amounts payable in respect of other transactions of
comparable size.
A UBS representative then outlined the final economic terms of
the Offer, including the value of .48 shares of Smith
Common Stock based upon its closing price on the NYSE of $78.02
earlier in the day, and the resulting calculation of the Mixed
Consideration, the All-Stock Consideration and the All-Cash
Consideration, the proration applicable to the All-Stock
Consideration and the All-Cash Consideration and the cash cap.
The UBS representative then discussed with the
W-H
Board of
Directors UBS valuation analysis and, at the request of
the
W-H
Board of Directors, delivered UBS oral opinion, which was
subsequently confirmed in writing, that as of the date of such
opinion and subject to the assumptions, qualifications and
limitations set forth therein, the consideration to be received
by the holders of the Shares pursuant to the Offer and the
Merger was fair, from a financial point of view, to such holders.
Following discussion, including consideration of the advice of
UBS and Bracewell, the
W-H
Board of
Directors unanimously adopted resolutions approving the merger
agreement and the transactions contemplated thereby, and
resolved to recommend that
W-H
shareholders tender their shares into the offer and approve the
Merger Agreement. The
W-H
Board of
Directors also unanimously waived the application of
W-Hs
rights agreement to the transactions contemplated by the Merger
Agreement, waived application to the transaction of
Chapter 13 of the Texas Business Corporation Act (Business
Combinations) and any other applicable anti-takeover laws or
regulations, acknowledged the action taken by the Compensation
Committee of the
W-H
Board of
Directors earlier in the day and approved a draft press release
announcing the transaction.
Also on June 2, 2008, the Smith Board of Directors met to
discuss the merger agreement and the transactions contemplated
thereby. At that meeting, the Smith Board of Directors
unanimously determined that the transactions contemplated by the
merger agreement were fair to, advisable and in the best
interests of Smith and its stockholders, and the directors voted
unanimously to approve the offer and the merger with
W-H,
to
approve the merger agreement and the other transactions
contemplated thereby.
The definitive Merger Agreement was thereafter finalized, and
prior to the opening of the New York Stock Exchange on
June 3, 2008,
W-H
and
Smith executed the Merger Agreement and issued a joint press
release announcing the transaction.
Reasons
for the Boards Recommendation
In deeming the Offer, the Merger, the Merger Agreement and the
other transactions contemplated by the Merger Agreement to be in
the best interests of
W-H shareholders,
in approving the Merger Agreement and in
11
recommending that
W-H shareholders
accept the Offer and tender their shares to Offeror and approve
the Merger, if necessary, the
W-H Board
of Directors consulted with
W-H management
and its outside advisors, and considered a variety of factors
weighing in favor of the Offer and the Merger, including the
material factors listed below.
Expected Benefits of the Offer and the
Merger.
The combination of Smith and
W-H is
expected to result in several benefits to W-Hs
shareholders and the combined company, including the following:
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Premium to W-Hs Shareholders.
Based on
the closing prices of the Smith Common Stock and the Shares as
of May 6, 2008 (the last day prior to the date the
W-H Board
of Directors first considered Smiths preliminary
acquisition proposal), May 28, 2008 (the day the
W-H Board
of Directors agreed, subject to the negotiation of an acceptable
merger agreement, to fix the transaction consideration) and
June 2, 2008 (the last trading day prior to the public
announcement of the Merger Agreement), the value of the Mixed
Consideration as of June 2, 2008 represented a premium of
24.9%, 10.6% and 9.4%, respectively, to W-H shareholders.
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Stock Consideration.
W-H shareholders may, in
the case of the Offer, and will, in the case of the Merger,
receive a portion of the consideration in the form of Smith
Common Stock, which will allow
W-H shareholders
who receive Smith Common Stock to share in growth and other
opportunities of the combined company after the closing of the
Merger. The Offer and the Mergers, taken together, are intended
to qualify as a reorganization within the meaning of
Section 368(a) of the Code and, if so qualified,
W-H shareholders
generally would not recognize gain, for U.S. federal income
tax purposes, upon their exchange of Shares pursuant to the
Offer or the Merger, except with respect to cash received.
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Increased Scope and Scale of Operations.
The
combined company is expected to have substantially greater cash
flow, liquidity and financial flexibility than
W-H on
a stand-alone basis, strengthening the combined companys
ability to pursue growth opportunities, especially
internationally, to expand into new businesses, to continue to
develop new technology and to compete in the highly competitive
oilfield services industry.
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Creates a Leading Oilfield Services
Company.
The combination of Smith and
W-H will
result in a company with a broader and more diversified product
and service offering. This will produce a larger enterprise with
an expanded customer base enabling it to better compete with the
largest oilfield services companies. In addition, the shares of
the combined company may trade at higher trading multiples of
earnings
and/or
cash
flow with lower trading volatility than the Shares on a
stand-alone basis.
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Other Material Factors Considered.
During the
course of its deliberations relating to the Offer and the
Merger, the
W-H Board
of Directors also considered, among other things, the following
factors:
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Strategic Alternatives.
The possible
alternatives to the Offer and the Merger (including the
possibility of continuing to operate as an independent entity),
the perceived risks and benefits of any such alternatives,
including the timing and likelihood of consummating any such
alternative, and the
W-H Board
of Directors assessment that the Offer and the Merger,
together, present a superior opportunity to any such
alternatives.
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The Companies Operating Conditions.
The
W-H Board
of Directors familiarity with, and understanding of,
W-Hs
business, financial condition, results of operations, current
business strategy and earnings and prospects and of Smiths
business, financial condition, results of operations, business
strategy and earnings and prospects (including the report of
W-Hs management and outside advisers on the results of
their due diligence review of Smith).
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Market Conditions.
The
W-H Board
of Directors understanding, and managements review,
of W-Hs current and prospective business, and its and
W-H managements
belief that:
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the Shares have never traded at a price in excess of the market
value of the consideration to be offered in the Offer and the
Merger;
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maximizing W-Hs business opportunities, especially
international opportunities, would require significant capital
outlays and expose
W-H to
the risks associated in
starting-up
operations in new
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12
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countries, where, in contrast, Smith has an established
international presence and, as a larger company, better access
to capital markets; and
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the ability of
W-H to
compete effectively during an industry downturn would likely be
improved if the company were part of a larger and more
diversified organization.
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Industry Conditions.
The
W-H Board
of Directors understanding, and W-H managements
review, of overall market conditions, including then-current
industry conditions, the relatively high level of oil and
natural gas prices, W-Hs trading price, and the
W-H Board
of Directors determination that, in light of these
factors, the timing of a potential transaction was favorable to
W-H.
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Business Plan.
The risk that
W-H may
not be able to successfully fully execute its business plan as a
stand-alone business.
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Impact of the Announcement of the Transaction on Business
Operations.
The potential impact of the
announcement of the Offer and the Merger on W-Hs and
Smiths business operations and on their respective
suppliers, creditors, customers and employees.
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Possible Synergy Opportunities.
The
possibility that the combined company could benefit from
potential synergies, such as from reduced corporate overhead
expenses and other similar opportunities to consolidate
redundant activities and the risk of not capturing any such
synergies.
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Dissenters Rights.
The fact that
W-Hs shareholders will not be obligated to tender their
Shares in the Offer and, if they so desire, will be able to
exercise dissenters rights with respect to the Merger.
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Provisions of the Merger Agreement.
The terms
of the Merger Agreement, including:
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the blend of cash and stock consideration and the cash and stock
election features;
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the conditions to closing of the Offer and the Merger, including
the absence of a financing condition, and the fact that approval
by Smiths stockholders was not required; and
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W-Hs ability to furnish information to and conduct
negotiations with a third party and to terminate the Merger
Agreement to enter into an agreement relating to a superior
proposal under certain circumstances, including the payment of a
termination fee and expense reimbursement to Smith (for more
information see The Merger Agreement No
Solicitation in the Prospectus).
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Market Capitalization and Capital
Structure.
The relative market capitalizations of
W-H and
Smith and the expected capital structure and market
capitalization of the combined company after the closing of the
Offer and the Merger.
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Due Diligence.
The results of the due
diligence investigations of Smith by W-Hs management and
financial and legal advisors.
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Market Reaction.
Possible stock market
reaction to the announcement of the Offer and the Merger
transaction.
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Financial Advisors Analysis and
Opinion.
The financial analysis reviewed and
discussed with W-Hs Board of Directors by representatives
of UBS on May 21, 2008, and on June 2, 2008 in
connection with UBSs oral opinion to W-Hs Board of
Directors (which was subsequently confirmed in writing by
delivery of UBSs written opinion dated June 2,
2008) with respect to the fairness, from a financial point
of view, of the consideration to be received by the holders of
Shares in the Offer and the Merger pursuant to the Merger
Agreement.
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The
W-H Board
of Directors also considered potential risks associated with the
Offer and the Merger in connection with its evaluation of the
proposed transaction, including:
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the challenges of integrating the business and operations of the
two companies, including the possible departure of key employees
and the possible diversion of managements attention for an
extended period of time;
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13
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the conditions to the Offer and the Merger and the requirement
that certain regulatory approvals and clearances be obtained
(for more information see the sections entitled The
Merger Regulatory Approvals Required for the
Merger and The Merger Agreement
Conditions to the Merger in the Prospectus);
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the risk that the Offer and the Merger may not be consummated
despite the parties efforts or that consummation may be
unduly delayed;
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the risk, which is common in transactions of this type, that the
terms of the Merger Agreement, including provisions relating to
W-Hs payment of a termination fee under specified
circumstances, might discourage other parties that could
otherwise have an interest in a business combination with, or an
acquisition of,
W-H from
proposing such a transaction (for more information see The
Merger Agreement Termination in the
Prospectus);
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the possibility that certain customers may decide to terminate
their relationship with the combined company; and
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the other risks described in the section entitled Risk
Factors in the Prospectus.
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After consideration of these material factors, the
W-H Board of Directors determined that these risks could be
mitigated or managed by W-H, Smith or the combined company, as
applicable, were reasonably acceptable under the circumstances
or were unlikely to have a material adverse impact on the Offer
or the Merger or the combined company, or that, overall, the
risks were significantly outweighed by the potential benefits of
the transaction.
This discussion of the information and factors considered by the
W-H Board
of Directors includes the material positive and negative factors
considered by the
W-H Board
of Directors, but is not intended to be exhaustive and may not
include all of the factors considered by the
W-H Board
of Directors. The W-H Board of Directors did not undertake to
make any specific determination as to whether any particular
factor, or any aspect of any particular factor, was favorable or
unfavorable to its ultimate determination, and did not quantify
or assign any relative or specific weights to the various
factors that it considered in reaching its determination that
the Offer, the Merger, the Merger Agreement and the other
transactions contemplated by the Merger Agreement are in the
best interests of
W-H shareholders.
Rather, the W-H Board of Directors conducted an overall analysis
of the factors described above, including thorough discussion
with, and questioning of,
W-H management
and W-Hs outside advisors, and considered the factors
overall to be favorable to, and to support, its determination.
In addition, individual members of the
W-H Board
of Directors may have given different weight to different
factors. It should be noted that this explanation of the
reasoning of the
W-H Board
of Directors and certain information presented in this section,
is forward-looking in nature and, therefore, that information
should be read in light of the factors discussed in the section
entitled Forward-Looking Statements in this
Schedule 14D-9.
Intent to
Tender
Except for Shares that may be sold in market transactions prior
to the completion of the Offer, after reasonable inquiry and to
the best of W-Hs knowledge, each executive officer and
director of
W-H currently
intends, subject to compliance with applicable law including
Section 16(b) of the Exchange Act, to tender all Shares
held of record or beneficially owned by such person to the
Offeror pursuant to the Offer. None of W-Hs subsidiaries
owns any Shares. Other than its officers, directors and
subsidiaries, W-H is not aware that it has any affiliates.
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ITEM 5.
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PERSONS/ASSETS
RETAINED, EMPLOYED, COMPENSATED OR USED
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W-H retained
UBS to provide it with financial advisory services and a
fairness opinion in connection with a possible merger, sale or
other strategic business combination.
W-H selected
UBS to act as its financial advisor based on UBSs
qualifications, expertise and reputation and its knowledge of
the business and affairs of W-H.
On June 2, 2008, at a meeting of the W-H Board of Directors
held to evaluate the proposed Offer and Merger, UBS delivered to
the W-H Board of Directors an oral opinion, confirmed by
delivery of a written opinion, dated June 2, 2008, to the
effect that, as of that date and based on and subject to various
assumptions, matters considered and limitations described in its
opinion, the consideration to be received by holders of Shares
was fair, from a financial point of view, to such holders.
14
The full text of UBS opinion describes the assumptions
made, procedures followed, matters considered and limitations on
the review undertaken by UBS. This opinion is attached as
Annex B and is incorporated into this
Schedule 14D-9
by reference.
UBS opinion was provided for the benefit of the W-H
Board of Directors in connection with, and for the purpose of,
its evaluation of the consideration to be received by holders of
Shares. The opinion does not address the relative merits of the
Offer and the Merger as compared to other business strategies or
transactions that might be available with respect to
W-H or
W-Hs underlying business decision to effect the Offer and
the Merger. The opinion does not constitute a recommendation to
any
W-H
shareholder as to how such shareholder should vote or act with
respect to the Offer and the Merger, including which, if any,
election a shareholder should make with respect to the
consideration. Holders of Shares are encouraged to read this
opinion carefully in its entirety. The summary of UBS
opinion described below is qualified in its entirety by
reference to the full text of its opinion.
In arriving at its opinion, UBS, among other things:
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reviewed certain publicly available business and historical
financial information relating to
W-H and
Smith;
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reviewed certain internal financial information and other data
relating to W-Hs business and financial prospects that
were provided to UBS by W-Hs management and not publicly
available, including financial forecasts and estimates prepared
by W-Hs management that the W-H Board of Directors
directed UBS to utilize for the purposes of its analysis;
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reviewed certain financial information and other data relating
to Smiths business and financial prospects that were
publicly available, including Wall Street consensus financial
forecasts and estimates published by Institutional Brokers
Estimate System (I/B/E/S) (a data service that
compiles estimates issued by securities analysts) that the W-H
Board of Directors directed UBS to utilize for the purposes of
its analysis;
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conducted discussions with members of the senior managements of
W-H and
Smith concerning the businesses and financial prospects of
W-H and
Smith;
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reviewed publicly available financial and stock market data with
respect to certain other companies UBS believed to be generally
relevant;
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compared the financial terms of the Offer and the Merger with
the publicly available financial terms of certain other
transactions UBS believed to be generally relevant;
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reviewed current and historical market prices of the Shares and
Smith Common Stock;
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reviewed the Merger Agreement; and
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conducted other financial studies, analyses and investigations,
and considered such other information, as UBS deemed
necessary or appropriate.
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In connection with its review, with the consent of the W-H Board
of Directors, UBS assumed and relied upon, without independent
verification, the accuracy and completeness in all material
respects of the information provided to or reviewed by UBS for
the purpose of its opinion. In addition, with the consent of the
W-H Board of Directors, UBS did not make any independent
evaluation or appraisal of any of the assets or liabilities,
contingent or otherwise, of
W-H or
Smith, and was not furnished with any such evaluation or
appraisal. With respect to the financial forecasts and estimates
for
W-H referred
to above, UBS assumed, at the direction of the W-H Board of
Directors, that they were reasonably prepared on a basis
reflecting the best currently available estimates and judgments
of W-Hs management as to the future financial performance
of W-H. With respect to the financial forecasts and estimates
for Smith referred to above, UBS assumed, based on discussions
with, and at the direction of, the W-H Board of Directors, that
they were a reasonable basis upon which to evaluate the future
performance of Smith and were appropriate to use in UBS
analyses. In addition, UBS assumed, with the approval of the W-H
Board of Directors, that the financial forecasts and estimates
referred to above would be achieved at the times and in the
amounts projected. UBS also assumed, with the consent of the W-H
Board of Directors, that the Offer and the Mergers, taken
together, would qualify for U.S. federal income tax
purposes as a reorganization within the meaning
15
of Section 368(a) of the Code. UBS opinion was
necessarily based on economic, monetary, market and other
conditions as in effect on, and the information available to UBS
as of, the date of its opinion.
At the direction of the W-H Board of Directors, UBS was not
asked to, and it did not, offer any opinion as to the terms,
other than the consideration to the extent expressly specified
in UBS opinion, of the Merger Agreement or the form of the
Offer or the Merger. In addition, UBS expressed no opinion as to
the fairness of the amount or nature of any compensation to be
received by any officers, directors or employees of any parties
to the Offer or the Merger, or any class of such persons,
relative to the consideration. UBS expressed no opinion as to
what the value of Smith Common Stock would be when issued
pursuant to the Offer or the Merger or the price at which Smith
Common Stock or the Shares would trade at any time. In rendering
its opinion, UBS assumed, with the consent of the
W-H
Board of
Directors, that (i) the final executed form of the Merger
Agreement would not differ in any material respect from the
draft UBS reviewed, (ii) Smith and
W-H would
comply with all material terms of the Merger Agreement, and
(iii) the Offer and the Merger would be consummated in
accordance with the terms of the Merger Agreement without any
adverse waiver or amendment of any material term or condition
thereof. UBS also assumed that all governmental, regulatory or
other consents and approvals necessary for the consummation of
the Offer and the Merger would be obtained without any material
adverse effect on
W-H,
Smith,
the Offer or the Merger. UBS was not authorized to solicit and
did not solicit indications of interest in a business
combination with
W-H from
any party. Except as described above,
W-H imposed
no other instructions or limitations on UBS with respect to the
investigations made or the procedures followed by UBS in
rendering its opinion. The issuance of UBS opinion was
approved by an authorized committee of UBS.
In connection with rendering its opinion to the
W-H
Board of
Directors, UBS performed a variety of financial and comparative
analyses which are summarized below. The following summary is
not a complete description of all analyses performed and factors
considered by UBS in connection with its opinion. The
preparation of a financial opinion is a complex process
involving subjective judgments and is not necessarily
susceptible to partial analysis or summary description. With
respect to the selected companies analysis and the selected
transactions analysis summarized below, no company or
transaction used as a comparison is either identical or directly
comparable to
W-H or
the Offer and the Merger. These analyses necessarily involve
complex considerations and judgments concerning financial and
operating characteristics and other factors that could affect
the public trading or acquisition values of the companies
concerned.
UBS believes that its analyses and the summary below must be
considered as a whole and that selecting portions of its
analyses and factors or focusing on information presented in
tabular format, without considering all analyses and factors or
the narrative description of the analyses, could create a
misleading or incomplete view of the processes underlying
UBS analyses and opinion. UBS did not draw, in isolation,
conclusions from or with regard to any one factor or method of
analysis for purposes of its opinion, but rather arrived at its
ultimate opinion based on the results of all analyses undertaken
by it and assessed as a whole.
The estimates of the future performance of
W-H and
Smith provided by W-Hs management or published
by I/B/E/S,
as the case may be, in or underlying UBS analyses are not
necessarily indicative of future results or values, which may be
significantly more or less favorable than those estimates. In
performing its analyses, UBS considered industry performance,
general business and economic conditions and other matters, many
of which are beyond the control of
W-H and
Smith. Estimates of the financial value of companies do not
purport to be appraisals or necessarily reflect the prices at
which companies actually may be sold.
The consideration was determined through negotiation between
W-H and
Smith and the decision to enter into the Offer and the Merger
was solely that of the
W-H
Board of
Directors. UBS opinion and financial analyses were only
one of many factors considered by the
W-H
Board of
Directors in its evaluation of the Offer and the Merger and
should not be viewed as determinative of the views of the
W-H
Board of
Directors or management with respect to the Offer, the Merger or
the consideration to be paid to
W-H shareholders
in either transaction.
The following is a brief summary of the material financial
analyses performed by UBS and reviewed with the
W-H
Board of
Directors on June 2, 2008 in connection with its opinion
relating to the proposed Offer and the Merger. The financial
analyses summarized below include information presented in
tabular format. In order to fully understand
UBS financial analyses, the tables must be read
together with the text of each summary. The tables alone do not
constitute a complete description of the financial analyses.
Considering the data below without
16
considering the full narrative description of the financial
analyses, including the methodologies and assumptions underlying
the analyses, could create a misleading or incomplete view of
UBS financial analyses.
Selected
Public Companies Analysis
UBS compared selected financial and stock market data of
W-H with
corresponding data for the following publicly traded companies:
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Superior Energy Services, Inc.
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Oil States International, Inc.
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Complete Production Services, Inc.
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Tetra Technologies, Inc.
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RPC, Inc.
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In addition, UBS compared selected financial and stock market
data of Smith with corresponding data for the following publicly
traded companies:
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Schlumberger Limited
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Halliburton Company
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Weatherford International Ltd.
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Baker Hughes Incorporated
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National Oilwell Varco, Inc.
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BJ Services Company.
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For each of the selected public companies, UBS considered, among
other things, (1) diluted equity values (computed using
closing stock prices as of June 2, 2008),
(2) enterprise values (calculated as diluted equity value,
plus book value of total debt, plus book value of minority
interests, plus preferred stock at liquidation value, less cash
and cash equivalents), (3) enterprise values as a multiple
of earnings before interest, taxes, depreciation and
amortization (EBITDA) for the latest 12 months
publicly reported (LTM) prior to June 2, 2008
and estimated fiscal years 2008 and 2009, (4) closing stock
prices as of June 2, 2008 as a multiple of earnings per
share (EPS) for estimated fiscal years 2008 and 2009
and (5) closing stock prices as of June 2, 2008 as a
multiple of cash flow per share, defined as EPS plus
depreciation and amortization and deferred taxes per share, for
estimated fiscal years 2008 and 2009. Financial data for the
selected public companies were based on the most recent
available filings with the SEC and on the estimates of I/B/E/S.
Financial data for
W-H were
based on both estimates provided by W-Hs management and on
I/B/E/S estimates. Financial data for Smith were based on the
I/B/E/S estimates. Multiples implied for
W-H were
based on the $85.54 closing price of the Shares on the NYSE as
of June 2, 2008 and the estimated consideration of $93.55
per Share (the Offer Price), based on consideration
of $56.10 in cash and 0.48 shares of Smith Common Stock for
each Share, calculated using the $78.02 closing price per share
of Smith Common Stock on June 2, 2008. The multiples
implied for Smith were calculated using the $78.02 closing price
per share of Smith Common Stock on June 2, 2008.
17
The results of these analyses are summarized in the following
tables:
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W-H
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Multiple of Price
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Multiple of
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Multiple of Price
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per Share/Cash
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Enterprise Value/
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per Share/EPS
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Flow per Share
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EBITDA
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(x)
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(x)
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(x)
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Selected Companies
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2008E
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2009E
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2008E
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2009E
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LTM
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2008E
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2009E
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High
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21.8
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16.4
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9.8
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8.6
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8.3
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7.4
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6.7
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Mean
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15.1
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12.0
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8.2
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6.7
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7.6
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6.7
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5.8
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Median
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12.9
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11.3
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8.1
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6.1
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7.9
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6.8
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5.8
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Low
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12.0
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10.0
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5.9
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5.2
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6.7
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5.8
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4.8
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W-H
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Management Estimates, based on June 2, 2008 closing price
|
|
|
15.8
|
|
|
|
12.8
|
|
|
|
9.5
|
|
|
|
7.7
|
|
|
|
9.0
|
|
|
|
7.7
|
|
|
|
6.2
|
|
Management Estimates based on Offer Price
|
|
|
17.3
|
|
|
|
14.0
|
|
|
|
10.4
|
|
|
|
8.4
|
|
|
|
9.8
|
|
|
|
8.4
|
|
|
|
6.8
|
|
I/B/E/S Consensus Estimates based on June 2, 2008 closing
price
|
|
|
16.8
|
|
|
|
14.5
|
|
|
|
10.2
|
|
|
|
9.1
|
|
|
|
9.0
|
|
|
|
8.0
|
|
|
|
7.1
|
|
I/B/E/S Consensus Estimates based on Offer Price
|
|
|
18.4
|
|
|
|
15.9
|
|
|
|
11.2
|
|
|
|
9.9
|
|
|
|
9.8
|
|
|
|
8.8
|
|
|
|
7.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Smith
|
|
|
|
|
|
|
|
|
|
Multiple of
|
|
|
|
Multiple of Price
|
|
|
Multiple of Price
|
|
|
Enterprise Value/
|
|
|
|
per Share/EPS
|
|
|
per Share/Cash Flow per Share
|
|
|
EBITDA
|
|
|
|
(x)
|
|
|
(x)
|
|
|
(x)
|
|
Selected Companies
|
|
2008E
|
|
|
2009E
|
|
|
2008E
|
|
|
2009E
|
|
|
LTM
|
|
|
2008E
|
|
|
2009E
|
|
|
High
|
|
|
20.9
|
|
|
|
17.0
|
|
|
|
15.6
|
|
|
|
12.8
|
|
|
|
15.5
|
|
|
|
13.0
|
|
|
|
10.7
|
|
Mean
|
|
|
17.9
|
|
|
|
13.7
|
|
|
|
13.4
|
|
|
|
11.0
|
|
|
|
11.7
|
|
|
|
10.6
|
|
|
|
8.7
|
|
Median
|
|
|
17.1
|
|
|
|
13.9
|
|
|
|
13.5
|
|
|
|
11.0
|
|
|
|
11.5
|
|
|
|
10.5
|
|
|
|
8.7
|
|
Low
|
|
|
15.0
|
|
|
|
10.1
|
|
|
|
10.6
|
|
|
|
8.3
|
|
|
|
7.6
|
|
|
|
8.0
|
|
|
|
6.7
|
|
Smith
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
I/B/E/S Consensus Estimates based on June 2, 2008 closing
price
|
|
|
20.6
|
|
|
|
16.7
|
|
|
|
15.9
|
|
|
|
13.1
|
|
|
|
10.9
|
|
|
|
10.2
|
|
|
|
8.5
|
|
Selected
Precedent Transactions Analysis
UBS reviewed transaction values in the following nine selected
transactions announced since June 2005 in the oilfield services
industry:
|
|
|
|
|
Date Announced
|
|
Acquiror
|
|
Target
|
|
May 27, 2008
|
|
Candover Investments Plc
|
|
Expro International Group Plc
|
April 21, 2008
|
|
Grey Wolf, Inc.
|
|
Basic Energy Services, Inc.
|
December 19, 2007
|
|
First Reserve Corp.
|
|
Abbot Group Ltd.
|
December 17, 2007
|
|
National Oilwell Varco, Inc.
|
|
Grant Prideco, Inc.
|
June 29, 2007
|
|
MBO investors
|
|
CCS Income Trust
|
February 5, 2007
|
|
Universal Compression
Holdings, Inc.
|
|
Hanover Compressor Co.
|
October 23, 2006
|
|
National Oilwell Varco, Inc.
|
|
NQL Energy Services, Inc.
|
September 5, 2006
|
|
Compagnie Generale de Geophysique
|
|
Veritas DGC, Inc.
|
June 6, 2005
|
|
Weatherford International Ltd.
|
|
Precision Drilling Corp.
|
18
UBS reviewed transaction values in the selected transactions,
calculated as the purchase price paid for the target
companys equity, plus debt at book value, preferred stock
at liquidation value and minority interests at book value, less
cash, as multiples of LTM EBITDA, forward 12 months
estimated EBITDA, LTM earnings before interest and taxes
(EBIT) and forward 12 months estimated EBIT, in
each case to the extent such financial data were publicly
available at the time of announcement of the relevant
transaction. UBS also reviewed purchase prices in the selected
transactions as a multiple of LTM cash flow per share, forward
12 months estimated cash flow per share, LTM earnings and
forward 12 months estimated earnings in each case to the
extent such financial data were publicly available at the time
of announcement of the relevant transaction. UBS then compared
these multiples derived from the selected transactions with the
corresponding multiples implied for
W-H based
on the Offer Price relative to I/B/E/S estimates and relative to
estimates provided by W-Hs management. Financial data for
the selected transactions were based on publicly available
information at the time of announcement of the relevant
transaction. This analysis indicated the following implied high,
mean, median and low multiples for the selected transactions, as
compared to corresponding multiples implied
for W-H:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multiple of Equity Value/
|
|
|
|
LTM
|
|
|
1yr Forward
|
|
|
LTM
|
|
|
1yr Forward
|
|
|
|
Cash Flow
|
|
|
Cash Flow
|
|
|
Net Income
|
|
|
Net Income
|
|
|
|
(x)
|
|
|
(x)
|
|
|
(x)
|
|
|
(x)
|
|
|
High
|
|
|
17.9
|
|
|
|
22.2
|
|
|
|
37.8
|
|
|
|
34.3
|
|
Mean
|
|
|
10.4
|
|
|
|
11.4
|
|
|
|
22.8
|
|
|
|
18.9
|
|
Median
|
|
|
8.2
|
|
|
|
9.3
|
|
|
|
24.1
|
|
|
|
16.4
|
|
Low
|
|
|
5.8
|
|
|
|
5.7
|
|
|
|
12.2
|
|
|
|
6.0
|
|
I/B/E/S Consensus Estimates-based on Offer Price
|
|
|
13.7
|
|
|
|
11.2
|
|
|
|
20.4
|
|
|
|
18.4
|
|
Management Estimates-based on Offer Price
|
|
|
13.7
|
|
|
|
10.4
|
|
|
|
20.4
|
|
|
|
17.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multiple of Enterprise Value/
|
|
|
|
LTM
|
|
|
1yr Forward
|
|
|
LTM
|
|
|
1yr Forward
|
|
|
|
EBITDA
|
|
|
EBITDA
|
|
|
EBIT
|
|
|
EBIT
|
|
|
|
(x)
|
|
|
(x)
|
|
|
(x)
|
|
|
(x)
|
|
|
High
|
|
|
15.4
|
|
|
|
13.8
|
|
|
|
25.6
|
|
|
|
20.9
|
|
Mean
|
|
|
9.9
|
|
|
|
8.6
|
|
|
|
15.9
|
|
|
|
14.4
|
|
Median
|
|
|
9.5
|
|
|
|
8.3
|
|
|
|
15.8
|
|
|
|
14.1
|
|
Low
|
|
|
5.9
|
|
|
|
5.6
|
|
|
|
8.3
|
|
|
|
9.4
|
|
I/B/E/S Consensus Estimates-based on Offer Price
|
|
|
9.8
|
|
|
|
8.8
|
|
|
|
13.2
|
|
|
|
11.7
|
|
Management Estimates-at Offer Price
|
|
|
9.8
|
|
|
|
8.4
|
|
|
|
13.2
|
|
|
|
11.1
|
|
Discounted
Cash Flow Analysis
UBS performed a discounted cash flow analysis of
W-H using
certain financial forecasts and estimates prepared by W-Hs
management for calendar year 2008 through calendar year 2012
that W-Hs Board of Directors directed UBS to utilize for
purposes of its analyses. UBS calculated a range of implied
present values of the stand-alone unlevered, after-tax free cash
flows that
W-H was
forecasted to generate from calendar year 2008 through calendar
year 2012 using discount rates ranging from 12.0% to 14.0%. UBS
also calculated a range of implied terminal values for
W-H by
applying a range of EBITDA terminal value multiples of 6.25x to
7.25x to W-Hs estimated mid-cycle EBITDA associated with a
reversion to trailing 10 year median U.S. rig count
levels prepared by W-Hs management that W-Hs Board
of Directors directed UBS to utilize for purposes of its
analyses. The implied terminal values were then discounted to
present value using discount rates ranging from 12.0% to 14.0%.
The discounted cash flow analysis resulted in a range of implied
present values of approximately $79 to $97 per Share, as
compared to the implied Offer Price of $93.55 per Share.
19
Miscellaneous
Under the terms of UBS engagement,
W-H has
agreed to pay UBS for its financial advisory services in
connection with the Offer and the Merger an aggregate fee
estimated to be approximately $24.0 million, a portion of
which was payable upon completion of UBS opinion and a
significant portion of which is contingent upon consummation of
the Offer and Merger. In addition,
W-H has
agreed to reimburse UBS for its reasonable expenses, including
fees, disbursements and other charges of counsel, and to
indemnify UBS and related parties against liabilities, including
liabilities under federal securities laws, relating to, or
arising out of, its engagement. In the ordinary course of
business, UBS and its affiliates may hold or trade, for their
own accounts and the accounts of their customers, securities of
W-H and
Smith, and, accordingly, may at any time hold a long or short
position in such securities.
W-H selected
UBS as its financial advisor in connection with the Offer and
the Merger because UBS is an internationally recognized
investment banking firm with substantial experience in similar
transactions. UBS is continually engaged in the valuation of
businesses and their securities in connection with mergers and
acquisitions, leveraged buyouts, negotiated underwritings,
competitive bids, secondary distributions of listed and unlisted
securities and private placements.
|
|
ITEM 6.
|
INTEREST
IN SECURITIES OF THE SUBJECT COMPANY
|
Other than issuances of Shares upon the exercise of previously
issued stock options, no transactions in the Shares have been
effected during the past 60 days by
W-H or,
to the best of W-Hs knowledge, by any director or
executive officer
of W-H.
None of W-Hs subsidiaries currently owns any Shares or has
owned any Shares during the past 60 days. Other than its
officers, directors and subsidiaries, W-H is not aware that it
has any affiliates.
|
|
ITEM 7.
|
PURPOSES
OF THE TRANSACTION AND PLANS OR PROPOSALS
|
Subject
Company Negotiations
Except as described in this
Schedule 14D-9
or in the Offer,
W-H is
not undertaking or engaged in any negotiation in response to the
Offer that relates to or would result in (1) an
extraordinary transaction, such as a merger, reorganization or
liquidation involving
W-H or
any subsidiary of W-H; (2) a purchase, sale or transfer of
a material amount of assets of
W-H or
any subsidiary of W-H; (3) a tender offer for or other
acquisition of
W-H s
securities by W-H, any subsidiary of W-H, or any other person;
or (4) a material change in the present dividend rate or
policy, indebtedness or capitalization of W-H. As described in
the Merger Agreement, the
W-H Board
of Directors, in connection with the exercise of its fiduciary
duties, is permitted under certain conditions to engage in
negotiations in response to an unsolicited takeover proposal.
Transactions
and Other Matters
Except as set forth in this
Schedule 14D-9,
there is no transaction, resolution of the
W-H Board
of Directors, agreement in principle, or signed contract that is
entered into in response to the Offer that relates to or would
result in one or more of the matters referred to in the
immediately preceding paragraph of this Item 7.
|
|
ITEM 8.
|
ADDITIONAL
INFORMATION
|
Section 14(f)
Information Statement
The Information Statement attached as Annex A hereto and
incorporated herein by reference is being furnished pursuant to
Rule 14f-1
under the Exchange Act in connection with the possible
designation by Smith, pursuant to the Merger Agreement, of
certain persons to be appointed to the
W-H Board
of Directors other than at a meeting of shareholders.
Dissenters
Rights
Although shareholders do not have dissenters rights in
connection with the Offer,
W-H shareholders
at the time of the Merger who do not vote in favor of the Merger
will have the right under Texas law to dissent and demand
fair value for their Shares in accordance with
Articles 5.11, 5.12, 5.13 and 5.16 of the TBCA, as applicable.
Under such provisions of the TBCA, dissenting
W-H shareholders
who comply with the applicable statutory procedures will be
entitled to receive a judicial determination of the fair value
of their Shares (exclusive of any element of value
20
arising from the accomplishment or expectation of the Merger)
and to receive payment of such fair value in cash, together with
a fair rate of interest, if any.
W-H cannot
assure its shareholders as to the methodology a court would use
to determine fair value or how a court would select which
elements of value are to be included in such a determination.
Any such judicial determination of the fair value of Shares
could be based upon factors other than, or in addition to, the
price per Share to be paid in the Merger or the market value of
the Shares. The value so determined could be more or less than
the Merger Consideration.
State
Takeover Statutes
A number of states have adopted laws which purport, to varying
degrees, to apply to attempts to acquire corporations that are
incorporated in, or which have substantial assets, stockholders,
principal executive offices or principal places of business or
whose business operations otherwise have substantial economic
effects in, such states. W-H, directly or through subsidiaries,
conducts business in a number of states throughout the United
States, some of which have enacted such laws. Except as
described herein,
W-H does
not know whether any of these laws will, by their terms, apply
to the Offer or the Merger. To the extent that certain
provisions of these laws purport to apply to the Offer or the
Merger, the
W-H Board
of Directors has sought to exempt the Offer and the Merger from
the operation of any such laws and, thus, believes that there
are reasonable bases for contesting such laws.
Amendment
to the Rights Agreement
The
W-H Board
of Directors, on June 3, 2008, amended the Rights
Agreement, dated as of May 31, 2002, between
W-H and
Computershare Trust Company, Inc., as Rights Agent, to
render the provisions of the
W-H Rights
Agreement inapplicable to the Offer, the Merger, the Merger
Agreement, and the transactions contemplated thereby and to
cause the Rights Agreement to terminate immediately prior to the
effective time of the Merger.
Regulatory
Approvals
The Offer and the Merger are subject to the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the HSR
Act), which provides that certain transactions may not be
consummated unless specific information has been furnished to
the Antitrust Division of the Department of Justice (the
DOJ) and the Federal Trade Commission (the
FTC) and the relevant waiting period has expired.
Under the HSR Act and the rules that have been promulgated
thereunder by the FTC, certain acquisition transactions may not
be consummated unless certain information has been furnished to
the Antitrust Division of the DOJ and the FTC and certain
waiting period requirements have been satisfied. The purchase of
Shares pursuant to the Offer is subject to such requirements.
Pursuant to the requirements of the HSR Act, Smith and
W-H each
are expected to file a Notification and Report Form with respect
to the Offer and the Merger with the Antitrust Division of the
DOJ and the FTC on June 24, 2008. Under the provisions of
the HSR Act applicable to the Offer, the acquisition of Shares
pursuant to the Offer may be completed following the expiration
of a 30-calendar day waiting period (if the thirtieth day falls
on a weekend or holiday, the waiting period will expire on the
next business day) following the filing by Smith with respect to
the Offer, unless Smith or
W-H receives
a request for additional information and documentary material
from the Antitrust Division of the DOJ or FTC. If, within the
initial
30-day
waiting period, either the Antitrust Division of the DOJ or the
FTC requests additional information and documentary material
from Smith or
W-H concerning
the Offer, the waiting period will be extended and will expire
at 11:59 p.m., New York City time, on the thirtieth
calendar day after the date of substantial compliance by Smith
or
W-H with
that request. If the thirtieth day falls on a weekend or
holiday, the waiting period will expire on the next business
day. Only one extension of the waiting period pursuant to a
request for additional information is authorized by the HSR Act.
After that time, Smith and
W-H
may
close the transaction, unless they agree with the Antitrust
Division of the DOJ or the FTC to delay closing the transaction
or the Antitrust Division of the DOJ or the FTC obtains a court
order staying the transaction. In practice, complying with a
request for additional information or material can take a
significant amount of time. In addition, if the Antitrust
Division of the DOJ or the FTC raise substantive issues in
connection with a proposed transaction, the parties will engage
in negotiations with the relevant governmental agency concerning
possible means of addressing those issues and may agree to delay
completion of the transaction while
21
those negotiations continue. Subject to certain circumstances
described in the Prospectus, any extension of the waiting period
will not give rise to any withdrawal rights not otherwise
provided for by applicable law.
Under the laws of certain foreign nations and multinational
authorities, the transaction may not be completed or control may
not be exercised unless certain filings are made with these
nations antitrust regulatory authorities or multinational
antitrust authorities, and these antitrust authorities approve
or clear closing of the transaction. Other foreign nations and
multinational authorities have voluntary
and/or
post-merger notification systems.
Private parties (including individual states) may also bring
legal actions under the antitrust laws.
W-H
does not
believe that the consummation of the Offer will result in a
violation of any applicable antitrust laws. However, there can
be no assurance that a challenge to the Offer on antitrust
grounds will not be made, or if such a challenge is made, what
the result will be.
Litigation
On June 9, 2008, an action entitled
The Booth Family
Trust v. White, et al
.,
No. 2008-35207,
was filed in the
269
th
Harris
County Texas District Court. The plaintiff claims to be a
shareholder of
W-H and
purports to sue W-H, the members of W-Hs Board of
Directors and Smith on behalf of a class of all holders of
W-H Shares
other than the defendants and their affiliates. The petition
alleges that W-Hs directors breached the fiduciary duties
of care, loyalty, candor, good faith, independence and fair
dealing owed to W-Hs shareholders in agreeing to the Offer
and the Merger, and that
W-H and
Smith aided and abetted these breaches of duty. The plaintiff
claims that the consideration to be paid to W-Hs
shareholders in connection with the Offer and the Merger is
unfair and grossly inadequate and did not result from an
appropriate consideration of the value of
W-H or
the strategic alternatives available to W-H. The plaintiff
alleges that, following the announcement of the Merger
Agreement, W-Hs stock has traded over the value of the
Offer consideration and that this suggests that the Offer and
the Merger does not reflect fair value of the Shares. The
plaintiff asserts that W-Hs directors placed their own
interests ahead of those of W-Hs shareholders in that the
Offer and the Merger offers an inadequate premium to the
shareholders but will provide substantial personal benefits to
the defendants. The plaintiff claims that the termination fee
and no shop provisions of the Merger Agreement act
as a disincentive to other potential bidders for
W-H and
preclude
W-H from
taking steps to maximize shareholder value. The plaintiff also
alleges that W-Hs directors have failed to disclose all
material information to W-Hs shareholders concerning the
Offer and the Merger. The petition seeks various forms of
injunctive relief including an injunction against the
consummation of the Offer and the Merger, an order directing
W-Hs directors to exercise their fiduciary duties to
obtain a transaction that is in the best interests of
W-H and
its shareholders until the sale of
W-H is
completed and the highest price is obtained, an order rescinding
the Offer and the Merger if already consummated, the imposition
of a constructive trust upon any benefits improperly received by
defendants, and an award of attorneys and experts
fees and costs.
W-H and
Smith believe that the action is without merit and intend to
vigorously contest the action.
Forward-Looking
Statements
Information both included and incorporated by reference in this
Schedule 14D-9
may contain forward-looking statements, concerning, among other
things, W-Hs outlook, financial projections and business
strategies, all of which are subject to risks, uncertainties and
assumptions. These forward-looking statements are identified by
their use of terms such as intend, plan,
may, should, will,
anticipate, believe, could,
estimate, expect, continue,
potential, opportunity,
project and similar terms. These statements are
based on certain assumptions and analyses that
W-H believes
are appropriate under the circumstances. Should one or more of
these risks or uncertainties materialize, or should the
assumptions prove incorrect, actual results may differ
materially from those expected, estimated or projected.
Management believes these forward-looking statements are
reasonable. However,
W-H cannot
guarantee that it actually will achieve these plans, intentions
or expectations, including completing the Offer and the Mergers
on the terms summarized in this
Schedule 14D-9.
Forward-looking statements speak only as of the date they are
made, and
W-H undertakes
no obligation to publicly update or revise any of them in light
of new information, future events or otherwise. Factors which
could have a material adverse
22
effect on W-Hs operations and future prospects or the
completion of the Offer and the Mergers include, but are not
limited to:
|
|
|
|
|
the failure to satisfy the conditions to consummate the Offer
and the Merger;
|
|
|
|
the occurrence of any event, change or other circumstances that
could give rise to the termination of the Merger Agreement;
|
|
|
|
the failure of the Offer or the Mergers to close for any other
reason;
|
|
|
|
the amount of the costs, fees, expenses and charges related to
the Offer and the Merger;
|
|
|
|
general economic and business conditions;
|
|
|
|
the level of oil and natural gas exploration and development
activities;
|
|
|
|
global economic growth and activity;
|
|
|
|
political stability of oil-producing countries;
|
|
|
|
finding and development costs of operations;
|
|
|
|
decline and depletion rates for oil and natural gas wells;
|
|
|
|
seasonal weather conditions;
|
|
|
|
industry conditions; and
|
|
|
|
changes in laws or regulations.
|
These risks and uncertainties should be considered in evaluating
any forward-looking statements contained in this
Schedule 14D-9.
All forward-looking statements speak only as of the date of this
Schedule 14D-9.
All subsequent written and oral forward-looking statements
attributable to
W-H or
any person acting on W-Hs behalf are qualified by the
cautionary statements in this section.
Where You
Can Find More Information
W-H and
Smith are subject to the informational requirements of the
Exchange Act and in accordance therewith file periodic reports,
proxy statements and other information with the SEC relating to
their business, financial condition and other matters.
W-H and
Smith are required to disclose in such proxy statements certain
information, as of particular dates, concerning their respective
directors and officers, their remuneration, stock options
granted to them, the principal holders of their securities and
any material interest of such persons in transactions with
W-H or
Smith, as applicable. Such reports, proxy statements and other
information may be inspected at the public reference facilities
maintained by the SEC at 100 F Street, N.E.,
Washington, D.C. 20549. Copies of such material can also be
obtained at prescribed rates from the Public Reference Section
of the SEC at 100 F Street, N.E.,
Washington, D.C. 20549, or free of charge at the web site
maintained by the SEC at
http://www.sec.gov.
The SEC allows
W-H to
incorporate by reference information into this
Schedule 14D-9,
which means that
W-H can
disclose important information to you by referring you to
another document filed separately with the SEC. The information
incorporated by reference is deemed to be part of this
Schedule 14D-9,
except for any information superseded by information contained
directly in this
Schedule 14D-9.
W-H incorporates
by reference in this
Schedule 14D-9
the following documents filed with the SEC pursuant to the
Exchange Act:
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the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007;
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the Companys Quarterly Report on
Form 10-Q
for the three months ended March 31, 2008;
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the Companys Current Reports on
Form 8-K
filed on January 3, 2008, June 5, 2008 and
June 12, 2008 (excluding any information furnished pursuant
to Item 2.02 or Item 7.01 of any such Current Report
on
Form 8-K);
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the Companys Registration Statement on
Form 8-A
filed on July 28, 2003, including all amendments and
reports filed for the purpose of updating such Registration
Statement; and
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the Companys Proxy Statement on Schedule 14A filed on
April 8, 2008.
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W-H also
incorporates by reference any future filings made by it with the
SEC under Sections 13(a), 13(c), 14, or 15(d) of the
Exchange Act (excluding any information furnished pursuant to
Item 2.02 or Item 7.01 of any such Current Report on
Form 8-K
that is filed in the future and is not deemed filed under the
Exchange Act).
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Exhibit No.
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Description
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(a)(1)
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Prospectus/Offer to Exchange, dated June 24, 2008
(incorporated by reference to Smiths Registration
Statement on
Form S-4
filed with the SEC on June 24, 2008).
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(a)(2)
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Letter of Election and Transmittal, dated June 24, 2008
(incorporated by reference to Exhibit 99.3 to Smiths
Registration Statement on
Form S-4
filed with the SEC on June 24, 2008).
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(a)(3)
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*
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Letter to Shareholders of W-H, dated June 24, 2008.
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(a)(4)
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Information Statement pursuant to Section 14(f) of the
Securities Exchange Act of 1934 and
Rule 14f-1
thereunder (incorporated by reference to Annex A of this
Schedule 14D-9).
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(a)(5)
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Fairness Opinion of UBS Securities LLC to the Board of Directors
of W-H, dated June 2, 2008 (incorporated by reference to
Annex B of this
Schedule 14D-9).
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(a)(6)
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Joint Press Release issued by Smith and W-H, dated June 3,
2008, announcing the execution of the Agreement and Plan of
Merger among Smith,
W-H and
Offeror (incorporated by reference to Exhibit 99.01 to
W-Hs Current Report on
Form 8-K
filed with the SEC on June 5, 2008).
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(a)(7)
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Transcript of the Investor Call on June 3, 2008 regarding
announcement of the Agreement and Plan of Merger among Smith,
W-H and
Offeror (incorporated by reference to Exhibit 99.02 to
W-Hs Current Report on
Form 8-K
filed with the SEC on June 5, 2008).
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(a)(8)
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*
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Joint Press Release issued by Smith and W-H, dated June 24,
2008, announcing the commencement of the Offer.
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(e)(1)
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Agreement and Plan of Merger, dated as of June 3, 2008, by
and among W-H, Smith and the Offeror (incorporated by reference
to Exhibit 2.01 to W-Hs Current Report on
Form 8-K
filed with the SEC on June 5, 2008).
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(e)(2)
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W-H Energy
Services, Inc. 1997 Stock Option Plan as restated, effective as
of May 12, 2004 (incorporated by reference to
Appendix B of W-Hs Definitive Proxy Statement on
Schedule 14A, filed with the SEC on April 6, 2004).
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(e)(3)
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W-H Energy
Services, Inc. 2006 Stock Awards Plan, effective as of
May 10, 2006 (incorporated by reference to
Exhibit 10.1 to W-Hs Current Report on
Form 8-K
filed with the SEC on May 10, 2006).
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(e)(4)
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Non-Statutory Stock Option Agreement for Kenneth T. White, Jr.,
dated March 29, 1999 (incorporated by reference to
Exhibit 10.5 to W-Hs Registration Statement on
Form S-1
(No. 333-43411).
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(e)(5)
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Amended and Restated Employment Agreement of Kenneth T. White,
Jr., effective as of January 1, 2008 (incorporated by
reference to Exhibit 10.1 to W-Hs Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007).
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(e)(6)
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Amended and Restated Employment Agreement of Ernesto
Bautista, III, effective as of January 1, 2008
(incorporated by reference to Exhibit 10.10 to W-Hs
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007).
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(e)(7)
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Amended and Restated Employment Agreement of William J. Thomas
III, effective as of January 1, 2008 (incorporated by
reference to Exhibit 10.2 to W-Hs Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007).
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(e)(8)
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Amended and Restated Employment Agreement of Glen J. Ritter,
effective as of January 1, 2008 (incorporated by reference
to Exhibit 10.9 to W-Hs Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007).
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Exhibit No.
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Description
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(e)(9)
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Amended and Restated Employment Agreement of Jeffrey L. Tepera,
effective as of January 1, 2008 (incorporated by reference
to Exhibit 10.2 to W-Hs Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007).
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(e)(10)
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Amended and Restated Employment Agreement of Stuart J. Ford,
effective as of January 1, 2008 (incorporated by reference
to Exhibit 10.11 to W-Hs Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007).
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25
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is
true, complete and correct.
W-H ENERGY
SERVICES, INC.
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By:
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/s/
Ernesto
Bautista, III
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Ernesto Bautista, III
Vice President and Chief Financial Officer
Dated: June 24, 2008
26
ANNEX A
W-H ENERGY
SERVICES, INC.
2000 West Sam Houston Parkway South, Suite 500
Houston, Texas 77042
(713) 974-9071
INFORMATION
STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES EXCHANGE
ACT OF 1934 AND
RULE 14f-1
THEREUNDER
GENERAL
INFORMATION
This Information Statement is mailed on or about June 24,
2008, as part of the Solicitation/Recommendation Statement on
Schedule 14D-9
(the
Schedule 14D-9)
of
W-H Energy
Services, Inc. (W-H or the Company) to
the holders of record of shares of the common stock, par value
$0.0001 per share (the W-H Common Stock), of the
Company. You are receiving this Information Statement in
connection with the possible election of persons designated by
Smith International, Inc. (Smith) to a majority of
the seats on the board of directors of the Company (the
Board of Directors).
On June 3, 2008, the Company entered into an Agreement and
Plan of Merger (the Merger Agreement) with Smith and
Whitehall Acquisition Corp. (Offeror), a wholly
owned subsidiary of Smith. Pursuant to the Merger Agreement,
Offeror has commenced an offer to acquire all outstanding shares
of the W-H Common Stock (including the associated preferred
share purchase rights) (collectively, the Shares),
including each restricted Share and each Share issued upon the
exercise of outstanding stock options. The terms and conditions
of the offer are set forth in Smiths prospectus/offer to
exchange (the Prospectus), which is part of a
Registration Statement on
Form S-4
that Smith has filed on the date hereof with the Securities and
Exchange Commission (the SEC), and which, with the
related letter of election and transmittal, together constitute
the Offer. As more fully described in the Offer,
each W-H shareholder may elect to receive, for each outstanding
Share validly tendered and not properly withdrawn in the Offer,
at the election of the holder of such Share:
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$56.10 in cash, without interest, and 0.48 shares of Smith
common stock, par value $1.00 per share, including the
associated preferred share purchase rights (Smith Common
Stock) (the Mixed Consideration); or
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$93.55 in cash, without interest (the All-Cash
Consideration); or
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1.1990 shares of Smith Common Stock (the All-Stock
Consideration),
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subject in each case to the election procedures and, in the case
of elections of the All-Cash Consideration or the All-Stock
Consideration, to the proration procedures described in the
Prospectus.
The Offer was commenced by offer or on June 24, 2008 and
expires at 12:00 midnight, New York City time, at the end of
July 22, 2008, unless extended by Offeror. The Offer is
conditioned on, among other things, (i) there being validly
tendered and not properly withdrawn before the expiration of the
Offer at least
66
2
/
3
%
of the Shares outstanding on a fully diluted basis, (ii) the
expiration or termination of any applicable waiting periods
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and any other applicable similar foreign laws or
regulations and (iii) Smiths Registration Statement on
Form S-4 having become effective.
The purpose of the Offer is for Smith to acquire control of, and
ultimately the entire equity interest in, W-H. The Offer is the
first step in Smiths plan to acquire all of the
outstanding Shares. Promptly after completion of the Offer,
Smith intends to consummate a merger of Offeror with and into
W-H, with W-H surviving the Merger (this merger is referred to
herein as the Merger and W-H after the Merger is
sometimes referred to as the Surviving Corporation).
The purpose of the Merger is for Smith to acquire all Shares not
acquired in the Offer. After the Merger, the Surviving
Corporation will be a wholly owned subsidiary of Smith and the
former W-H shareholders will no longer have any direct ownership
interest in the Surviving Corporation.
A-1
As promptly as practicable following the Merger, Smith intends
to cause the Surviving Corporation to merge with and into a
wholly owned subsidiary of Smith, with such wholly owned
subsidiary surviving such merger (we refer to this second merger
as the Post-Closing Merger and together with the
Merger, the Mergers). The Post-Closing Merger is
intended to cause the Offer and the Mergers, taken together, to
qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as
amended (the Code). Immediately prior to the
Post-Closing Merger, Smith will be the sole shareholder of the
Surviving Corporation, and none of the former W-H shareholders
will have any direct economic interest in, or approval or other
rights with respect to, the Post-Closing Merger.
In the Merger, each issued and outstanding Share (except for
Shares held in W-Hs treasury, Shares beneficially owned by
any direct or indirect wholly owned subsidiary of
W-H and
Shares beneficially owned directly or indirectly by Smith or
Offeror, including Shares acquired in the Offer) will be
converted into the right to receive the Mixed Consideration,
without interest, subject (1) to such adjustments as are
necessary to preserve the status of the Offer and the Mergers,
taken together, as a reorganization within the meaning of
Section 368(a) of the Code, and (2) to
dissenters rights under Texas law.
The Offer, the Mergers and the Merger Agreement are more fully
described in the Prospectus.
W-H
shareholders should contact MacKenzie Partners, Inc.,
Smiths information agent, at 105 Madison Avenue, New
York, New York 10016, 212-929-5500 (collect), 800-322-2885
(toll-free) or tenderoffer@mackenziepartners.com with any
questions about the Offer or the Mergers or to request copies of
the Prospectus or other documents.
This Information Statement is being mailed to you in accordance
with Section 14(f) of the Securities Exchange Act of 1934,
as amended (the Exchange Act), and
Rule 14f-1
promulgated thereunder. Information set forth herein relating to
Smith, Offeror or the Smith Designees (as defined below) has
been provided by Smith. You are urged to read this Information
Statement carefully. You are not, however, required to take any
action in connection with the matters set forth herein.
Neither this Information Statement nor the
Schedule 14D-9
constitutes a solicitation of proxies for any meeting of
shareholders.
W-H
is not
asking for a proxy and you are requested not to send
W-H
a proxy.
Any solicitation of proxies that Smith or W-H might make will be
made only pursuant to separate proxy solicitation materials
complying with the requirements of Section 14(a) of the
Exchange Act.
RIGHT TO
DESIGNATE DIRECTORS; PARENT DESIGNEES
Pursuant to the terms of the Merger Agreement and subject to the
requirements of the Exchange Act, promptly following the
consummation of the Offer,
W-H has
agreed to take all actions necessary to cause such number of
persons designated by Offeror (the Smith Designees)
to be appointed to the
W-H Board
of Directors as will give Offeror representation on the Board of
Directors equal to the ratio of the number of Shares purchased
by Offeror in the Offer to the total number of Shares
outstanding.
W-H has
also agreed to cause the Smith Designees to constitute a
majority of each committee of the
W-H Board
of Directors, other than any committee established to take
certain actions with respect to the Merger Agreement, the Offer
and the Mergers. Notwithstanding the foregoing,
W-H has
agreed to use all reasonable efforts to ensure that at least
three of the members of the
W-H Board
of Directors who are reasonably satisfactory to Offeror and who
qualify as independent directors for purposes of the continued
listing requirements of the New York Stock Exchange (the
NYSE) and SEC rules and regulations to remain
members of the
W-H Board
of Directors until the consummation of the Merger in order to
take certain actions with respect to the Merger Agreement, the
Offer and the Mergers.
The directors of Offeror at the effective time of the Merger
shall be the initial directors of the Surviving Corporation,
each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation until such
directors successor is duly elected or appointed and
qualified.
The Smith Designees will be selected by Smith from the
individuals listed below. The information provided below was
provided by Smith for inclusion in this Information Statement
and the Company has not made any independent verification, and
makes no representation as to, the accuracy or completeness of
information regarding
A-2
the Smith Designees. Each of the following individuals has
consented to serve as a director of the Company if appointed or
elected. None of the persons from among whom the Smith Designees
will be selected currently is a director of, or holds any
positions with, the Company. Smith has advised the Company that,
to the best of Smiths knowledge, except as set forth
below, none of the Smith Designees or any of their affiliates
beneficially owns any equity securities or rights to acquire any
such securities of the Company, nor has any such person been
involved in any transaction with the Company or any of its
directors, executive officers or affiliates that is required to
be disclosed pursuant to the rules and regulations of the SEC
other than with respect to transactions between the Company and
Smith or Offeror that have been described in the tender offer
statement on Schedule TO relating to the transactions
described herein or the
Schedule 14D-9.
The name, current principal occupation or employment and
material occupations, positions, offices or employment for the
past five years of each of the individuals who may be selected
as Smith Designees are set forth below. Unless otherwise
indicated below, the current business address of each individual
is
c/o Smith
International, Inc., 16740 East Hardy Road, Houston, Texas
77032. Unless otherwise indicated below, the current business
telephone number of each individual is
(281) 443-3370.
Where no date is shown, the individual has occupied the position
indicated for the past five years. Unless otherwise indicated,
each occupation set forth opposite the name of an officer or
director of Smith refers to a position with Smith, and each
occupation set forth opposite the name of an officer or director
of Offeror refers to a position with Offeror. During the past
five years, none of the individuals listed below has
(a) been convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors) or (b) been a
party to any judicial or administrative proceeding (except for
matters that went dismissed without sanction or settlement) that
resulted in a judgment, decree or final order enjoining the
person from future violations of, or prohibiting activities
subject to, federal or state securities laws, or a finding of
any violation of federal or state securities laws. Unless
otherwise indicated below, each such person is a citizen of the
United States of America.
Directors
and Executive Officers of Smith
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Present Principal Occupation and
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Name/Age
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Title
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Five-Year Employment History
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Loren K. Carroll, 64
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Director
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Mr. Carroll joined Smith in December 1984 as Vice President and Chief Financial Officer. He is currently an advisor to Smith. From March 1994 until April 2006, Mr. Carroll served as President and Chief Executive Officer of M-I SWACO, a company in which Smith holds a 60% interest. From 1992 until 1994, he served as Executive Vice President and Chief Financial Officer of Smith. In January 1988, he
was appointed Executive Vice President and Chief Financial Officer and served in that capacity until March 1989. He rejoined Smith in 1992.
He is also a director of the following corporations: Fleetwood Enterprises, Inc.; CGG-Veritas; Forest Oil Corporation; KBR, Inc.
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Dod A. Fraser, 57
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Director
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Mr. Fraser is the President of Sackett Partners Incorporated, a consulting company, and a member of corporate boards. Mr. Fraser established Sackett Partners in 2000 upon retiring from a 27-year career in investment banking. From 1995 to 2000, Mr. Fraser was with The Chase Manhattan Bank, now JP Morgan Chase, where he was Managing Director, Group Executive of the global oil and gas group. Prior to
that, Mr. Fraser was General Partner of Lazard Freres & Co., which he joined in 1978.
He is also a director of the following corporations: Forest Oil Corporation; Terra Industries, Inc.
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A-3
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Present Principal Occupation and
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Name/Age
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Title
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Five-Year Employment History
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James R. Gibbs, 64
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Director
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Mr. Gibbs is the Chairman of the Board, President & Chief Executive Officer of Frontier Oil Corporation. He was President and Chief Operating Officer of Frontier from January 1, 1987 to April 1, 1992, at which time he assumed the additional position of Chief Executive Officer. He was elected Chairman of the Board of Frontier in April 1999. He joined Frontier Oil Corporation in February
1982 as Vice President of Finance and Administration, and was appointed Executive Vice President in September 1985.
He is also a director of the following corporations: Frontier Oil Corporation; advisory director of Frost Bank-Houston; member of the Board of Trustees of Southern Methodist University.
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Robert Kelley, 63
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Director
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Since 2001, Mr. Kelley has served as the President of Kellco Investments, a private investment company. From 1986 to 2001, Mr. Kelley served in several senior management roles including Chairman, President and Chief Executive Officer of Noble Affiliates, Inc. Prior to 1986, he was President and Chief Executive Officer of Samedan Oil Corporation, a subsidiary of Novle Energy Inc.
He is
also a director of the following corporations: Cabot Oil and Gas Corporation; OGE Energy Corp.
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Doug Rock, 61
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Chairman of the Board, Chief Executive Officer, President and
Chief Operating Officer
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Mr. Rock was elected Chairman of the Board of Directors on
February 26, 1991. Mr. Rock has been with Smith since 1974 and
has been Chief Executive Officer, President and Chief Operating
Officer since March 31, 1989.
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John Yearwood, 48
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Director
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Mr. Yearwood, a citizen of Trinidad and Tobago, has served as a Senior Advisor to the Chief Executive Officer of Schlumberger Limited since March 2006. From 1980 to March 2006, he served in a variety of positions at Schlumberger Limited, many of which included responsibilities for business primarily focused outside of the United States, most recently as President North and South America,
Oilfield Services.
He is also a director of the following corporations: Logan Oil Tools; Sheridan Production Partners; Remora Energy; NFG Energy.
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Malcolm W. Anderson, 60
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Senior Vice President, Human Resources
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Senior Vice President, Human Resources since December 2006.
Joined Company as Vice President, Human Resources in May 2004.
Vice President Human Resources at Hewlett Packard from January
2001 to April 2004. Vice President Human Resources at
Weatherford International Ltd. from April 1996 to December 2000.
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A-4
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Present Principal Occupation and
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Name/Age
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Title
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Five-Year Employment History
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Richard E. Chandler, Jr., 51
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Senior Vice President, General Counsel and Secretary
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Senior Vice President and Secretary since January 2006 and
General Counsel since August 2005. Joined predecessor to M-I
SWACO in December 1986 as Vice President, General Counsel
and Secretary. Named Senior Vice President
Administration, General Counsel and Secretary of M-I SWACO in
January 2004.
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Margaret K. Dorman, 44
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Senior Vice President, Chief Financial Officer and Treasurer
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Senior Vice President, Chief Financial Officer and Treasurer
since June 1999. Joined Company as Director of Financial
Reporting in December 1995 and named Vice President, Controller
and Assistant Treasurer in February 1998.
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Bryan L. Dudman, 51
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President, Smith Services
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President, Smith Services since January 2006. Held various
positions since joining Smith in January 1979. Prior to being
named to current position, served as Senior Vice President of
M-I SWACOs Western Hemisphere Operations since May 1994.
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John J. Kennedy, 56
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President and Chief Executive Officer, Wilson
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President and Chief Executive Officer, Wilson since June 1999.
Held various positions since joining Smith in November 1986.
Elected Vice President, Chief Account Officer and Treasurer in
March 1994 and named Senior Vice President, Chief Financial
Officer and Treasurer in April 1997.
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Donald McKenzie, 59
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President and Chief Executive Officer, M-I SWACO
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President and Chief Executive Officer, M-I SWACO since May
2006. Held various positions since joining Smith in 1989. Named
Senior Vice President of
M-I SWACOs
Eastern Hemisphere Operations of
M-I SWACO
in April 1994. Appointed Chief Operating Officer of M-I SWACO
in January 2006.
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Michael D. Pearce, 60
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President, Smith Technologies
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President, Smith Technologies since May 2005. Joined Company as
Vice President Sales of Smiths GeoDiamond Division in
April 1995 and named Vice President Sales of Smith Technologies
in August 1998.
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Peter J. Pintar, 49
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Vice President, Corporate Strategy and Development
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Vice President Corporate Strategy and Development since
September 2005. Held various positions at DTE Energy Company
between October 1997 and August 2005, including
Director Corporate Development, Managing
Director Venture Capital Investments, and
Director Investor Relations.
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Joseph S. Rinando, III, 36
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Vice President and Controller
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Vice President and Controller since April 2006. Joined Company
as Director of Financial Reporting in May 2003. Served as Audit
Manager for PricewaterhouseCoopers LLP from July 2000 to June
2002 and Senior Manager from July 2002 to May 2003.
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A-5
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Present Principal Occupation and
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Name/Age
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Title
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Five-Year Employment History
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Geraldine D. Wilde, 57
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Vice President, Taxes and Assistant Treasurer
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Vice President, Taxes since February 1998. Joined Company as
Manager of Taxes and Payroll of predecessor to M-I SWACO in
December 1986 and named Director of Taxes and Assistant
Treasurer in April 1997.
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Directors
and Executive Officers of Whitehall Acquisition Corp.
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Present Principal Occupation and
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Name/Age
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Title
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Five-Year Employment History
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Richard E. Chandler, Jr., 51
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Director, Secretary
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Director and Secretary of Offeror since June of 2008. Smith
Senior Vice President and Secretary since January 2006 and
General Counsel since August 2005. Joined predecessor to M-I
SWACO in December 1986 as Vice President, General Counsel and
Secretary. Named Senior Vice President
Administration, General Counsel and Secretary of M-I SWACO in
January 2004.
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Margaret K. Dorman, 44
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Treasurer
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Treasurer of Offeror since June of 2008. Smith Senior Vice
President, Chief Financial Officer and Treasurer since June
1999. Joined Company as Director of Financial Reporting in
December 1995 and named Vice President, Controller and Assistant
Treasurer in February 1998.
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Bryan L. Dudman, 51
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Director, President
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Director and President of Offeror since June of 2008. President,
Smith Services since January 2006. Held various positions since
joining Smith in January 1979. Prior to being named to current
position, served as Senior Vice President of M-I SWACOs
Western Hemisphere Operations since May 1994.
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Peter J. Pintar, 49
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Director, Vice-President
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Director and Vice-President of Offeror since June of 2008. Smith
Vice President Corporate Strategy and Development since
September 2005. Held various positions at DTE Energy Company
between October 1997 and August 2005, including
Director Corporate Development, Managing
Director Venture Capital Investments, and
Director Investor Relations.
|
A-6
CERTAIN
INFORMATION REGARDING THE COMPANY
W-Hs Common Stock is the only class of voting securities
of
W-H outstanding.
Each share of
W-H Common
Stock has one vote. As of close of business on June 23,
2008, there were issued and outstanding 30,711,232 Shares,
260,084 unvested restricted Shares and options to purchase
1,411,838 Shares.
INFORMATION
CONCERNING CURRENT DIRECTORS AND EXECUTIVE OFFICERS OF
W-H
Directors
The Companys Bylaws authorize the Board of Directors to
determine from time to time by resolution the number of
directors constituting the full Board of Directors. Each
director holds office until his or her successor is elected and
qualified or until their earlier death, resignation or removal.
Directors are elected by a plurality of the affirmative votes
cast by those shares entitled to vote present in person or
represented by proxy. The Board of Directors is currently
composed of six members.
The following sets forth the name, age and present principal
occupation or employment, and material occupations, positions,
offices or employments for the past five years, of each director
and executive officer of the Company. Unless otherwise
indicated, each such person is a citizen of the United States
and the business address of such person is
c/o W-H Energy
Services, Inc., 2000 West Sam Houston Parkway South,
Suite 500, Houston, Texas 77042. There are no family
relationships between any director or executive officer and any
other director or executive officer or any other director or
executive officer of the Company.
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Director
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Name
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Age
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Position
|
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Since
|
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Kenneth T. White, Jr.
|
|
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66
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|
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Chairman, President, Chief Executive Officer and Director
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1989
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John R. Brock
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|
|
60
|
|
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Director
|
|
|
2003
|
|
James D. Lightner
|
|
|
55
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|
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Director
|
|
|
2004
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Christopher Mills
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|
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55
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|
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Director
|
|
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1990
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Milton L. Scott
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|
|
51
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|
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Director
|
|
|
2000
|
|
Robert H. Whilden, Jr.
|
|
|
73
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|
|
Director
|
|
|
1989
|
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Kenneth T. White, Jr.
, age 66, has served as a
director and as Chairman, President and Chief Executive Officer
of the Company since its inception in April 1989. Prior to
founding the Company, Mr. White participated in the
acquisition, development and eventual sale of a number of
businesses, including an oil and natural gas products and
services business and a manufacturing and distributing company.
Mr. White has over 30 years of experience in the oil
and natural gas industry.
John R. Brock
, age 60, has served as one of the
Companys directors since May 2003. From February 2004 to
March 2007, Mr. Brock served as the Chief Financial Officer
for the Episcopal Diocese of Texas. From 2000 until February
2004, Mr. Brock served as Chairman of John R.
Brock & Associates, a Houston-based professional
career and counseling services firm. From 1994 to 1999,
Mr. Brock was the Managing Partner of Korn/Ferry
International, a provider of executive human capital solutions.
Mr. Brock also served as President and Chief Operating
Officer of the Houston Economic Development Council from 1988 to
1993, Senior Vice President of Marketing at Paine Webber, Inc.
from 1983 to 1988, a Managing Partner of Russell Reynolds
Associates from 1978 to 1983 and Senior Manager at Peat,
Marwick, Mitchell & Co. from 1971 to 1977.
James D. Lightner
, age 55, has served as one of the
Companys directors since November 2004. Mr. Lightner
is currently the President and Chief Executive Officer of Orion
Energy Partners, a private oil and natural gas exploration and
production company. From 1999 to 2004, Mr. Lightner served
in various capacities with Tom Brown, Inc., an oil and natural
gas exploration and production company, including Director,
Chairman, Chief Executive Officer, and President. From 1997 to
1999, he served as Vice President and General Manager of
EOG Resources, Inc., an oil and natural gas exploration and
production company. He is currently serving as chairman of the
board of directors of Forest Oil Corporation, an independent oil
and natural gas exploration and
A-7
production company, where he also serves as chairman of the
compensation committee. Mr. Lightner is also serving as a
director of Cornerstone E&P Company, a private oil and gas
exploration and production company. Mr. Lightner has over
30 years of experience in the oil and natural gas industry.
Christopher Mills
, age 55, has served as one of the
Companys directors since 1990. Mr. Mills has been the
Chief Executive Officer of North Atlantic Smaller Companies
Investment Trust, a closed end mutual fund, since 1984.
Mr. Mills is also a director of SunLink Health Systems,
Inc., a healthcare provider, and Sterling Construction Company,
Inc., as well as other privately held and foreign companies.
Mr. Mills is a citizen of the United Kingdom.
Milton L. Scott
, age 51, has served as one of the
Companys directors since August 2000 and was appointed
Lead Director in 2003. Mr. Scott is currently the founding
majority shareholder, Chairman and Chief Executive Officer of
The Tagos Group, L.L.C, a provider of professional services and
integrated supply to the Fortune 1000. Mr. Scott was a
co-founder and Managing Director of Complete Energy Holdings,
LLC, a Houston-based acquirer, owner and operator of power
generation facilities, from March 2003 to January 2006. From
July 2000 to September 2002, Mr. Scott served as Executive
Vice President and Chief Administrative Officer of Dynegy Inc.
Mr. Scott also served as Senior Vice President and Chief
Administrative Officer of Dynegy Inc. from October 1999 to July
2000. From August 1977 to October 1999, Mr. Scott was
employed by Arthur Andersen LLP, serving in various positions,
the last as partner in charge of the Gulf Coast regions
technology and telecommunications practice. He is currently
serving as a director of Sterling Construction Company, Inc.
Robert H. Whilden, Jr.
, age 73, has served as
one of the Companys directors since its inception in 1989.
From January 2000 to December 2005, Mr. Whilden served as
Senior Vice President, General Counsel and Secretary of BMC
Software, Inc. Prior to January 1, 2000, Mr. Whilden
had been a partner since 1970 in the law firm of
Vinson & Elkins L.L.P., Houston, Texas.
Executive
Officers
The current Executive Officers of the Company are:
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Name
|
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Age
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Position
|
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Kenneth T. White, Jr.
|
|
|
66
|
|
|
Chairman, President, Chief Executive Officer and Director
|
Ernesto Bautista, III
|
|
|
36
|
|
|
Vice President and Chief Financial Officer
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William J. Thomas III
|
|
|
55
|
|
|
Vice President
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Glen J. Ritter
|
|
|
54
|
|
|
Vice President
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Jeffrey L. Tepera
|
|
|
42
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|
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Vice President and Chief Operating Officer
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Stuart J. Ford
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|
|
50
|
|
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Vice President and Intellectual Property Counsel
|
Information regarding Mr. White is set forth above under
Directors.
Mr. Bautista
, a certified public accountant, serves
as the Companys Vice President and Chief Financial
Officer. From July 2000 to July 2006, when Mr. Bautista was
appointed to his current position with the Company,
Mr. Bautista served as the Companys Vice President
and Corporate Controller. From September 1994 to May 2000,
Mr. Bautista served in various positions at Arthur Andersen
LLP, most recently as a manager in the assurance practice,
specializing in emerging, high growth companies.
Mr. Thomas
has served as the Companys Vice
President since May 2000, the President of the Companys
PathFinder Energy Services, Inc. subsidiary since June 1999 and
the President of the Companys Thomas Energy Services, Inc.
(TES) subsidiary since June 1994. Mr. Thomas
has over 30 years of experience in the oil and natural gas
industry and has been employed by TES since 1974.
Mr. Ritter
has served as the Companys Vice
President since April 2005, and the President of the
Companys Coil Tubing Services, L.L.C. (CTS)
subsidiary since the acquisition by the Company of CTS in May
2001. Prior to that time, Mr. Ritter was a part owner in
and President of CTS since its inception in 1997.
Mr. Ritter has over 30 years of experience in the oil
and natural gas industry.
A-8
Mr. Tepera
serves as the Companys Vice
President and Chief Operating Officer. From April 2000 until
July 2006, when Mr. Tepera was appointed to his current
position with the Company, Mr. Tepera served as the
Companys Vice President and Chief Financial Officer.
From December 1997 until March 2000, Mr. Tepera served as
the Companys Vice President and Treasurer. From 1989 to
December 1997, Mr. Tepera was employed by Arthur Andersen
LLP serving in various positions, most recently as a manager in
the assurance practice, specializing in emerging, high growth
companies.
Mr. Ford
, a registered patent attorney, has served
as the Companys Vice President and Intellectual Property
Counsel since February 2002. Mr. Ford was formerly a
partner in the law firm of Vinson & Elkins L.L.P.,
where he practiced from August 1998 to February 2002
specializing in patent and other intellectual property matters.
Board
Meetings and Committees
Director
Independence
The
W-H Board
of Directors evaluated the independence of the members of the
Board of Directors under the independence standards promulgated
by the NYSE. In conducting such evaluation, the Board of
Directors considered transactions and relationships between each
director nominee or his immediate family and
W-H to
determine whether any such transactions or relationships were
material and, therefore, inconsistent with a determination that
each such director nominee is independent. Based upon that
evaluation, the Board of Directors determined that
Messrs. Scott, Whilden, Brock, Mills and Lightner have no
material relationship with
W-H and,
thus, are independent.
In 2007, the Board of Directors held eight regularly scheduled
meetings, and also held special meetings and acted by written
consent from time to time as appropriate. In addition,
non-management directors held five regularly scheduled executive
sessions during 2007. As Lead Director, Mr. Scott presides
over all non-management director executive sessions. The Board
of Directors has established a process for security holders and
other interested parties to send communications, other than
sales-related communications, to the non-management directors or
to one or more of the members of the Board of Directors. Any
such communications should be sent via email to
DirectorCommunication@whes.com. All such communications will be
forwarded directly to the board member or members specified.
The Board of Directors has an Audit Committee, Corporate
Governance and Nominating Committee and Compensation Committee.
All of the members of these committees are independent directors
in accordance with the NYSEs listing standards. Charters
for all committees are available on the
W-H website
at
http://www.whes.com,
and in print to any shareholder upon written request to the
Secretary,
W-H Energy
Services, Inc., 2000 West Sam Houston Parkway South,
Suite 500, Houston, Texas 77042.
W-H does
not maintain a formal policy regarding the Board of
Directors attendance at annual shareholder meetings. At
the 2008 Annual Meeting, Messrs. White, Scott, Whilden and
Brock were present. Each current director participated in at
least 75% of the aggregate total number of meetings held by the
Board of Directors and all committees of which he was a member
that were held during 2007.
Audit
Committee
The current members of the Audit Committee are
Messrs. Scott, Brock and Lightner. The Board of Directors
has determined that Mr. Scott, Chairman of the Audit
Committee, and Mr. Brock are audit committee financial
experts, as defined by the SEC rules and have accounting or
related financial management expertise under the rules of the
NYSE. All of the members of the Audit Committee are independent
under the SECs rules pertaining to audit committee members
and under the independence standards promulgated by the NYSE.
The Audit Committee met seven times in 2007. The Audit Committee
is responsible for (1) the appointment, retention and
termination of the Companys independent registered public
accounting firm, (2) consulting with such firm with regard
to the audit plan, (3) consulting with the Companys
principal financial and accounting officers on any matter the
Audit Committee or the principal financial and accounting
officers deem appropriate in connection with carrying out the
audit, (4) reviewing the results of audits of the Company
by its independent registered public accounting firm,
(5) reviewing all related party transactions and all other
potential conflict of interest situations, (6) discussing
audit
A-9
recommendations with management and reporting the results of its
reviews to the Board of Directors and (7) performing such
other functions as the Board of Directors may prescribe.
Corporate
Governance and Nominating Committee
The current members of the Corporate Governance and Nominating
Committee are Messrs. Brock, Scott and Whilden, each of
whom is independent under the independence standards promulgated
by the NYSE. Mr. Brock serves as Chairman of the Corporate
Governance and Nominating Committee, which met two times in
2007. The Corporate Governance and Nominating Committee is
responsible for (1) making recommendations to the Board of
Directors about the composition of the Board of Directors and
its committees, (2) evaluating potential director nominees
and making recommendations to the Board of Directors regarding
those director nominees that may be considered for election to
the Board of Directors at the annual meeting, (3) advising
the Board of Directors on corporate governance practices and
policies, (4) overseeing the evaluation of the Board of
Directors and management of the Company, (5) making
recommendations to the Board of Directors regarding succession
planning, (6) assisting the Board of Directors with the
determination of director compensation and (7) performing
such other functions as the Board of Directors may prescribe.
Upon recommendation by the Corporate Governance and Nominating
Committee, the Board of Directors has adopted Corporate
Governance Guidelines to assist the Board of Directors in
fulfilling its responsibilities to the Company and its
shareholders. These Guidelines are available on the
W-H website
at
http://www.whes.com
and in print to any shareholder upon written request to the
Secretary,
W-H Energy
Services, Inc., 2000 West Sam Houston Parkway South,
Suite 500, Houston, Texas 77042.
The Board of Directors current criteria for selecting new
directors do not include specific minimum qualifications, but
include criteria relating to a candidates business
experience and accomplishments, lack of conflicts of interest,
ability to commit the time to serve effectively, personal
characteristics, the Board of Directors needs for
diversity of backgrounds and skills and other pertinent
considerations. The Corporate Governance and Nominating
Committee periodically reviews the appropriate skills,
experience, perspectives and characteristics required of board
members or candidates in the context of the perceived needs of
the Board of Directors at the time.
The Corporate Governance and Nominating Committee will consider
suggestions for potential director nominees from many sources,
including members of the Board of Directors, management,
advisors and shareholders. The Corporate Governance and
Nominating Committee will consider nominees recommended by
shareholders in the same manner as other candidates. Pursuant to
the Companys Bylaws, nominations of candidates for
election to the Board of Directors may be made by any
shareholder entitled to vote at a meeting of shareholders called
for the election of directors. Unsolicited recommendations must
contain all of the information that would be required in a proxy
statement soliciting proxies for the election of the candidate
as a director, a description of all direct and indirect
arrangements or understandings between the recommending
shareholder and the candidate, all other companies to which the
candidate is being recommended as a nominee for director and a
signed consent of the candidate to cooperate with reasonable
background checks and personal interviews and to serve as a
director of the Company, if elected.
Compensation
Committee
The current members of the Compensation Committee are
Messrs. Whilden, Lightner and Scott each of whom is
independent under the independence standards promulgated by the
NYSE. Mr. Whilden serves as Chairman of the Compensation
Committee, which met six times in 2007. The Compensation
Committee administers the Companys equity compensation
plans, makes decisions concerning salaries and incentive
compensation for the Companys executive officers and
performs such other functions as the Board of Directors may
prescribe.
The purpose of the Compensation Committee is to assist the
Companys Board of Directors in discharging its
responsibilities with regard to executive compensation, which
includes overseeing the Companys executive compensation
program and administering the Companys equity compensation
plans. The primary responsibilities of the Compensation
Committee are to:
|
|
|
|
|
on an annual basis, review and approve corporate goals and
objectives for the Companys Chief Executive Officer and
evaluate the performance of the Chief Executive Officer in light
of such goals and objectives;
|
A-10
|
|
|
|
|
on an annual basis, set the annual compensation, including
salary, bonus, incentive and equity compensation of the Chief
Executive Officer based upon such evaluation;
|
|
|
|
on an annual basis, evaluate the performance and review the
compensation structure for other executive officers and key
employees;
|
|
|
|
on an annual basis, review and make recommendations to the Board
of Directors with respect to incentive compensation plans and
equity-based plans;
|
|
|
|
review and approve, for the Chief Executive Officer and other
executive officers and key employees, all benefits, option or
stock award grants, perquisites, employment agreements,
severance agreements and
change-in-control
agreements; and
|
|
|
|
perform such other duties as the Board of Directors may assign
to the Compensation Committee from time to time.
|
The Compensation Committee has been delegated all authority of
the Board of Directors as may be required to fulfill the
Compensation Committees responsibilities. The Compensation
Committee may form and delegate some or all of its authority to
subcommittees when it deems appropriate. The Compensation
Committee has the authority to engage compensation consultants
to assist the Compensation Committee in the evaluation of the
Companys executive compensation programs. The Compensation
Committee has sole authority to approve the compensation
consultants fees and other retention terms and has the
authority to cause the Company to pay the fees and expenses of
such consultants. The Compensation Committee also has the
authority to obtain advice and assistance from internal and
external legal, accounting or other advisors, to approve the
fees and expenses of such outside advisors and to cause the
Company to pay the fees and expenses of such outside advisors.
Compensation
Committee Interlocks and Insider Participation
No member of the Compensation Committee served as an officer or
employee of the Company or any of its subsidiaries prior to or
while serving on the Compensation Committee. In 2007, no
executive officer of the Company served as a director or member
of the compensation committee of another entity, any of whose
executive officers served on the Board of Directors or on the
Compensation Committee of the Company.
Director
Compensation
During 2007, the annual retainer fee paid to each non-management
director was $40,000. In addition, (1) the chair of the
Audit Committee received an additional annual retainer fee of
$15,000, (2) the chairs of the Compensation Committee and
Corporate Governance and Nominating Committee each received an
additional annual retainer fee of $10,000, (3) the Lead
Director received an additional annual retainer fee of $5,000
and (4) each non-management director received $1,500 for
each Board of Directors or Committee meeting attended in person.
Each director is also entitled to reimbursement of his
reasonable out-of-pocket expenses incurred in attending meetings
of the Board of Directors and for other reasonable expenses
related to the performance of his duties as a director. These
reimbursements are paid upon submission by the director to the
Company for payment.
Prior to shareholder approval of the Companys 2006 Stock
Awards Plan, which occurred in May 2006, non-management
directors were granted options to purchase 10,000 shares of
W-H Common
Stock each year on the date of the annual meeting. These
options, which have an exercise price equal to the fair market
value of
W-H Common
Stock on the date of grant, vest ratably over a four-year
period, commencing on the grant date, in 25% increments, after
each year of service has been completed and will expire ten
years following the date of grant. The options terminate if the
optionee no longer serves on the Board of Directors, but any
vested options may be exercised during a period of three months
after the effective date of the end of the optionees Board
of Directors service.
The Board of Directors, considering the financial accounting
impact of expensing of share-based compensation, chose to reduce
the use of stock options in favor of restricted stock awards,
which they are permitted to issue under the Companys 2006
Stock Awards Plan. On May 31, 2006 and May 9, 2007,
each non-management director was granted 3,000 shares of
restricted stock. Each restricted stock award vests over a
four-year period in equal
A-11
annual installments, commencing from the first anniversary of
the date of grant, provided that the participant continuously
serves on the Board of Directors through each vesting date. If a
participants directorship terminates for any reason other
than death, disability or change in control of the Company, then
any shares of restricted stock that are not vested as of the
date of termination will be forfeited by the participant and
canceled by the Company. Any shares of restricted stock that are
not vested shall fully vest and become unrestricted if the
Company undergoes a change in control or if the
participants directorship is terminated due to death or
disability.
The following table sets forth information regarding the
compensation of the Companys non-management directors for
the year ended December 31, 2007. Mr. White, who is
the Companys Chairman, President and Chief Executive
Officer, does not receive any compensation or stock or option
awards for services as a director.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned
|
|
|
Restricted
|
|
|
|
|
|
|
|
|
|
or
|
|
|
Stock
|
|
|
Option
|
|
|
|
|
Name
|
|
Paid in Cash
|
|
|
Awards(1)
|
|
|
Awards(1)
|
|
|
Total
|
|
|
John R. Brock
|
|
$
|
69,500
|
|
|
$
|
68,019
|
|
|
$
|
62,487
|
|
|
$
|
200,006
|
|
James D. Lightner
|
|
|
62,500
|
|
|
|
68,019
|
|
|
|
57,814
|
|
|
|
188,333
|
|
Christopher Mills
|
|
|
46,000
|
|
|
|
68,019
|
|
|
|
62,487
|
|
|
|
176,506
|
|
Milton L. Scott
|
|
|
88,500
|
|
|
|
68,019
|
|
|
|
62,487
|
|
|
|
219,006
|
|
Robert H. Whilden, Jr.
|
|
|
68,000
|
|
|
|
68,019
|
|
|
|
62,487
|
|
|
|
198,506
|
|
|
|
|
(1)
|
|
Represents the amounts expensed in respect of restricted stock
and option awards under SFAS 123R during 2007 rather than
grants of awards during 2007. See Notes 2 and 11 to the
consolidated financial statements included in the Companys
Annual Report on
Form 10-K
for the year ended December 31, 2007 for more information
regarding the Companys accounting for share-based
compensation.
|
The Corporate Governance and Nominating Committee periodically
reviews director compensation practices and compares them
against the practices of companies of similar size in the
oilfield services industry. In performing this review, the
Committee focuses on ensuring that the interests of the
directors continue to be closely aligned with the interests of
the Companys shareholders. The Committee believes that the
Companys total director compensation package is
competitive with the compensation offered by other companies of
similar size in the oilfield services industry and is
appropriate in light of the responsibilities and obligations of
the Companys non-management directors.
Code of
Ethics
The Company has a Corporate Code of Business Conduct and Ethics
that applies to all employees and directors, and a separate
Financial Code of Ethics for Senior Financial Officers that
applies to the Companys Chief Executive Officer, Chief
Financial Officer, Principal Accounting Officer, vice presidents
and other senior financial officers. All officers subject to the
Financial Code of Ethics have certified compliance with both the
Corporate Code of Business Conduct and the Financial Code of
Ethics. Both the Corporate Code of Business Conduct and the
Financial Code of Ethics for Senior Financial Officers are
available on W-Hs website at
http://www.whes.com
and are available in print to any shareholder upon written
request to the Secretary,
W-H Energy
Services, Inc., 2000 West Sam Houston Parkway South,
Suite 500, Houston, Texas 77042.
SECURITY
OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table indicates the beneficial ownership, as of
June 13, 2008, of
W-H Common
Stock by (1) each director, (2) each executive
officer, (3) each person known by the Company to own more
than 5% of the outstanding shares of
W-H Common
Stock and (4) all directors and executive officers of the
Company as a group. Except as otherwise indicated below, all
shares indicated as beneficially owned are held with sole voting
and investment power. Beneficial ownership has been determined
in accordance with
Rule 13d-3
under the Exchange Act. Pursuant to
Rule 13d-3,
shares of Common Stock are deemed to be beneficially owned by a
person if the person has the right to acquire shares of Common
Stock (for example, upon exercise of an option or warrant)
within 60 days of June 13, 2008. These shares of
Common Stock are also included in computing the percentage
ownership of such person. As a
A-12
result, the percentage of outstanding shares of any person as
shown in the following table does not necessarily reflect the
persons actual voting power as of June 13, 2008.
|
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|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
|
|
Beneficially
|
|
Percent of
|
Name and Address of Beneficial Owner
|
|
Owned(1)
|
|
Class
|
|
T. Rowe Price Associates, Inc.(2)
|
|
|
3,646,393
|
|
|
|
11.8
|
%
|
c/o Price
Associates
100 E. Pratt Street
Baltimore, Maryland 21202
|
|
|
|
|
|
|
|
|
Goldman Sachs Asset Management, L.P. and affiliated entities(3)
|
|
|
3,227,706
|
|
|
|
10.4
|
%
|
32 Old Slip
New York, New York 10005
|
|
|
|
|
|
|
|
|
Barclays Global Investors, NA and affiliated entities(4)
|
|
|
1,669,299
|
|
|
|
5.4
|
%
|
45 Fremont Street
San Francisco, California 94105
|
|
|
|
|
|
|
|
|
Directors
|
|
|
|
|
|
|
|
|
John R. Brock(5)
|
|
|
18,875
|
|
|
|
*
|
|
James D. Lightner(6)
|
|
|
21,000
|
|
|
|
*
|
|
Christopher Mills(7)(8)
|
|
|
108,000
|
|
|
|
*
|
|
Milton L. Scott(9)
|
|
|
33,500
|
|
|
|
*
|
|
Robert H. Whilden, Jr.(8)
|
|
|
78,793
|
|
|
|
*
|
|
Kenneth T. White, Jr.(10)
|
|
|
750,836
|
|
|
|
2.4
|
%
|
Executive Officers
|
|
|
|
|
|
|
|
|
Ernesto Bautista, III(11)
|
|
|
64,250
|
|
|
|
*
|
|
William J. Thomas III(12)
|
|
|
116,796
|
|
|
|
*
|
|
Glen J. Ritter(13)
|
|
|
160,750
|
|
|
|
*
|
|
Jeffrey L. Tepera(14)
|
|
|
221,000
|
|
|
|
*
|
|
Stuart J. Ford(15)
|
|
|
12,625
|
|
|
|
*
|
|
All directors and executive officers as a group (11 persons)
|
|
|
1,586,425
|
|
|
|
5.0
|
%
|
|
|
|
*
|
|
Represents less than 1% of the outstanding Common Stock.
|
|
(1)
|
|
No shares of
W-H Common
Stock held by the Companys directors or executive officers
have been pledged as security.
|
|
(2)
|
|
This information is based on the Schedule 13G filed with
the SEC by the beneficial owner on February 12, 2008.
According to this Schedule 13G, T. Rowe Price Associates, Inc.
(Price Associates) has sole voting power with
respect to 946,800 shares of Common Stock and sole
dispositive power with respect to 3,646,393 shares of
Common Stock. These securities are owned by various individual
and institutional investors for which Price Associates serves as
investment adviser with power to direct investments and/or sole
power to vote the securities. For purposes of the reporting
requirements of the Exchange Act, Price Associates is deemed to
be a beneficial owner of such securities; however, Price
Associates expressly disclaims that it is, in fact, the
beneficial owner of such securities.
|
|
(3)
|
|
This information is based on the Schedule 13G filed with
the SEC by the beneficial owner on February 11, 2008.
According to this Schedule 13G, Goldman Sachs Asset Management,
L.P. and GS Investment Strategies, LLC each have sole voting
power with respect to 3,150,809 shares of Common Stock and
sole dispositive power with respect to 3,227,706 shares of
Common Stock.
|
|
(4)
|
|
This information is based on the Schedule 13G filed with
the SEC by the beneficial owner on February 5, 2008.
According to this Schedule 13G, Barclays Global Investors, NA
has sole voting power with respect to 611,500 shares of
Common Stock and sole dispositive power with respect to
713,947 shares of Common Stock; Barclays Global Fund
Advisors has sole voting power with respect to
668,388 shares of Common Stock
|
A-13
|
|
|
|
|
and sole dispositive power with respect to 923,955 shares
of Common Stock; and Barclays Global Investors, LTD has
sole dispositive power with respect to 31,397 shares of
Common Stock.
|
|
(5)
|
|
Includes (a) 12,875 shares of Common Stock issuable
upon the exercise of options exercisable within 60 days,
(b) 1,500 shares of restricted Common Stock as to
which the forfeiture restrictions will lapse in 750 share
increments on May 31, 2009 and 2010, so long as
Mr. Brock remains a director of the Company and
(c) 2,250 shares of restricted Common Stock as to
which the forfeiture restrictions will lapse in 750 increments
on May 9, 2009, 2010, and 2011, so long as Mr. Brock
remains a director of the Company.
|
|
(6)
|
|
Includes (a) 15,000 shares of Common Stock issuable
upon the exercise of options exercisable within 60 days,
(b) 1,500 shares of restricted Common Stock as to
which the forfeiture restrictions will lapse in 750 share
increments on May 31, 2009 and 2010, so long as
Mr. Lightner remains a director of the Company and
(c) 2,250 shares of restricted Common Stock as to
which the forfeiture restrictions will lapse in 750 increments
on May 9, 2009, 2010, and 2011, so long as
Mr. Lightner remains a director of the Company.
|
|
(7)
|
|
Excludes 399,850 shares of Common Stock beneficially owned
by persons for which Mr. Mills serves as investment advisor
with investment power, voting power or both with respect to the
securities. For purposes of the reporting requirements of the
Exchange Act, Mr. Mills could be deemed the beneficial
owner of such securities; however, Mr. Mills disclaims any
beneficial ownership of such securities.
|
|
(8)
|
|
Includes (a) 52,500 shares of Common Stock issuable
upon the exercise of options exercisable within 60 days,
(b) 1,500 shares of restricted Common Stock as to
which the forfeiture restrictions will lapse in 750 share
increments on May 31, 2009 and 2010, so long as
Messrs. Mills and Whilden remain directors of the Company
and (c) 2,250 shares of restricted Common Stock as to
which the forfeiture restrictions will lapse in 750 increments
on May 9, 2009, 2010, and 2011, so long as
Messrs. Mills and Whilden remain directors of the Company.
|
|
(9)
|
|
Includes (a) 27,500 shares of Common Stock issuable
upon the exercise of options exercisable within 60 days,
(b) 1,500 shares of restricted Common Stock as to
which the forfeiture restrictions will lapse in 750 share
increments on May 31, 2009 and 2010, so long as
Mr. Scott remains a director of the Company and
(c) 2,250 shares of restricted Common Stock as to
which the forfeiture restrictions will lapse in 750 increments
on May 9, 2009, 2010, and 2011, so long as Mr. Scott
remains a director of the Company.
|
|
(10)
|
|
Mr. White also serves as one of the Companys
executive officers. Includes (a) 401,250 shares of
Common Stock issuable upon the exercise of options exercisable
within 60 days and (b) 13,334 shares of
restricted Common Stock as to which the forfeiture restrictions
will lapse in 6,667 increments on December 1, 2008 and
September 30, 2009, so long as Mr. White remains
employed by the Company.
|
|
(11)
|
|
Includes (a) 43,750 shares of Common Stock issuable
upon the exercise of options exercisable within 60 days,
(b) 6,500 shares of restricted Common Stock as to
which the forfeiture restrictions will lapse in 3,250 share
increments on May 31, 2009 and 2010, so long as
Mr. Bautista remains employed by the Company and
(c) 7,500 shares of restricted Common Stock as to
which the forfeiture restrictions will lapse in 1,875 increments
on February 1, 2009, 2010, 2011, and 2012, so long as
Mr. Bautista remains employed by the Company.
|
|
(12)
|
|
Includes (a) 63,750 shares of Common Stock issuable
upon the exercise of options exercisable within 60 days,
(b) 6,500 shares of restricted Common Stock as to
which the forfeiture restrictions will lapse in 3,250 share
increments on May 31, 2009 and 2010, so long as
Mr. Thomas remains employed by the Company and
(c) 9,000 shares of restricted Common Stock as to
which the forfeiture restrictions will lapse in 2,250 increments
on February 1, 2009, 2010, 2011, and 2012, so long as
Mr. Thomas remains employed by the Company.
|
|
(13)
|
|
Includes (a) 88,750 shares of Common Stock issuable
upon the exercise of options exercisable within 60 days,
(b) 6,500 shares of restricted Common Stock as to
which the forfeiture restrictions will lapse in 3,250 share
increments on May 31, 2009 and 2010, so long as
Mr. Ritter remains employed by the Company and
(c) 9,000 shares of restricted Common Stock as to
which the forfeiture restrictions will lapse in 2,250 increments
on February 1, 2009, 2010, 2011, and 2012, so long as
Mr. Ritter remains employed by the Company.
|
A-14
|
|
|
(14)
|
|
Includes (a) 187,500 shares of Common Stock issuable
upon the exercise of options exercisable within 60 days,
(b) 10,000 shares of restricted Common Stock as to
which the forfeiture restrictions will lapse in 5,000 share
increments on May 31, 2009 and 2010, so long as
Mr. Tepera remains employed by the Company and
(c) 13,500 shares of restricted Common Stock as to
which the forfeiture restrictions will lapse in 3,375 increments
on February 1, 2009, 2010, 2011, and 2012, so long as
Mr. Tepera remains employed by the Company.
|
|
(15)
|
|
Includes (a) 3,125 shares of Common Stock issuable
upon the exercise of options exercisable within 60 days,
(b) 3,250 shares of restricted Common Stock as to
which the forfeiture restrictions will lapse in 1,625 share
increments on May 31, 2009 and 2010, so long as
Mr. Ford remains employed by the Company, and
(c) 3,000 shares of restricted Common Stock as to
which the forfeiture restrictions will lapse in 750 share
increments on February 1, 2009, 2010, 2011, and 2012, so
long as Mr. Ford remains employed by the Company.
|
SECTION 16(A)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Companys executive officers and directors are required
under the Exchange Act to file reports of ownership and changes
in ownership of
W-H Common
Stock with the SEC. The Company believes that all reports for
its executive officers and directors that were required to be
filed under Section 16 of the Exchange Act were timely
filed.
COMPENSATION
DISCUSSION AND ANALYSIS
Compensation
Philosophy and Objectives of the Compensation Program
The Companys general compensation philosophy is to create
a competitive total compensation package based on a pay for
performance culture which the Company believes will allow it to
attract and retain highly-qualified executive personnel and
align the interests of such personnel with the short-term and
long-term interests of
W-H shareholders.
The goals of the executive compensation program are to provide a
total compensation package that is competitive with the
prevailing practices for the industry in which
W-H operates,
allowing for above average total compensation when justified by
business results and individual performance. As discussed below,
the Companys Compensation Committee believes that these
objectives are accomplished through the structure of the
elements of the Companys executive compensation program.
Elements
of Executive Compensation
Total
Compensation
Total annual compensation for the Companys executive
officers includes three principal elements base
salary, annual cash incentive bonuses and long-term incentive
compensation in the form of stock option and restricted stock
awards. Based on the competitive practices in W-Hs
industry and the other factors discussed below, the Compensation
Committee believes that these compensation elements are
consistent with the Companys compensation philosophy and
are most appropriate to further the goals of the Companys
executive compensation program discussed above.
Executive officers are compensated using a combination of
short-term compensation (salary and annual cash incentive
bonuses) and long-term incentive awards (stock options and
restricted stock). Base salaries have historically been set to
approximate the median of the executive base compensation of a
peer group of companies selected by the Companys
independent compensation consultant, so that annual cash
incentive bonuses, which are primarily determined by individual
performance, can, if justified, constitute a larger portion of
cash compensation. The Compensation Committee believes that
long-term incentive awards motivate and reward the creation of
long-term shareholder value and drive the Companys
performance. The Compensation Committee has established a
practice of awarding long-term incentive awards based on
competitive practices, the Companys continuing financial
progress and individual performance.
A-15
Base
Salary
Base salaries are paid for ongoing performance throughout the
year. In establishing base cash compensation for the
Companys named executive officers, the Compensation
Committee targets the median base cash compensation of
executives of the peer group of companies selected by the
Companys independent compensation consultant having
similar responsibilities. The Compensation Committee reviews
base salaries annually to ensure they are competitive and
commensurate with each named executive officers job
responsibilities and his performance. In doing so, the
Compensation Committee considers external market conditions,
individual factors, the Companys financial results and
internal pay equities. In addition, the Compensation Committee
considers the Chief Executive Officers base salary
recommendations for named executive officers other than himself.
Base salary of the Chief Executive Officer is reviewed and
recommended by the Compensation Committee to the independent
members of the Board of Directors based upon the same criteria.
Annual
Cash Incentive Bonuses
Annual cash incentive bonuses are paid to reward individual
performance and the achievement of corporate objectives. The
Compensation Committee establishes the target annual cash
incentive bonus opportunity for each named executive officer at
the beginning of each year. Such target is typically established
as a percentage of each officers base salary. The target
is reviewed annually to ensure that it is competitive and
commensurate with each officers job responsibilities.
At the beginning of each year, the Compensation Committee
establishes performance evaluation criteria for the Chief
Executive Officer and approves the performance evaluation
criteria for the named executive officers other than the Chief
Executive Officer. These performance evaluation criteria may
vary by officer.
Annual cash incentive bonuses are paid after the end of each
calendar year once the Compensation Committee and the Board of
Directors have evaluated the Companys performance and each
individuals leadership qualities and performance during
the prior year. The annual cash incentive bonuses for named
executive officers typically comprise a larger portion of total
short-term cash compensation. An individual officers
annual cash incentive bonus may be lower than the target level
as a result of lower than expected individual performance. There
is also the potential for an individual officers annual
cash incentive bonus to exceed the target level in the event of
exceptional performance by the Company or the individual officer.
The performance evaluation process followed by the Compensation
Committee is discussed below under Process for
Determining Executive Compensation.
Long-Term
Incentive Awards
On an annual basis, the Compensation Committee considers the
grant of long-term incentive awards in the form of stock options
and restricted stock to named executive officers. Stock options
and restricted stock are granted because these awards tie
directly to the performance of
W-H Common
Stock and align the interests of the executive officers with the
interests of the Companys shareholders. The Compensation
Committee also believes that grants of stock options and
restricted stock provide an effective means of executive
retention because the awards vest over a period of years and
typically increase in value if the Companys stock price
increases. The Compensation Committee is responsible for
approving such grants of long-term incentive awards.
Stock Options.
Prior to shareholder approval
of the Companys 2006 Stock Awards Plan, which occurred in
May 2006, the Compensation Committee followed a policy of
considering the award of stock options to executive officers on
an annual basis under the Companys 1997 Stock Option Plan.
All stock option awards were made with option exercise prices
equal to the fair market value of
W-H Common
Stock on the date of grant. Holders of stock option awards
benefit only when and to the extent that the Companys
stock price increases after the option grant. Stock options
typically vest over a four-year period in equal annual
installments, beginning from the first anniversary of the date
of grant, and expire ten years from the date of grant.
Restricted Stock.
Under the Companys
2006 Stock Awards Plan, the Compensation Committee is permitted
to grant a variety of equity-based awards. The Compensation
Committee, considering the impact of expensing of share-based
compensation, has since 2006 elected to grant executive officers
restricted stock awards rather than
A-16
stock options. Restricted stock awards are typically granted to
executive officers on an every-other-year basis.
Generally, restricted stock awards vest over a three or
four-year period in equal annual installments, beginning from
the first anniversary of the date of grant.
Please see Process for Determining Executive
Compensation below for more information regarding the
Compensation Committees process of considering the award
of stock options and restricted stock on a periodic basis to the
Companys named executive officers. Please see
Executive Compensation Summary Compensation
Table and Executive Compensation 2007
Grants of Plan-Based Awards and the accompanying footnotes
and narrative disclosures for more information regarding the
stock options and restricted stock granted to the Companys
named executive officers. Please also see Executive
Compensation Potential Payments Upon Termination or
Change in Control for a discussion of the conditions under
which vesting of equity incentive awards may accelerate or the
conditions under which such awards may be forfeited. The
Compensation Committee has sought to design these accelerated
vesting and forfeiture provisions to be consistent with the
equity awards offered by the peer group of companies identified
by the Companys independent compensation consultant so as
to make the Companys long-term incentive awards
competitive with such peer group of companies.
Health
and Welfare Benefits
W-H offers
subsidized health and other group benefits which include
medical, dental, vision, disability and life insurance coverage
as well as flexible spending accounts, to all eligible
employees. Named executive officers may elect to receive such
health and group benefits, subject to the payment of required
premium payments. In addition,
W-H pays
the premiums on a life insurance policy for its President and
Chief Executive Officer.
Vehicle
Allowance
W-H provides
monthly vehicle allowances to each named executive officer that
are calculated based upon the Companys estimate of annual
depreciation, maintenance and operating costs. The Compensation
Committee believes that the provision of a vehicle allowance is
prevalent in the Companys industry and is consistent with
maintaining a competitive compensation package.
Perquisites
W-H seeks
to maintain equal standards of treatment between named executive
officers and other employees. Other than vehicle allowances and
the policy of life insurance provided for the Companys
President and Chief Executive Officer, personal perquisite and
benefit allowances are not provided to named executive officers.
Additional
Factors Considered When Determining Total Compensation
Benchmarking
In order to determine appropriate levels of total compensation
for each of the Companys named executive officers, the
Compensation Committee conducts an evaluation of competitive
trends with the help of its independent compensation consultant.
The Compensation Committee reviews and makes recommendations for
the level of total compensation for each of the Companys
named executive officers, including base salary, annual cash
incentive bonuses and long-term incentive awards based partly on
competitive benchmark data derived from executive compensation
surveys. The Companys independent compensation consultant
collected survey data from the following companies it and the
Compensation Committee believes are a representative sample of
peer group companies in connection with its report to the
Compensation Committee prepared in January 2008: Complete
Production Services, Inc., Core Laboratories N.V., Helix Energy
Solutions Group, Inc., Oil States International, Inc., RPC,
Inc., Superior Energy Services, Inc., and Tetra Technologies,
Inc.
The survey data is used primarily to ensure that base salary
levels of the Companys named executive officers
approximate the median of the companies surveyed, that the
Companys long-term incentive award grant practices are
competitive and that the Companys executive compensation
program, as a whole, is competitive and generally within the
50th to 75th percentile of comparative compensation
when targeted performance levels are achieved.
A-17
Employment
Agreements
W-H enters
into employment agreements with all named executive officers.
These employment agreements provide for benefits to be received
upon termination under certain circumstances. The Compensation
Committee believes that making these payments available is
consistent with trends in the Companys industry and places
the named executive officers in a position to objectively
consider business combination transactions that would benefit
shareholders without undue concern for their personal situation.
For more information, please see Executive
Compensation Named Executive Officer Employment
Agreements located elsewhere in this Information Statement
for a description of the employment agreements for each named
executive officer, as well as Executive
Compensation Potential Payments upon Termination or
Change in Control located elsewhere in this Information
Statement for a description of amounts potentially payable to
the named executive officers upon termination of employment or a
change in control.
Tax
and Accounting Considerations
For compensation in excess of $1 million,
Section 162(m) of the Code generally limits the
Companys ability to take a federal income tax deduction
for compensation paid to the Chief Executive Officer and the
four most highly compensated executive officers other than the
Chief Executive Officer, except for qualified performance-based
compensation. Options issued under the Companys 1997 Stock
Option Plan have been structured to qualify as performance-based
and, thus, would not be subject to this deduction limitation.
Restricted stock awards made to date under the 2006 Stock Awards
Plan have not been designed to qualify for this exemption. While
the Compensation Committee will seek to utilize deductible forms
of compensation to the extent practicable, it does not believe
that compensation decisions should be made solely to maintain
the deductibility of compensation for federal income tax
purposes. Four of the Companys executive officers reached
the deduction limitation in 2007. The Compensation Committee
plans to continue to evaluate the Companys salary, bonus
and stock awards programs relative to the Section 162(m)
deduction limitation.
W-H adopted
SFAS 123R as of January 1, 2006 and, accordingly, it
expenses the grant-date fair value of stock options, restricted
stock and other equity-based compensation issued to employees.
The fair value of each option award made after December 31,
2005 is estimated on the date of grant in accordance with the
requirements set forth in SFAS 123R. Once the fair value of
each award is determined, it is recognized as compensation
expense ratably over the vesting period, provided that the
participant is continuously employed with the Company through
each vesting date. The Compensation Committee has considered the
impact of expensing certain equity-based compensation and,
accordingly, has chosen to reduce the use of stock options.
Process
for Determining Executive Compensation
As discussed above, the principal elements of the Companys
named executive officers compensation consists of base
salary, an annual cash incentive bonus and long-term incentive
awards in the form of restricted stock or options to purchase
W-H Common
Stock. The following is a discussion of the steps generally
followed by the Companys Compensation Committee in
establishing the compensation of the Companys named
executive officers as well as a discussion of the decisions made
by the committee in respect of 2007 and 2008.
At the beginning of each year, the Compensation Committee meets
in person and by telephone several times to consider each named
executive officers cash incentive bonus payable in respect
of performance during the immediately preceding fiscal year,
long-term incentive award grants in respect of performance
during the immediately preceding fiscal year and base salary for
the then current fiscal year.
During 2007 and the first quarter of 2008, the Compensation
Committee retained Hewitt Associates L.L.C. as its independent
compensation consultant to (1) help determine the
Companys peer group and to conduct an analysis comparing
the Companys executive compensation to that of such peer
group, (2) review the Companys internal executive pay
elements and (3) provide an executive compensation survey,
including an analysis of the total annual compensation of each
named executive officer. The independent compensation consultant
was retained by and is directly accountable to the Compensation
Committee.
A-18
After receiving the report of the independent compensation
consultant, the Compensation Committee undertook a review of the
Companys performance and each named executive
officers performance relative to the performance
evaluation criteria established at the beginning of 2007. These
performance evaluation criteria included qualitative factors,
such as the tone set for the Company by management and the
Companys continuing compliance with legal and regulatory
requirements, and quantitative factors, such as earnings per
share and EBITDA goals and meeting capital expenditure budgets.
The Compensation Committee does not engage in a formulaic
evaluation of performance relative to the performance evaluation
criteria. Rather, the Compensation Committee performs a
subjective evaluation, as the Compensation Committee believes
that the dynamic nature of W-Hs business and the
macroeconomic factors that impact W-Hs operations make
rigid adherence to compensation formulae inappropriate and
potentially inequitable. In addition, the Compensation Committee
makes a subjective analysis of the Companys performance,
the Companys performance relative to its peers and the
individual named executive officers leadership qualities
and performance. With respect to the named executive officers
other than the Companys Chief Executive Officer, the
Compensation Committee also met with the Companys Chief
Executive Officer, who assists the Compensation Committee in the
review process by making recommendations to the committee and
playing an active role in the evaluation of such officers
performance and the establishment of such officers
compensation. The Chief Executive Officer does not participate
in discussions about his individual compensation matters or in
the making of recommendations by the Compensation Committee of
his compensation.
Based on the foregoing and the input of its independent
compensation consultant, the Compensation Committee makes
decisions regarding base salary levels, cash incentive bonus
levels and long-term incentive awards. The Compensation
Committee then meets with the independent non-management
directors in private executive session to review the
recommendations of the Compensation Committee.
2007
Executive Compensation
Determination
of 2007 Base Salary
During the first quarter of 2007, the Compensation Committee met
with its independent compensation consultant, considered
relevant industry and market data and reviewed executive
compensation benchmark data derived from executive compensation
surveys and information relating to the Companys peer
group in establishing 2007 base salaries for the Companys
named executive officers. Based on the Compensation
Committees analysis of this information and its goals and
objectives described above, the Compensation Committee
determined the following 2007 base salaries were reasonable:
|
|
|
|
|
|
|
|
|
|
|
2007
|
Name
|
|
Title
|
|
Base Salary
|
|
Kenneth T. White, Jr.
|
|
Chairman, President and Chief Executive Officer
|
|
|
$500,000
|
|
Ernesto Bautista, III
|
|
Vice President and Chief Financial Officer
|
|
|
250,000
|
|
William J. Thomas III
|
|
Vice President
|
|
|
380,000
|
|
Glen J. Ritter
|
|
Vice President
|
|
|
380,000
|
|
Jeffrey L. Tepera
|
|
Vice President and Chief Operating Officer
|
|
|
350,000
|
|
Determination
of 2007 Cash Incentive Bonus
At the beginning of 2007, the Compensation Committee established
a target annual cash incentive bonus level for each of the named
executive officers. It also established performance evaluation
criteria for the Companys Chief Executive Officer and
approved the performance evaluation criteria recommended by the
Chief Executive Officer for the named executive officers other
than himself. In early 2008, the Compensation Committee reviewed
the Companys actual performance relative to such
performance evaluation criteria. For 2007, the Compensation
Committee found that the Company generally had equaled or
exceeded such criteria. Although annual cash incentive bonuses
are not formulaic, the Compensation Committee considered, among
other factors, the Companys performance and the
competitive market in its industry and determined that, to
maintain a competitive compensation package and retain high
quality employees, it needed to pay competitive annual incentive
bonuses.
A-19
Based on the policies described above, the Compensation
Committee reviewed all elements of Mr. Whites total
compensation for 2007. Based on the Compensation
Committees review of these and external factors, they
found Mr. Whites total compensation to be reasonable
and not excessive. The Compensation Committee believed the
Companys performance in 2007 demonstrated that
Mr. White had been successful in his role as Chief
Executive Officer and that he continued to demonstrate the
integrity, planning and leadership qualities that the executive
compensation program was designed to foster and reward. The
Compensation Committee also reviewed the Companys
financial and operating performance and stock price performance.
In light of the foregoing, the Compensation Committee concluded
that Mr. White should receive an annual cash incentive
bonus for his 2007 performance in the amount of $850,000.
In addition, the Compensation Committee reviewed all elements of
total compensation for the other named executive officers for
2007 in the same manner as they reviewed the total compensation
for the Companys Chief Executive Officer. The Compensation
Committee also considered recommendations from the Chief
Executive Officer regarding total compensation for the other
named executive officers. Based on corporate performance for
2007, as well as the individual performance of the other named
executive officers, the Compensation Committee awarded cash
incentive bonuses to the Companys other named executive
officers. In the case of Mr. Bautista, the Compensation
Committee considered the quality of the Companys financial
reporting, access to capital, investor relations and the
performance of the Companys accounting, treasury and
information technology functions. On the basis of this
evaluation, the Compensation Committee awarded a $265,625 cash
incentive bonus to Mr. Bautista. In the cases of
Messrs. Thomas and Ritter, the Compensation Committee
considered the performance of the respective segment each
oversees, customer satisfaction within those segments, equipment
utilization rates, market share data and similar operational
statistics. On the basis of this evaluation, the Compensation
Committee awarded cash incentive bonuses of $403,750 to each of
Mr. Thomas and Mr. Ritter. In the case of
Mr. Tepera, the Compensation Committee considered the
Companys overall operational performance, the quality of
Mr. Teperas leadership and interaction with the
Companys various subsidiary presidents in helping them
achieve their business objectives, investor relations,
Mr. Teperas oversight of the Companys legal,
financial, and health, safety and environmental functions and
similar operational statistics. On the basis of this evaluation,
the Compensation Committee awarded a $395,675 cash incentive
bonus to Mr. Tepera.
Determination
of 2007 Grants of Long-Term Incentive Awards
The Compensation Committee believes long-term incentive awards
provide an effective means of executive retention and an
incentive to build shareholder value. In early 2007, the
Compensation Committee determined that, based on the performance
of
W-H Common
Stock during 2006 and review of competitive practices, the
Companys financial achievements and individual
performance, an award in the form of restricted stock to Mr.
White was appropriate and reasonable. Under the Companys
2006 Stock Awards Plan, the Compensation Committee granted
20,000 shares of restricted stock to Mr. White
effective February 7, 2007. The terms of this restricted
stock grant are described under Executive
Compensation Outstanding Equity Awards at Fiscal
Year-End. Consistent with the Compensation
Committees every-other-year philosophy,
Messrs. Bautista, Thomas, Ritter, and Tepera did not
receive a grant of restricted stock in 2007. No stock options
were granted to any named executive officer during 2007.
A-20
2008
Executive Compensation
In early 2008, the Compensation Committee also considered
whether adjustments should be made to the base salaries and
incentive bonus potential for the named executive officers for
2008. The Compensation Committee consulted with its independent
compensation consultant and adjusted each named executive
officers base salary based on individual performance, 2008
market conditions and the other factors discussed above. No
adjustments were made to incentive bonus potential for 2008. The
following table sets forth the 2008 base salaries and incentive
bonus potential (as a percentage of base salary) for the named
executive officers.
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|
|
|
|
|
|
|
2008 Incentive
|
|
|
|
|
|
|
Bonus
|
|
|
|
|
|
|
Potential
|
|
|
|
|
2008
|
|
(as a % of
|
Name
|
|
Title
|
|
Base Salary
|
|
Base Salary)
|
|
Kenneth T. White, Jr.
|
|
Chairman, President and Chief Executive Officer
|
|
|
$500,000
|
|
|
|
200%
|
|
Ernesto Bautista, III
|
|
Vice President and Chief Financial Officer
|
|
|
263,000
|
|
|
|
125%
|
|
William J. Thomas III
|
|
Vice President
|
|
|
400,000
|
|
|
|
125%
|
|
Glen J. Ritter
|
|
Vice President
|
|
|
400,000
|
|
|
|
125%
|
|
Jeffrey L. Tepera
|
|
Vice President and Chief Operating Officer
|
|
|
370,000
|
|
|
|
133%
|
|
In early 2008, the Compensation Committee also determined that,
based on the performance of
W-H Common
Stock during 2007 and review of competitive practices, the
Companys financial achievements and individual
performance, awards in the form of restricted stock to certain
named executive officers were appropriate and reasonable. Under
the Companys 2006 Stock Awards Plan, the Compensation
Committee granted the following awards, effective
February 1, 2008: (1) Mr. Bautista received a
grant of 7,500 restricted shares, (2) Messrs. Thomas
and Ritter each received grants of 9,000 restricted shares and
(3) Mr. Tepera received a grant of 13,500 restricted
shares. These restricted stock grants vest ratably over a
four-year period, commencing on the first anniversary of the
grant date, in 25% increments after each year of service has
been completed.
COMPENSATION
COMMITTEE REPORT
The Compensation Committee has reviewed and discussed with
management the Compensation Discussion and Analysis
required by Item 402(b) of
Regulation S-K.
Based upon such review and discussions, the Compensation
Committee recommended to the Board of Directors that the
Compensation Discussion and Analysis be included in
the Companys Proxy Statement on Schedule 14A filed
with the SEC on April 8, 2008.
The Compensation Committee
Robert H. Whilden, Jr.,
Chairman
James D. Lightner
Milton L. Scott
A-21
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The following table summarizes compensation of the
Companys named executive officers for the years ended
December 31, 2007 and 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and
|
|
|
|
|
|
|
|
Stock
|
|
Option
|
|
All Other
|
|
|
Principal Position
|
|
Year
|
|
Salary
|
|
Bonus(1)
|
|
Awards(2)
|
|
Awards(2)
|
|
Compensation(3)
|
|
Total
|
|
Kenneth T. White, Jr.
|
|
|
2007
|
|
|
$
|
500,000
|
|
|
$
|
850,000
|
|
|
$
|
370,760
|
|
|
$
|
217,632
|
|
|
$
|
44,250
|
|
|
$
|
1,982,642
|
|
Chairman, President and Chief Executive Officer
|
|
|
2006
|
|
|
$
|
475,000
|
|
|
$
|
950,000
|
|
|
$
|
226,800
|
|
|
$
|
217,806
|
|
|
$
|
43,193
|
|
|
$
|
1,912,799
|
|
Ernesto Bautista, III
|
|
|
2007
|
|
|
$
|
250,000
|
|
|
$
|
265,625
|
|
|
$
|
183,105
|
|
|
$
|
145,233
|
|
|
$
|
27,000
|
|
|
$
|
870,963
|
|
Vice President and
Chief Financial Officer
|
|
|
2006
|
|
|
$
|
215,000
|
|
|
$
|
270,000
|
|
|
$
|
106,811
|
|
|
$
|
162,479
|
|
|
$
|
32,073
|
|
|
$
|
786,363
|
|
William J. Thomas III
|
|
|
2007
|
|
|
$
|
380,000
|
|
|
$
|
403,750
|
|
|
$
|
183,105
|
|
|
$
|
181,578
|
|
|
$
|
27,000
|
|
|
$
|
1,175,433
|
|
Vice President
|
|
|
2006
|
|
|
$
|
360,000
|
|
|
$
|
450,000
|
|
|
$
|
106,811
|
|
|
$
|
207,418
|
|
|
$
|
26,800
|
|
|
$
|
1,151,029
|
|
Glen J. Ritter
|
|
|
2007
|
|
|
$
|
380,000
|
|
|
$
|
403,750
|
|
|
$
|
183,105
|
|
|
$
|
87,225
|
|
|
$
|
27,000
|
|
|
$
|
1,081,080
|
|
Vice President
|
|
|
2006
|
|
|
$
|
360,000
|
|
|
$
|
450,000
|
|
|
$
|
106,811
|
|
|
$
|
120,456
|
|
|
$
|
26,800
|
|
|
$
|
1,064,067
|
|
Jeffrey L. Tepera
|
|
|
2007
|
|
|
$
|
350,000
|
|
|
$
|
395,675
|
|
|
$
|
281,700
|
|
|
$
|
290,476
|
|
|
$
|
27,000
|
|
|
$
|
1,344,851
|
|
Vice President and
Chief Operating Officer
|
|
|
2006
|
|
|
$
|
300,000
|
|
|
$
|
375,000
|
|
|
$
|
164,325
|
|
|
$
|
324,958
|
|
|
$
|
25,916
|
|
|
$
|
1,190,199
|
|
|
|
|
(1)
|
|
Represents bonuses earned for the respective year that were paid
subsequent to year end.
|
|
(2)
|
|
Represents the amounts
W-H expensed
in respect of stock and option awards under SFAS 123R
during the applicable year rather than grants of awards during
such years. Grant information is contained under
2007 Grants of Plan Based Awards. See
Notes 2 and 11 to the consolidated financial statements
included in the Companys Annual Report on
Form 10-K
for the year ended December 31, 2007 for more information
regarding the Companys accounting for share-based
compensation.
|
|
(3)
|
|
For the year ended December 31, 2007: for Mr. White,
includes $18,000 of vehicle allowances, $17,250 of premium
payments on a policy of life insurance made by
W-H on
behalf of Mr. White and $9,000 of contractual and
discretionary contributions by
W-H to
Mr. Whites 401(k) plan accounts. For
Messrs. Bautista, Thomas, Ritter, and Tepera includes
$18,000 of vehicle allowances and $9,000 of contractual and
discretionary contributions by
W-H to
their respective 401(k) plan accounts. For the year ended
December 31, 2006: for Mr. White, includes $16,204 of
vehicle allowances, $17,250 of premium payments on a policy of
life insurance made by
W-H on
behalf of Mr. White and $8,800 of contractual and
discretionary contributions by the Company to
Mr. Whites 401(k) plan accounts. For
Mr. Bautista, includes $22,732 of vehicle allowances and
$8,800 of contractual and discretionary contributions by
W-H to
Mr. Bautistas 401(k) plan accounts. For
Mr. Thomas, includes $18,000 of vehicle allowances and
$8,800 of contractual and discretionary contributions by
W-H to
Mr. Thomas 401(k) plan accounts. For Mr. Ritter,
includes $18,000 of vehicle allowances and $8,800 of contractual
and discretionary contributions by
W-H to
Mr. Ritters 401(k) plan accounts. For
Mr. Tepera, includes $16,801 of vehicle allowances and
$8,800 of contractual and discretionary contributions by
W-H to
Mr. Teperas 401(k) plan accounts.
|
A-22
2007
Grants of Plan-Based Awards
The following table sets forth information regarding the grants
of restricted stock to the Companys named executive
officers during 2007. The restricted stock vests as follows:
6,666 shares on December 1, 2007, 6,667 shares on
December 1, 2008, and 6,667 shares on
September 30, 2009, so long as Mr. White remains
continuously employed with the Company through each vesting
date. Messrs. Bautista, Thomas, Ritter, and Tepera did not
receive grants of restricted stock during 2007, and no stock
options were granted to any named executive officer during 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards:
|
|
|
Grant Date
|
|
|
|
|
|
|
Number of
|
|
|
Fair Value
|
|
|
|
|
|
|
Shares of
|
|
|
of Stock
|
|
Name
|
|
Grant Date
|
|
|
Stock
|
|
|
Awards(1)
|
|
|
Kenneth T. White, Jr.
|
|
|
2/07/2007
|
|
|
|
20,000
|
|
|
$
|
894,800
|
|
|
|
|
(1)
|
|
Represents the grant date fair value of restricted stock awards
based on the closing price of
W-H Common
Stock on the grant date of February 7, 2007 of $44.74.
|
Named
Executive Officer Employment Agreements
The Company has employment agreements with each of its named
executive officers. The employment agreements the Company has
with its named executive officers, other than its President and
Chief Executive Officer, provide for an initial term ending on
December 31, 2009 and automatic one-year extensions
following the end of the initial term unless either the Company
or the executive provides notice of desire not to renew. These
agreements also provide for the following:
|
|
|
|
|
a minimum base salary;
|
|
|
|
a target incentive cash bonus (expressed as a percentage of base
salary); and
|
|
|
|
a vehicle allowance.
|
Each employment agreement provides that the Compensation
Committee may increase, but not decrease, the annual base
salary. Under each employment agreement, the executive agrees,
during the term of employment and for two years following any
voluntary termination of employment, not to engage directly or
indirectly in, render any advice or services to, be employed by
or hold an ownership interest in, any type of business in which
W-H or
any of its subsidiaries are actively engaged in the States of
Texas and Louisiana.
The Companys President and Chief Executive Officers
employment agreement expires on September 30, 2009 but
otherwise contains the terms described above. Additionally, it
provides for premium payments on a life insurance policy for his
benefit. It also provides the Companys President and Chief
Executive Officer with the option, with the consent of
W-Hs Board of Directors, to resign from his position as
the Companys President and Chief Executive Officer but
continue to serve as the Chairman of the Companys Board of
Directors and as an employee for a three year term.
1999
Non-Statutory Stock Option Plan
On March 29, 1999, prior to the Companys initial
public offering, Mr. White was granted an option to
purchase 900,900 shares of Common Stock at a purchase price
of $4.55 per share. As of December 31, 2007, the remaining
unexercised option to purchase 345,000 shares of Common
Stock was vested. This option is exercisable by Mr. White
at any time until March 29, 2009 and is not transferable.
Upon Mr. Whites death or disability, or the
termination of his employment for any reason, Mr. White or
his estate, as the case may be, may exercise this option at any
time within three months from the date of such termination,
death or disability.
2004
Restricted Stock Grant
On May 12, 2004, the Companys shareholders approved
the grant of 75,000 shares of restricted stock to
Mr. White. All of these shares of restricted stock were
vested as of December 31, 2007.
A-23
1997
Stock Option Plan
W-Hs Board of Directors adopted the 1997 Stock Option Plan
(the 1997 Plan) in August 1997. The Compensation
Committee was granted sole authority by the Board of Directors
to administer the 1997 Plan. In connection with adopting the
2006 Stock Awards Plan, discussed below,
W-H terminated
its right to make further awards under the 1997 Plan. However,
unexercised stock options remain outstanding under the 1997
Plan, and such plan remains effective with respect to those
outstanding awards.
Each option granted under the 1997 Plan contains terms and
conditions as approved by the Compensation Committee. Options
granted under the 1997 Plan vest ratably over a four-year period
and expire 10 years from the date of grant. Except in
certain circumstances, including a merger or consolidation or
the sale of substantially all of the Companys assets, no
option may be exercised unless a continuous service requirement
has been satisfied. If an optionees employment terminates
for any reason, the option may be exercised during the
three-month period following the termination, but only to the
extent vested at the time of the termination. Each option is
assignable or transferable only by will or by the laws of
descent and distribution or pursuant to a qualified domestic
relations order as defined by the Code or Title 1 of the
Employee Retirement Income Security Act of 1974, as amended.
The exercise price of options granted under the 1997 Plan is
equal to the market value of
W-H Common
Stock on the date options were granted, and
W-H received
no consideration in granting such options.
2006
Stock Awards Plan
In May 2006, the Companys shareholders approved the Board
of Directors March 2006 adoption of the 2006 Stock Awards
Plan (the 2006 Plan). The Compensation Committee was
granted sole authority by the Board of Directors to administer
the 2006 Plan and has sole authority to (1) grant awards
pursuant to the terms of the 2006 Plan, (2) select
participants from those individuals eligible to receive awards
under the 2006 Plan, (3) determine the type of award that
is to be granted under the 2006 Plan, (4) determine the
number of shares of Common Stock to be covered by each award,
(5) establish the terms and conditions of any award
granted, (6) modify, amend or adjust the terms and
conditions of any award subject to the terms of the 2006 Plan
and (7) determine under what circumstances an award may be
settled in cash or Common Stock. Awards that may be granted
under the 2006 Plan include stock options, stock appreciation
rights, restricted stock, restricted stock units, performance
units and other stock-based awards. The Compensation Committee
will fix the term of each award, but no award of stock options
or stock appreciation rights may be exercisable more than seven
years after the date the award is granted.
To date, the Compensation Committee has only granted restricted
stock awards under the 2006 Plan. Generally, these awards vest
ratably over a four-year period commencing with the first
anniversary of the date of grant, provided that the participant
is continuously employed with
W-H through
each vesting date. If a participants employment terminates
for any reason other than death, disability, or change in
control, then any shares of restricted stock that are not vested
as of the date of termination will be forfeited by the
participant and canceled by W-H. Any shares of restricted stock
that are not vested shall fully vest and become unrestricted if
W-H undergoes
a change in control or if the participants employment is
terminated due to death or disability.
Shares subject to the restricted stock awards that are unvested
are transferable only by will or by the laws of descent and
distribution. Otherwise, shares subject to the restricted stock
awards that are unvested may not be sold, assigned, pledged,
encumbered or otherwise transferred.
The
W-H Board
of Directors may amend, alter or discontinue the 2006 Plan, but
no amendment, alteration or discontinuation to the Plan or any
award may be made which would impair the rights of a participant
without the participants consent, except for amendments
made to comply with applicable law, stock exchange rules or
accounting rules. In addition, no amendment may be made to the
Plan without the approval of W-Hs shareholders to the
extent such approval is required by applicable law or stock
exchange rules or to comply with Section 162(m) of the Code.
A-24
Outstanding
Equity Awards at Fiscal Year-End
The following table sets forth information regarding the number
of shares of unexercised stock options and the number of shares
and value of unvested restricted stock outstanding on
December 31, 2007 for the Companys named executive
officers. The market value of shares of restricted stock that
have not vested was determined using the closing price of
W-H Common
Stock as of December 31, 2007 of $56.21.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Restricted Stock Awards
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
Number of
|
|
Market Value
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
Shares of
|
|
of Shares of
|
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
Restricted
|
|
Restricted
|
|
|
Unexercised
|
|
Unexercised
|
|
Option
|
|
Option
|
|
Stock
|
|
Stock
|
|
|
Options
|
|
Options
|
|
Exercise
|
|
Expiration
|
|
That Have
|
|
That Have
|
Name
|
|
(Exercisable)
|
|
(Unexercisable)
|
|
Price
|
|
Date
|
|
not Vested
|
|
not Vested
|
|
Kenneth T. White, Jr.
|
|
|
345,000
|
|
|
|
|
|
|
$
|
4.55
|
|
|
|
3/29/2009
|
|
|
|
|
|
|
$
|
|
|
|
|
|
37,500
|
|
|
|
37,500
|
(1)
|
|
|
22.95
|
|
|
|
5/11/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,334
|
(2)
|
|
|
749,504
|
|
Ernesto Bautista, III
|
|
|
1,250
|
|
|
|
|
|
|
|
16.50
|
|
|
|
10/11/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
|
|
18.64
|
|
|
|
8/26/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
5,000
|
(3)
|
|
|
15.28
|
|
|
|
2/5/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
6,250
|
|
|
|
12,500
|
(4)
|
|
|
22.95
|
|
|
|
5/11/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,750
|
(5)
|
|
|
548,048
|
|
William J. Thomas III
|
|
|
15,000
|
|
|
|
|
|
|
|
18.64
|
|
|
|
8/26/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
22,500
|
|
|
|
7,500
|
(3)
|
|
|
15.28
|
|
|
|
2/5/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
12,500
|
|
|
|
12,500
|
(4)
|
|
|
22.95
|
|
|
|
5/11/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,750
|
(5)
|
|
|
548,048
|
|
Glen J. Ritter
|
|
|
50,000
|
|
|
|
|
|
|
|
22.88
|
|
|
|
7/30/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
|
|
|
|
18.06
|
|
|
|
4/22/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
12,500
|
|
|
|
12,500
|
(4)
|
|
|
22.95
|
|
|
|
5/11/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,750
|
(5)
|
|
|
548,048
|
|
Jeffrey L. Tepera
|
|
|
40,000
|
|
|
|
|
|
|
|
16.50
|
|
|
|
10/11/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
|
|
22.88
|
|
|
|
7/30/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
|
|
18.64
|
|
|
|
8/26/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
10,000
|
(3)
|
|
|
15.28
|
|
|
|
2/5/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
25,000
|
(6)
|
|
|
22.95
|
|
|
|
5/11/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
(7)
|
|
|
843,150
|
|
|
|
|
(1)
|
|
These options will vest and become exercisable in 18,750
increments on May 11, 2008 and 2009.
|
|
(2)
|
|
These shares of unvested restricted stock will vest as follows:
6,667 shares on December 1, 2008, and
6,667 shares on September 30, 2009.
|
|
(3)
|
|
These options will vest and become exercisable on
February 5, 2008.
|
|
(4)
|
|
These options will vest and become exercisable in 6,250
increments on May 11, 2008 and 2009.
|
|
(5)
|
|
These shares of unvested restricted stock will vest in 3,250
increments on May 31, 2008, 2009, and 2010.
|
|
(6)
|
|
These options will vest and become exercisable in 12,500
increments on May 11, 2008 and 2009.
|
|
(7)
|
|
These shares of unvested restricted stock will vest in 5,000
increments on May 31, 2008, 2009, and 2010.
|
A-25
Option
Exercises and Stock Vested
The following table sets forth information regarding the number
and value of shares of restricted stock vested during 2007 for
the Companys named executive officers. None of the
Companys named executive officers exercised any stock
options during 2007.
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Awards
|
|
|
|
Number of
|
|
|
|
|
|
|
Restricted
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
Acquired on
|
|
|
Value Realized
|
|
Name
|
|
Vesting
|
|
|
on Vesting(1)
|
|
|
Kenneth T. White, Jr.
|
|
|
31,666
|
|
|
$
|
1,827,633
|
|
Ernesto Bautista, III
|
|
|
3,250
|
|
|
|
207,350
|
|
William J. Thomas III
|
|
|
3,250
|
|
|
|
207,350
|
|
Glen J. Ritter
|
|
|
3,250
|
|
|
|
207,350
|
|
Jeffrey L. Tepera
|
|
|
5,000
|
|
|
|
319,000
|
|
|
|
|
(1)
|
|
Represents the value realized upon vesting determined by
multiplying the number of shares of Common Stock acquired upon
vesting by the market value of
W-H Common
Stock on the vesting date.
|
Potential
Payments Upon Termination or Change In Control
This section describes the amounts potentially payable to the
Companys named executive officers under their employment
agreements and the Companys stock plans and other
compensation programs upon termination of employment or if the
Company undergoes a change in control. The amounts set forth in
this section are estimates that are based on a number of
assumptions. Actual amounts payable to the Companys named
executive officers could be materially different. The following
discussion is based on each named executive officers
employment agreement, salary level and restricted stock and
stock option holdings as of December 31, 2007 and the
benefits paid to the named executive officer during fiscal year
2007. In addition, it assumes a price per share of
W-H Common
Stock of $56.21, which was the closing price per share on
December 31, 2007, as reported on the NYSE.
The Company entered into amendments with Messrs. White,
Bautista, Thomas, Ritter and Tepera to their respective
employment agreements in January 2008. The terms of the
employment agreements, as amended, between the Company and these
named executive officers are described under
Named Executive Officer Employment
Agreements.
Kenneth
T. White, Jr.
If Mr. White is terminated for any of the following
reasons, he is entitled to receive the Termination Benefits
described below:
|
|
|
|
|
Mr. Whites employment agreement expires at the end of
the current term;
|
|
|
|
the Company terminates Mr. White for any reason other than
death, disability or for cause;
|
|
|
|
Mr. White resigns due to a material breach by the Company
of his employment agreement, a significant reduction in his
duties or responsibilities, the assignment to him of duties
materially inconsistent with his position or a relocation of
more than 25 miles from his present business address
(collectively, good reason);
|
|
|
|
Mr. White resigns within the
180-day
period beginning on the date upon which a change in control
occurs;
|
|
|
|
Mr. White resigns because the Board of Directors has
refused to consent to his exercise of his partial resignation
right described under Named Executive Officer
Employment Agreements; or
|
|
|
|
Mr. White resigns after September 30, 2009.
|
A-26
Mr. Whites employment agreement defines
Termination Benefits as follows:
|
|
|
|
|
a lump sum cash payment equal to 250% of the sum of his base
salary in effect on the date of termination and the highest
annual incentive compensation payment paid to Mr. White by
the Company during the three years prior to the date of
termination;
|
|
|
|
full vesting and immediate ability to exercise all outstanding
stock options, restricted awards and other equity based awards
granted to Mr. White;
|
|
|
|
a consulting agreement whereby Mr. White shall continue to
perform services as a consultant to the Company for up to twenty
(20) hours per month for a term of five (5) years for
consideration of $25,000 per annum payable monthly; and
|
|
|
|
continuation of participation in all health, medical and life
insurance plans that may be in effect from time to time, but
only to the extent Mr. White is eligible under the terms of
such plans, from the date of termination for a period of five
(5) years.
|
However, if the applicable termination event occurs after
Mr. White elects to resign as the Companys President
and Chief Executive Officer and serve only as the Companys
Chairman, as described under Named Executive
Officer Employment Agreements, the percentage described in
the first bullet point in the second list set forth above would
be 125% rather than 250%. The Company has assumed for purposes
of the calculation below that the applicable termination event
occurs prior to such election.
If Mr. White is terminated for either of the following
reasons, he is entitled to receive an amount equal to twelve
months of his base salary as in effect on the date of his
termination:
|
|
|
|
|
upon his death; or
|
|
|
|
if the Company terminates Mr. Whites employment upon
his incapacitation by accident, sickness or other circumstance
rendering him mentally or physically incapable of performing his
duties (disability).
|
If Mr. White is terminated by the Company for cause or he
terminates his employment other than for one of the reasons
described in the third through sixth bullet points in the list
first set forth above, then no termination or severance benefits
are payable to Mr. White by the Company.
If any payment or benefit under Mr. Whites employment
agreement is determined to be subject to the excise tax for
excess parachute payments under U.S. federal
income tax rules, Mr. White is entitled to receive an
additional amount to adjust for the incremental tax costs of
those payments to him.
A-27
Assuming Mr. Whites employment was terminated under
each of the foregoing circumstances, including a change in
control that occurred on December 31, 2007, such payments
and benefits have an estimated value as follows (less applicable
withholding taxes):
Kenneth
T. White, Jr.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of
|
|
|
|
|
|
|
|
|
Cash Severance
|
|
Accelerated
|
|
|
|
|
|
|
|
|
of Base Salary
|
|
Equity
|
|
Consulting
|
|
Benefit
|
|
Tax
|
Scenario
|
|
and Bonus
|
|
Awards(1)
|
|
Arrangement
|
|
Continuation(2)
|
|
Gross-Ups
|
|
Expiration of employment agreement, termination by
W-H other
than for death, disability or for cause, or termination by
Mr. White for good reason, in connection with a change in
control, following the Board of Directors refusal to give
consent to partial resignation, or after September 30, 2009
for any reason whatsoever
|
|
$
|
3,625,000
|
|
|
$
|
1,996,754
|
|
|
$
|
125,000
|
|
|
$
|
111,242
|
|
|
$
|
|
|
Termination by
W-H upon
death or disability
|
|
$
|
500,000
|
|
|
$
|
749,504
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
(1)
|
|
As of December 31, 2007, Mr. White held 37,500
unvested stock options and 13,334 shares of unvested
restricted stock. The value of accelerated unvested options was
calculated by multiplying 37,500 shares underlying
Mr. Whites unvested options by $56.21, the closing
price of
W-H Common
Stock on December 31, 2007, and then deducting the
aggregate $22.95 exercise price for these options. The value of
accelerated unvested restricted stock was calculated by
multiplying 13,334 shares by $56.21.
|
|
(2)
|
|
The value of benefit continuation contained in the above table
is the total cost of COBRA continuation coverage for
Mr. White, maintaining the same levels of medical, dental
and other insurance in effect as of December 31, 2007, less
the amount of premiums paid by the employee for such coverage.
|
Ernesto
Bautista, III, William J. Thomas III, Glen J. Ritter,
Jeffrey L. Tepera
If any of Messrs. Bautista, Thomas, Ritter or Tepera is
terminated for any of the following reasons, such officer is
entitled to receive the Termination Benefits described below:
|
|
|
|
|
such officers employment agreement is not renewed by the
Company upon expiration of the current term;
|
|
|
|
W-H terminates
such officer for any reason other than death, disability or for
cause;
|
|
|
|
such officer resigns with good reason; or
|
|
|
|
such officer resigns within the
180-day
period beginning on the date upon which a change in control
occurs.
|
Each officers employment agreement defines
Termination Benefits as follows:
|
|
|
|
|
a lump sum cash payment equal to 200% of the sum of such
officers base salary in effect on the date of termination
and the highest annual incentive compensation payment paid to
such officer by the Company during the three years prior to the
date of termination; and
|
|
|
|
full vesting and immediate ability to exercise all of the
outstanding stock options, restricted awards and other equity
based awards granted by the Company to such officer.
|
If any of the above officers is terminated for either of the
following reasons, such officer is entitled to receive an amount
equal to six months of his base salary as in effect on the date
of his termination:
|
|
|
|
|
upon his death; or
|
|
|
|
if
W-H terminates
such officers employment upon his disability.
|
A-28
If such officer is terminated by the Company for cause or he
terminates his employment other than for one of the reasons
described in the second or third bullet points in the list first
set forth above, then no termination or severance benefits are
payable to such officer by the Company.
If any payment or benefit under such officers employment
agreement is determined to be subject to the excise tax for
excess parachute payments under U.S. federal
income tax rules, such officer is entitled to receive an
additional amount to adjust for the incremental tax costs of
those payments to him.
Assuming such officers employment was terminated under
each of the foregoing circumstances, including a change in
control that occurred on December 31, 2007, such payments
and benefits would have had an estimated value as follows (less
applicable withholding taxes):
Ernesto
Bautista, III
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of
|
|
|
|
|
Cash Severance
|
|
Accelerated
|
|
|
|
|
of Base Salary
|
|
Equity
|
|
Tax
|
Scenario
|
|
and Bonus
|
|
Awards(1)
|
|
Gross-Ups
|
|
Non-renewal by
W-H of
employment agreement, termination by
W-H other
than for death, disability or for cause, or termination by
Mr. Bautista for good reason or in connection with a change
in control
|
|
$
|
1,040,000
|
|
|
$
|
1,168,448
|
|
|
$
|
|
|
Termination by
W-H upon
death or disability
|
|
$
|
125,000
|
|
|
$
|
548,048
|
|
|
$
|
|
|
|
|
|
(1)
|
|
As of December 31, 2007, Mr. Bautista held 17,500
unvested stock options and 9,750 shares of unvested
restricted stock. The value of accelerated unvested options was
calculated by multiplying 17,500 shares underlying
Mr. Bautistas unvested options by $56.21, the closing
price of
W-H Common
Stock on December 31, 2007, and then deducting the
respective exercises prices ($15.28 $22.95) for
these options. The value of accelerated unvested restricted
stock was calculated by multiplying 9,750 shares by $56.21.
|
William
J. Thomas III
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of
|
|
|
|
|
Cash Severance
|
|
Accelerated
|
|
|
|
|
of Base Salary
|
|
Equity
|
|
Tax
|
Scenario
|
|
and Bonus
|
|
Awards(1)
|
|
Gross-Ups
|
|
Non-renewal by
W-H of
employment agreement, termination by
W-H other
than for death, disability or for cause, or termination by
Mr. Thomas for good reason or in connection with a change
in control
|
|
$
|
1,660,000
|
|
|
$
|
1,270,773
|
|
|
$
|
|
|
Termination by
W-H upon
death or disability
|
|
$
|
190,000
|
|
|
$
|
548,048
|
|
|
$
|
|
|
|
|
|
(1)
|
|
As of December 31, 2007, Mr. Thomas held 20,000
unvested stock options and 9,750 shares of unvested
restricted stock. The value of accelerated unvested options was
calculated by multiplying 20,000 shares underlying
Mr. Thomas unvested options by $56.21, the closing
price of
W-H Common
Stock on December 31, 2007, and then deducting the
respective exercises prices ($15.28 $22.95) for
these options. The value of accelerated unvested restricted
stock was calculated by multiplying 9,750 shares by $56.21.
|
A-29
Glen
J. Ritter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of
|
|
|
|
|
|
|
Cash Severance
|
|
|
Accelerated
|
|
|
|
|
|
|
of Base Salary
|
|
|
Equity
|
|
|
Tax
|
|
Scenario
|
|
and Bonus
|
|
|
Awards(1)
|
|
|
Gross-Ups
|
|
|
Non-renewal by
W-H of
employment agreement, termination by
W-H other
than for death, disability or for cause, or termination by
Mr. Ritter for good reason
|
|
$
|
1,660,000
|
|
|
$
|
963,798
|
|
|
$
|
|
|
Termination by Mr. Ritter in connection with a change in
control
|
|
$
|
1,660,000
|
|
|
$
|
963,798
|
|
|
$
|
381,097
|
|
Termination by
W-H upon
death or disability
|
|
$
|
190,000
|
|
|
$
|
548,048
|
|
|
$
|
|
|
|
|
|
(1)
|
|
As of December 31, 2007, Mr. Ritter held 12,500
unvested stock options and 9,750 shares of unvested
restricted stock. The value of accelerated unvested options was
calculated by multiplying 12,500 shares underlying
Mr. Ritters unvested options by $56.21, the closing
price of
W-H Common
Stock on December 31, 2007, and then deducting the
aggregate exercise price of $22.95 for these options. The value
of accelerated unvested restricted stock was calculated by
multiplying 9,750 shares by $56.21.
|
Jeffrey
L. Tepera
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of
|
|
|
|
|
Cash Severance
|
|
Accelerated
|
|
|
|
|
of Base Salary
|
|
Equity
|
|
Tax
|
Scenario
|
|
and Bonus
|
|
Awards(1)
|
|
Gross-Ups
|
|
Non-renewal by
W-H of
employment agreement, termination by
W-H other
than for death, disability or for cause, or termination by
Mr. Tepera for good reason or in connection with a change
in control
|
|
$
|
1,450,000
|
|
|
$
|
2,083,950
|
|
|
$
|
|
|
Termination by
W-H upon
death or disability
|
|
$
|
175,000
|
|
|
$
|
843,150
|
|
|
$
|
|
|
|
|
|
(1)
|
|
As of December 31, 2007, Mr. Tepera held 35,000
unvested stock options and 15,000 shares of unvested
restricted stock. The value of accelerated unvested options was
calculated by multiplying 35,000 shares underlying
Mr. Teperas unvested options by $56.21, the closing
price of
W-H Common
Stock on December 31, 2007, and then deducting the
respective exercises prices ($15.28 $22.95) for
these options. The value of accelerated unvested restricted
stock was calculated by multiplying 15,000 shares by $56.21.
|
The Offer
and the Merger
Consummation of the Offer and the Merger would be a change
in control as the term is used in this section. The
estimated amounts shown in the tables of this section assume a
hypothetical change in control and termination, where
applicable, on December 31, 2007, and accordingly, the
amounts shown above are different from amounts that would be
paid to a named executive officer upon or following the
consummation of the Offer and the Merger. Additional detail
regarding estimated payments to the named executive officers
upon the consummation of the Offer and the Merger may be found
above under Item 3. Past Contacts, Transactions,
Negotiations and Agreements in the
Schedule 14D-9.
A-30
AUDIT
COMMITTEE MATTERS
Audit
Committee Report
The Audit Committee of the Board of Directors (the Audit
Committee) consists of three members of the Companys
Board of Directors, Messrs. Scott, Brock and Lightner, each
of whom is independent as defined in the NYSEs listing
standards. The duties and responsibilities of the Audit
Committee are set forth in the Amended and Restated Audit
Committee Charter, which is available on the Companys
website at
http://www.whes.com,
and in print upon written request to the Secretary,
W-H Energy
Services, Inc., 2000 West Sam Houston Parkway South,
Suite 500, Houston, Texas 77042. The Audit Committee has
(1) reviewed and discussed the Companys audited
financial statements for the fiscal year ended December 31,
2007 with the Companys management, (2) discussed with
Grant Thornton LLP (Grant) the Companys
independent registered public accounting firm for fiscal year
2007 and the matters required to be discussed by Statement on
Auditing Standards No. 61 and Statement on Auditing
Standards No. 90 and (3) received and discussed the
written disclosures and the letter from Grant required by
Independence Standards Board Statement No. 1 and has
discussed with Grant their independence from the Company. Based
on such review and discussions with management and Grant, the
Audit Committee recommended to the Board of Directors that the
audited financial statements be included in the Companys
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007 for filing with
the SEC.
The Audit Committee
Milton L. Scott,
Chairman
John R. Brock
James D. Lightner
A-31
PERFORMANCE
GRAPH
The graph below compares the total shareholder return on the
Companys Common Stock from December 31, 2002, to
December 31, 2007, with the total return on the S&P
500 Index, the S&P 500 Oil & Gas (Equipment and
Services) Index and the Dow Jones U.S. Oil
Equipment & Services Index for the same period. The
information in the graph is based on the assumption of
(1) a $100 investment on December 31, 2002 at closing
prices on December 31, 2002 and (2) reinvestment of
all dividends.
COMPARISON
OF FIVE-YEAR CUMULATIVE TOTAL RETURN
Among
W-H Energy
Services, Inc., the S&P 500 Index,
the S&P Oil & Gas Equipment & Services
Index
and the Dow Jones U.S. Oil Equipment & Services
Index
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
W-H Energy
Services, Inc.
|
|
|
$
|
100.00
|
|
|
|
$
|
111.03
|
|
|
|
$
|
153.26
|
|
|
|
$
|
226.73
|
|
|
|
$
|
333.72
|
|
|
|
$
|
385.26
|
|
S&P 500 Index
|
|
|
|
100.00
|
|
|
|
|
128.68
|
|
|
|
|
142.69
|
|
|
|
|
149.70
|
|
|
|
|
173.34
|
|
|
|
|
182.86
|
|
S&P 500 Oil & Gas Equipment & Services
|
|
|
|
100.00
|
|
|
|
|
124.74
|
|
|
|
|
164.49
|
|
|
|
|
244.38
|
|
|
|
|
282.35
|
|
|
|
|
417.58
|
|
Dow Jones U.S. Oil Equipment & Services
|
|
|
|
100.00
|
|
|
|
|
114.70
|
|
|
|
|
155.29
|
|
|
|
|
235.66
|
|
|
|
|
267.40
|
|
|
|
|
387.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The information set forth in this section entitled
Performance Graph shall not be deemed
soliciting material or to be filed with
the SEC, nor shall such information be incorporated by reference
into any future filing under the Securities Act of 1933, as
amended or the Exchange Act, except to the extent that
W-H specifically
incorporates it by reference into such filing.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a discussion of transactions between the
Company and its executive officers, directors and shareholders
owning more than 5% of
W-H Common
Stock. The Company believes that the terms of each of these
transactions were at least as favorable as could have been
obtained in similar transactions with unaffiliated
third parties.
The Company is party to indemnification agreements with its
directors and executive officers containing provisions requiring
the Company to, among other things, indemnify them against
liabilities that may arise by reason of their service to the
Company, other than liabilities arising from willful misconduct
of a culpable nature, and to advance expenses they incur as a
result of any proceeding against them as to which they could be
indemnified.
A-32
In July 2007, Thomas Energy Services, Inc. (TES),
one of the Companys subsidiaries, purchased a facility in
New Iberia, Louisiana from entities that are owned by
Mr. Thomas, a Company Vice President, and an immediate
relative of Mr. Thomas. The purchase price of the facility
totaled approximately $3.6 million. TES had previously
leased such facility from Mr. Thomas and the immediate
relative of Mr. Thomas and in 2007, paid approximately
$63,000 under this lease prior to its termination.
One of the Companys subsidiaries, Coil Tubing Services,
L.L.C. (CTS), leases a facility in Broussard,
Louisiana from a partnership of which Mr. Ritter, a Company
Vice President, is a partner. In 2007, CTS paid the partnership
approximately $378,000 under this lease.
Two immediate family members of one of the Companys
officers are employed by one of the Companys subsidiaries.
During 2007, these individuals received aggregate employment
compensation from such subsidiary of approximately $348,000.
Kenneth T. White, Jr., the Companys Chairman,
President and Chief Executive Officer, is the owner of
Penny-Farthing Press Inc., a publishing company, which
occasionally performs graphic design and other services for the
Company and several of its subsidiaries. In 2007, the Company
made no payments to Penny-Farthing Press Inc. During that same
period Penny-Farthing Press Inc. made payments to the Company of
approximately $14,000 primarily for rental of office space.
The Company has established a written Related Party Transaction
Policy to assist in its review of transactions with a value in
excess of $120,000 in which the Company or one of its
subsidiaries is a participant and any Related Party (as defined
below) has or will have a direct or indirect interest
(Transaction).
Under this policy, a Related Party includes (1) the
Companys directors, director nominees and executive
officers since the beginning of the Companys last fiscal
year, (2) beneficial owners of 5% or more of
W-H Common
Stock, (3) an immediate family member of the foregoing or
(4) any entity in which any of the foregoing persons is
employed or is a general partner or in which such person has a
10% or greater beneficial ownership interest. Immediate family
members include a persons spouse, parents, stepparents,
children, stepchildren, siblings, mothers- and
fathers-in-law,
sons- and
daughters-in-law,
and brothers- and
sisters-in-law
and anyone residing in such persons home (other than a
tenant or employee).
The Related Party Transaction Policy provides that the Audit
Committee will review the material facts of all Transactions and
will either approve, ratify or reject the Transaction. In
approving, ratifying or rejecting a Transaction, the Audit
Committee will consider such information as it deems important
to conclude if the Transaction is fair to the Company. No
director will participate in any discussion or approval of a
Transaction for which he or she is a Related Party. The policy
contains exceptions for certain routine transactions and permits
the Chairman of the Audit Committee to ratify or approve
transactions with a value of less than $1 million.
All of the transactions listed above have been approved or
ratified in accordance with the Related Party Transaction Policy.
Contacting
the Board of Directors
The Board of Directors recommends that shareholders initiate any
communications with the Board of Directors, its committees or
any of its members, in writing and send them in care of the
Corporate Secretary. Shareholders can send communications by
e-mail
to
DirectorCommunication@whes.com, by fax to
713-974-7029
or by mail to Corporate Secretary,
W-H Energy
Services, Inc., 2000 West Sam Houston Parkway South,
Suite 500, Houston, Texas 77042. This centralized process
will assist the Board of Directors in reviewing and responding
to shareholder communications in an appropriate manner. The name
of any intended Board of Directors recipient should be noted in
the communication.
All communications received as set forth in the preceding
paragraph will be opened by the office of the Companys
Secretary for the sole purpose of determining whether the
contents represent a message to the Companys directors.
Any contents that are not in the nature of advertising,
promotions of a product or service, or patently offensive
material will be forwarded promptly to the addressee. In the
case of communications to the Board of Directors or any group or
committee of directors, the Secretarys office will make
sufficient copies of the contents to send to each director who
is a member of the group or committee to which the facsimile,
envelope or
e-mail
is
addressed.
A-33
ANNEX B
The Board of Directors
W-H Energy
Services, Inc.
2000 West Sam Houston Parkway South
Suite 500
Houston, TX 77042
June 2, 2008
Dear Members of the Board:
We understand that
W-H Energy
Services, Inc., a Texas corporation (the
Company), is considering a transaction whereby Smith
International, Inc., a Delaware corporation (Smith),
will enter into a business combination with the Company.
Pursuant to the terms of an Agreement and Plan of Merger, draft
dated as of June 1, 2008 (the Agreement), among
Smith, the Company and Whitehall Acquisition Corp., a Texas
corporation and wholly owned subsidiary of Smith
(Sub), Smith will undertake a series of transactions
whereby (i) Sub will commence an exchange offer (the
Offer) to acquire all of the issued and outstanding
shares of the common stock, par value of $0.0001 per share, of
the Company (Company Common Stock), in which each
share of the Company Common Stock will be exchanged for:
(x) 1.199 shares of common stock, par value $1.00 per
share, of Smith (Smith Common Stock) (the Per
Share Stock Election Consideration), or (y) $93.55
(the Per Share Cash Election Consideration) or
(z) 0.480 shares of Smith Common Stock and $56.10 (the
Per Share Mixed Election Consideration) , depending
upon the election of the holder of such share of Company Common
Stock and, in cases of clauses (x) and (y), subject to the
proration mechanisms described in the Agreement. Following
consummation of the Offer, Sub will be merged with and into the
Company (the Merger), and, in connection with such
Merger each share of Company Common Stock not otherwise acquired
in the Offer will, subject to certain exceptions, be converted
into the right to receive the Per Share Mixed Election
Consideration, subject to proration. Subsequent to the Merger,
the Company will be merged (the Second Merger) with
and into a wholly owned subsidiary of Smith. The Offer, together
with the Merger and the Second Merger, are referred to herein
collectively as the Transaction. The Per Share Stock
Election Consideration, the Per Share Cash Election
Consideration and the Per Share Mixed Election Consideration are
referred to herein collectively as the Consideration.
The terms and conditions of the Transaction are more fully set
forth in the Agreement.
You have requested our opinion as to the fairness, from a
financial point of view, to the holders of Company Common Stock
of the Consideration to be received by such holders in the
Transaction.
UBS Securities LLC (UBS) has acted as financial
advisor to the Board of Directors of the Company in connection
with the Transaction and will receive a fee for its services, a
portion of which is payable in connection with this opinion and
a significant portion of which is contingent upon consummation
of the Transaction. In the ordinary course of business, UBS and
its affiliates may hold or trade, for their own accounts and the
accounts of their customers, securities of the Company and Smith
and, accordingly, may at any time hold a long or short position
in such securities. The issuance of this opinion was approved by
an authorized committee of UBS.
Our opinion does not address the relative merits of the
Transaction as compared to other business strategies or
transactions that might be available with respect to the Company
or the Companys underlying business decision to effect the
Transaction. Our opinion does not constitute a recommendation to
any shareholder as to how such shareholder should vote or act
with respect to the Transaction, including which, if any,
election a shareholder should make with respect to the
Consideration. At your direction, we have not been asked to, nor
do we, offer any opinion as to the terms, other than the
Consideration to the extent expressly specified herein, of the
Agreement or the form of
B-1
the Transaction. In addition, we express no opinion as to the
fairness of the amount or nature of any compensation to be
received by any officers, directors or employees of any parties
to the Transaction, or any class of such persons, relative to
the Consideration. We express no opinion as to what the value of
Smith Common Stock will be when issued pursuant to the
Transaction or the price at which Smith Common Stock or Company
Common Stock will trade at any time. In rendering this opinion,
we have assumed, with your consent, that (i) the final
executed form of the Agreement will not differ in any material
respect from the draft that we have reviewed, (ii) Smith
and the Company will comply with all material terms of the
Agreement and (iii) the Transaction will be consummated in
accordance with the terms of the Agreement without any adverse
waiver or amendment of any material term or condition thereof.
We have also assumed that all governmental, regulatory or other
consents and approvals necessary for the consummation of the
Transaction will be obtained without any material adverse effect
on the Company, Smith or the Transaction.
In arriving at our opinion, we have, among other things:
(i) reviewed certain publicly available business and
financial information relating to the Company and Smith;
(ii) reviewed certain internal financial information and
other data relating to the business and financial prospects of
the Company that were provided to us by the management of the
Company and not publicly available, including financial
forecasts and estimates prepared by the management of the
Company that you have directed us to utilize for purposes of our
analysis; (iii) reviewed certain financial information and
other data relating to the business and financial prospects of
Smith that were publicly available, including Wall Street
consensus financial forecasts and estimates as published by
Institutional Brokers Estimate System (I/B/E/S) that
you have directed us to utilize for purposes of our analysis;
(iv) conducted discussions with members of the senior
managements of the Company and Smith concerning the businesses
and financial prospects of the Company and Smith;
(v) reviewed publicly available financial and stock market
data with respect to certain other companies we believe to be
generally relevant; (vi) compared the financial terms of
the Transaction with the publicly available financial terms of
certain other transactions we believe to be generally relevant;
(vii) reviewed current and historical market prices of
Company Common Stock and Smith Common Stock;
(viii) reviewed the Agreement; and (ix) conducted such
other financial studies, analyses and investigations, and
considered such other information, as we deemed necessary or
appropriate.
In connection with our review, with your consent, we have
assumed and relied upon, without independent verification, the
accuracy and completeness in all material respects of the
information provided to or reviewed by us for the purpose of
this opinion. In addition, with your consent, we have not made
any independent evaluation or appraisal of any of the assets or
liabilities (contingent or otherwise) of the Company or Smith,
nor have we been furnished with any such evaluation or
appraisal. With respect to the financial forecasts and estimates
for the Company referred to above, we have assumed, at your
direction, that they have been reasonably prepared on a basis
reflecting the best currently available estimates and judgments
of the management of the Company as to the future financial
performance of the Company. With respect to the financial
forecasts and estimates for Smith referred to above, we have
assumed, based on our discussions with you and at your
direction, that they were a reasonable basis upon which to
evaluate the future performance of Smith and are appropriate for
us to use in our analyses. In addition, we have assumed with
your approval that the financial forecasts and estimates
referred to above will be achieved at the times and in the
amounts projected. We also have assumed, with your consent, that
the Transaction will qualify for U.S. federal income tax
purposes as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as
amended. Our opinion is necessarily based on economic, monetary,
market and other conditions as in effect on, and the information
available to us as of, the date hereof.
Based upon and subject to the foregoing, it is our opinion that,
as of the date hereof, the Consideration to be received by
holders of Company Common Stock in the Transaction is fair, from
a financial point of view, to such holders.
B-2
This opinion is provided for the benefit of the Board of
Directors in connection with, and for the purpose of, its
evaluation of the Transaction.
Very truly yours,
UBS SECURITIES LLC
B-3
INDEX TO
EXHIBITS
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Exhibit No.
|
|
Description
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(a)(1)
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Prospectus/Offer to Exchange, dated June 24, 2008
(incorporated by reference to Smiths Registration
Statement on
Form S-4
filed with the SEC on June 24, 2008).
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(a)(2)
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Letter of Election and Transmittal, dated June 24, 2008
(incorporated by reference to Exhibit 99.3 to Smiths
Registration Statement on
Form S-4
filed with the SEC on June 24, 2008).
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(a)(3)
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*
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Letter to Shareholders of W-H, dated June 24, 2008.
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(a)(4)
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Information Statement pursuant to Section 14(f) of the
Securities Exchange Act of 1934 and
Rule 14f-1
thereunder (incorporated by reference to Annex A of this
Schedule 14D-9).
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(a)(5)
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Fairness Opinion of UBS Securities LLC to the Board of Directors
of W-H, dated June 2, 2008 (incorporated by reference to
Annex B of this
Schedule 14D-9).
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(a)(6)
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Joint Press Release issued by Smith and W-H, dated June 3,
2008, announcing the execution of the Agreement and Plan of
Merger among Smith,
W-H and
Offeror (incorporated by reference to Exhibit 99.01 to
W-Hs Current Report on
Form 8-K
filed with the SEC on June 5, 2008).
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(a)(7)
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Transcript of the Investor Call on June 3, 2008 regarding
announcement of the Agreement and Plan of Merger among Smith,
W-H and
Offeror (incorporated by reference to Exhibit 99.02 to
W-Hs Current Report on
Form 8-K
filed with the SEC on June 5, 2008).
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(a)(8)
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*
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Joint Press Release issued by Smith and W-H, dated June 24,
2008, announcing the commencement of the Offer.
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(e)(1)
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Agreement and Plan of Merger, dated as of June 3, 2008, by
and among W-H, Smith and the Offeror (incorporated by reference
to Exhibit 2.01 to W-Hs Current Report on
Form 8-K
filed with the SEC on June 5, 2008).
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(e)(2)
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W-H Energy
Services, Inc. 1997 Stock Option Plan as restated, effective as
of May 12, 2004 (incorporated by reference to
Appendix B of W-Hs Definitive Proxy Statement on
Schedule 14A, filed with the SEC on April 6, 2004).
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(e)(3)
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W-H Energy
Services, Inc. 2006 Stock Awards Plan, effective as of
May 10, 2006 (incorporated by reference to
Exhibit 10.1 to W-Hs Current Report on
Form 8-K
filed with the SEC on May 10, 2006).
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(e)(4)
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Non-Statutory Stock Option Agreement for Kenneth T. White, Jr.,
dated March 29, 1999 (incorporated by reference to
Exhibit 10.5 to W-Hs Registration Statement on
Form S-1
(No. 333-43411).
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(e)(5)
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Amended and Restated Employment Agreement of Kenneth T. White,
Jr., effective as of January 1, 2008 (incorporated by
reference to Exhibit 10.1 to W-Hs Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007).
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(e)(6)
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Amended and Restated Employment Agreement of Ernesto
Bautista, III, effective as of January 1, 2008
(incorporated by reference to Exhibit 10.10 to W-Hs
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007).
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(e)(7)
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Amended and Restated Employment Agreement of William J. Thomas
III, effective as of January 1, 2008 (incorporated by
reference to Exhibit 10.2 to W-Hs Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007).
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(e)(8)
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Amended and Restated Employment Agreement of Glen J. Ritter,
effective as of January 1, 2008 (incorporated by reference
to Exhibit 10.9 to W-Hs Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007).
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(e)(9)
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Amended and Restated Employment Agreement of Jeffrey L. Tepera,
effective as of January 1, 2008 (incorporated by reference
to Exhibit 10.2 to W-Hs Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007).
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(e)(10)
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Amended and Restated Employment Agreement of Stuart J. Ford,
effective as of January 1, 2008 (incorporated by reference
to Exhibit 10.11 to W-Hs Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007).
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