BASIC ENERGY SERVICES, INC. (Form: 10-K, Received: 03/13/2020 16:36:20)

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

☑ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-32693

Basic Energy Services, Inc.

(Exact name of registrant as specified in its charter)


Delaware			54-2091194
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

801 Cherry Street, Suite 2100
Fort Worth, Texas			76102
(Address of principal executive offices)			(Zip code)

Registrant’s telephone number, including area code:

(817) 334-4100

Securities registered pursuant to Section 12(b) of the Act:

___________________________________________________________________________________________________________________


Title of Class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.01 par value per share*	BASX*	The OTCQX Best Market*

* Until December 2, 2019, Basic Energy Services, Inc.'s common stock traded on the New York Stock Exchange under the symbol "BAS". On December 3, 2019, Basic Energy Service, Inc.’s common stock began trading on the OTCQX® Best Market tier of the OTC Markets Group Inc. Deregistration under Section 12(b) of the Act will become effective 90 days after the December 17, 2019 filing date of the Form 25.

Securities registered pursuant to Section 12(g) of the Act: Warrants, exercisable for one share of Common Stock, $0.01 par value per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☑

Smaller reporting company

☑

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $48,848,836 as of June 30, 2019, the last business day of the registrant’s most recently completed second fiscal quarter (based on a closing price of $1.90 per share and 25,709,914 shares held by non-affiliates).

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☑ No ☐

There were 24,983,699 shares of the registrant’s common stock outstanding as of March 12, 2020.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for the registrant’s 2020 Annual Meeting of Stockholders (to be filed within 120 days of the close of the registrant’s fiscal year) are incorporated by reference into Part III.

BASIC ENERGY SERVICES, INC.

Index to Form 10-K


Part I			1
Items 1. and 2. Business and Properties			1
Item 1A. Risk Factors			16
Item 1B. Unresolved Staff Comments			31
Item 3. Legal Proceedings			31
Item 4. Mine Safety Disclosures			31
Part II			32
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			32
Item 6. Selected Financial Data			33
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			34
Item 7A. Quantitative and Qualitative Disclosures About Market Risk			44
Item 8. Financial Statements and Supplementary Data			45
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			80
Item 9A. Controls and Procedures			80
Item 9B. Other Information			80
Part III			80
Part IV			80
Item 15. Exhibits, Financial Statement Schedules			80
Item 16. Form 10-K Summary			80
Signatures			85

CAUTIONARY STATEMENT

REGARDING FORWARD-LOOKING STATEMENTS

This annual report contains certain statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements are subject to risks and uncertainties. These statements may relate to, but are not limited to, information or assumptions about us, our capital and other expenditures, dividends, financing plans, capital structure, cash flows, pending legal or regulatory proceedings and claims, general economic conditions, future economic performance, operating income, costs savings and management's plans, strategies, goals and objectives for future operations and goals. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting the financial condition of our business. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including, among other things, the risk factors discussed in Item 1A of this annual report and other factors, most of which are beyond our control.

The words “believe,” “estimate,” “expect,” “anticipate,” “project,” “intend,” “plan,” “seek,” “could,” “should,” “may,” “potential” and similar expressions are intended to identify forward-looking statements. All statements other than statements of current or historical fact contained in this annual report are forward-looking statements. Although we believe that the forward-looking statements contained in this annual report are based upon reasonable assumptions, the forward-looking events and circumstances discussed in this annual report may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements.

Important factors that may affect our expectations, estimates or projections include:

•the recent decline in, and substantial volatility of, oil and natural gas prices, and any related changes in expenditures by our customers;

•competition within our industry;

•our ability to satisfy our liquidity needs, including our ability to generate sufficient liquidity or cash flow or to obtain sufficient financing to fund our operations or otherwise meet our obligations as they come due in the future;

•the effects of future acquisitions or dispositions on our business;

•our ability to achieve the benefits expected from disposition and acquisition transactions, including the C&J Transaction (as described below);

•uncertainties about our ability to successfully execute our business and financial plans and strategies;

•our access to current or future financing arrangements, including ability to raise funds in the capital market or from other financing sources;

•changes in customer requirements in markets or industries we serve;

•availability and cost of equipment;

•general economic and market conditions;

•public health crises, such as the worldwide COVID-19 or coronavirus outbreak beginning in early 2020, which could impact economic conditions;

•operating hazards and other risks incidental to our services;

•energy efficiency and technology trends;

•our ability to replace or add workers at economic rates;

•our borrowing capacity, covenant compliance under instruments governing any of our existing or future indebtedness and cash flows;

•negative impacts of the delisting of the Company’s common stock from the New York Stock Exchange; and

•environmental and other governmental regulations.

Our forward-looking statements speak only as of the date of this annual report. Unless otherwise required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements included herein are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.

This annual report includes market share data, industry data and forecasts that we obtained from internal company surveys (including estimates based on our knowledge and experience in the industry in which we operate), market research, consultant surveys, publicly available information, industry publications and surveys. These sources include Baker Hughes Incorporated, the Association of Energy Service Companies (“AESC”), and the Energy Information Administration of the United States ('U.S.") Department of Energy (“EIA”). Industry surveys and publications, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable. Although we believe such information is accurate and reliable, we have not independently verified any of the data from third-party sources cited or used for our management’s industry estimates, nor have we ascertained the underlying economic assumptions relied upon therein. Statements as to our position relative to our competitors or as to market share refer to the most recent available data.

iii

PART I

ITEMS 1. AND 2. BUSINESS AND PROPERTIES

General

We provide wellsite services in the United States to oil and natural gas production companies, with a focus on well servicing, water logistics, and completion and remedial services which are trusted, safe, and reliable. These services are fundamental to establishing and maintaining the flow of oil and natural gas throughout the productive life of a well. Our broad range of services enables us to meet multiple needs of our customers at the wellsite. We were organized in 1992 as Sierra Well Service, Inc., a Delaware corporation, and in 2000 we changed our name to Basic Energy Services, Inc. References to “Basic,” the “Company,” “we,” “us” or “our” in this report refer to Basic Energy Services, Inc., and, unless the context otherwise suggests, its wholly owned subsidiaries and its controlled subsidiaries.

Our operations are managed regionally and are concentrated in major United States onshore oil and natural gas producing regions located in Texas, New Mexico, Oklahoma, Arkansas, Kansas, Louisiana, Wyoming, North Dakota, California, and Colorado. Our operations are focused on liquids-rich basins that have historically exhibited strong drilling and production economics in recent years as well as natural gas-focused shale plays characterized by prolific reserves. Specifically, we have a significant presence in the Permian Basin and the Bakken, Eagle Ford, Haynesville, and Denver-Julesburg. Following the closing of the C&J Transaction (as defined below) on March 9, 2020, we have also increased our presence in California. We provide our services to a diverse group of over 2,000 oil and gas companies.

Our current operating segments are Well Servicing, Water Logistics, and Completion & Remedial Services. These segments were selected based on management’s resource allocation and performance assessment in making decisions regarding the Company. Prior to December 2019, the Company operated an Other Services segment, which was comprised of contract drilling services and manufacturing and rig servicing. Contract drilling was discontinued as a service in the third quarter of 2019, and manufacturing and rig servicing was realigned with Well Servicing. Our Pumping Services Division, which was included in the Completion & Remedial Services segment was discontinued in the fourth quarter of 2019, and related assets and liabilities were divested or transferred to Assets or Liabilities Held for Sale on the Company's Consolidated Balance Sheet. The results of both the Pumping Services Division and contract drilling services are included in Discontinued Operations in the Company's Statement of Operations. The following is a description of our business segments included in continuing operations:

•Well Servicing - Our Well Servicing segment (40% of our continuing revenues in 2019) operates our fleet of 306 active well servicing rigs and related equipment. Together with C&J Well Services rigs, we will operate 477 active rigs including 411 high spec rigs. This business segment encompasses a full range of services performed with a mobile well servicing rig, including the installation and removal of downhole equipment and the completion of the well bore to initiate production of oil and natural gas. These services are performed to establish, maintain and improve production throughout the productive life of an oil and natural gas well and to plug and abandon a well at the end of its productive life. Our well servicing equipment and capabilities also facilitate most other services performed on a well.

•Water Logistics - Our Water Logistics segment (35% of our continuing revenues in 2019) utilizes our fleet of 762 fluid service trucks and related assets, including specialized tank trucks, storage tanks, pipelines, water wells, disposal facilities and other related equipment. These assets provide, transport, store and dispose of a variety of fluids, as well as provide maintenance services. These services are required in most workover and completion and remedial projects and are routinely used in daily producing well operations.

•Completion & Remedial Services - Our Completion & Remedial Services segment (25% of our continuing revenues in 2019) operates an array of specialized rental equipment and fishing tools, coiled tubing units, snubbing units, thru-tubing, and air compressor packages specially configured for underbalanced drilling operations.

Our Competitive Strengths

We believe that the following competitive strengths currently position us well within our industry:

Experienced Management with Strong Corporate Infrastructure - Our leadership team is responsible for maintaining a culture of safety and integrity to support our diversified operations through best-in-class safety and

environmental, information and technology, finance and accounting, and human resources management. Our long-tenured regional management team has extensive knowledge of customer relationships, personnel management, accident prevention, and equipment maintenance in their respective local markets, which are key drivers of our operating profitability. Our management structure allows us to promote a safety culture, monitor operating performance on a daily basis, maintain financial, accounting and asset management controls, integrate acquisitions, prepare timely financial information and manage risk.

Extensive Domestic Footprint in the Most Prolific Basins - Our operations are focused on liquids-rich basins located in the United States that have exhibited strong drilling and production economics in recent years as well as natural gas-focused shale plays characterized by prolific reserves. Specifically, we have a significant presence in the Permian Basin and the Eagle Ford, and Haynesville shale plays. We operate in states that account for approximately 98% of U.S. onshore oil and natural gas production. We believe our operations are located in the most active U.S. well services markets, as we currently focus our operations on onshore domestic oil and natural gas production areas that include both the highest concentration of existing oil and natural gas production activities and the largest prospective acreage for new drilling activity. We believe our extensive footprint allows us to offer our suite of services to more than 2,000 customers who are active in those areas and allows us to redeploy equipment between markets as activity shifts.

Diversified Service Offering for Further Revenue Growth and Reduced Volatility - We believe our range of wellsite services provides us a competitive advantage over smaller companies that typically offer fewer services. Our experience, equipment and network of 96 area offices position us to market our full range of wellsite services to our existing customers. By utilizing a wider range of our services, our customers can use fewer service providers, which enables them to reduce their administrative costs and simplify their logistics. Furthermore, offering a broader range of services allows us to capitalize on our existing customer base and management structure to grow within existing markets, generate more business from existing customers, and increase our operating profits as we spread our overhead costs over a larger revenue base.

Significant Market Position - We maintain a leading market share for each of our lines of business within our core operating areas: the Permian Basin of West Texas and Southeast New Mexico, the Gulf Coast region of South Texas and Louisiana, the Central region of North Texas, Oklahoma, Arkansas, Louisiana and Kansas, California, and Colorado. Our goal is to be the most trusted provider of the services we provide in each of our core operating areas. Our position in each of these markets allows us to expand the range of services performed throughout the life of the well.

Modern and Competitive Fleet - We operate a modern fleet matched to the needs of the local markets in each of our business segments. We are driven by a desire to maintain one of the most efficient, reliable and safest fleets of equipment in the country, and we have an established program to routinely monitor and evaluate the condition of our equipment. We selectively refurbish equipment to maintain the quality of our service and to provide a safe working environment for our personnel. We believe that by maintaining a modern and active asset base, we are better able to earn our customers’ business while reducing the risk of potential downtime.

Our Business Strategy

The key components of our business strategy include:

Establishing and Maintaining Leadership Positions in Core Operating Areas - We strive to establish and maintain market leadership positions within our core operating areas. To achieve this, we promote a culture of safety, which is important to our customers and employees, and offer trusted services and equipment that meet the scope of customers objectives. Our leading presence in our core operating areas facilitates employee retention and provides us with brand recognition.

Developing Additional Service Offerings Within the Well Servicing Market - We intend to continue broadening the portfolio of services we provide to our clients by utilizing our well servicing infrastructure. A customer typically begins a maintenance or workover project by securing access to a well servicing rig, which stays on site for the duration of the project. As a result, our rigs are often the first equipment to arrive at the wellsite and typically the last to leave, providing us the opportunity to offer our customers other complementary services. We believe the fragmented nature of the well servicing market creates an opportunity to sell more services to our core customers and to expand our total service offering within each of our markets. We expect to continue to develop or selectively acquire capabilities to provide additional services to expand and further strengthen our customer relationships.

Pursuing Growth Through Selective Capital Deployment and Divestitures - We intend to grow our business through selective acquisitions and investments with high returns. We believe that consolidation in our industry is necessary and continuously look for acquisition opportunities that align with our organization. We also look for

opportunities to divest unprofitable lines of business and convert those less profitable assets into new technology and new lines of business that leverage our existing business model.

Recent Developments

On March 9, 2020, we entered into a Purchase Agreement (the “Purchase Agreement”) with Ascribe Investments III LLC, a Delaware limited liability company (“Ascribe”), NexTier Holding Co., a Delaware corporation (“Seller”) and C&J Well Services, Inc., a Delaware corporation, and wholly owned subsidiary of Seller (“CJWS”).

Pursuant to the Purchase Agreement, among other things, (i) Seller transferred and delivered to the Company and the Company purchased and acquired from Seller, all of the issued and outstanding shares of capital stock of CJWS held by Seller (the “Stock Purchase”), such that CJWS became a wholly-owned subsidiary of the Company; (ii) as a portion of the consideration for the Stock Purchase, Ascribe, on behalf of the Company, conveyed to Seller certain 10.75% senior secured notes due October 2023 issued by the Company to Ascribe in an aggregate amount equal to $34,350,000 (the “Ascribe Senior Notes”); (iii) Ascribe entered into an Exchange Agreement, dated March 9, 2020, with the Company (the “Exchange Agreement”) pursuant to which, among other things, Ascribe exchanged the Ascribe Senior Notes for (a) 118,805 shares of newly issued common stock equivalent preferred stock, designated as “Series A Participating Preferred Stock,” par value $0.01 per share, of the Company (the “Series A Preferred Stock”) and (b) an amount in cash approximately equal to $1,466,793 (the “Exchange Transaction” and, together with the Stock Purchase and the other transactions contemplated by the Purchase Agreement, the “C&J Transaction”), and (iv) the Company agreed to hire Jack Renshaw as a Senior Vice President, Western Region, upon consummation of the C&J Transaction.

The Purchase Agreement

Pursuant to the Purchase Agreement, Seller received consideration in the aggregate amount of $93,700,000 comprised of (i) cash consideration equal to $59,350,000 (subject to customary reductions for indebtedness and transaction expenses, as well as post-closing working capital adjustments) and (ii) the Ascribe Senior Notes transferred to Seller by Ascribe (on behalf of the Company) as described above. In connection with the C&J Transaction, pursuant to the Purchase Agreement, Ascribe has certain contingent obligations to the Seller to make Seller whole on the par value of the Ascribe Senior Notes as of the earlier of the first anniversary of the closing of the Stock Purchase, a bankruptcy of the Company or a change of control of the Company (the “Make-Whole Payment”).

The Exchange Agreement

The Company has issued and outstanding $300 million principal amount of the 10.75% Senior Secured Notes due 2023 (the “Notes”), issued pursuant to that certain Indenture, dated as of October 2, 2018 (the “Base Indenture”) by and among the Company, the guarantors party thereto and UMB Bank, National Association, as trustee and collateral agent (the “Trustee”), as supplemented by the First Supplemental Indenture, dated as of August 22, 2019, by and among the Company, the guarantors party thereto and the Trustee (the “First Supplemental Indenture” and, together with the Base Indenture, the “Indenture”). Under the Exchange Agreement, as partial consideration for the Exchange Transaction, the Company paid to Ascribe an amount in cash equal to, $1,466,793, representing the accrued (but unpaid) interest, from and including the most recent date to which interest has been paid pursuant to the terms of the Notes and the Indenture but excluding the date of the closing of the C&J Transaction, on the aggregate principal amount of the Ascribe Senior Notes.

If Ascribe is required to pay the Make-Whole Payment to Seller pursuant to the Purchase Agreement, the Company will be required to reimburse to Ascribe the amount of such Make-Whole Payment (such amount, the “Make-Whole Reimbursement Amount”) either (i) in cash (a) to the extent the Company has available cash (as determined by an independent committee of the Company’s board of directors) and (b) subject to satisfaction of certain “Payment Conditions” set forth in the ABL Credit Agreement (as defined below) or (ii) if the Company is unable to pay the full Make-Whole Reimbursement Amount in cash pursuant to clause “(i)” of this paragraph, in additional Notes as permitted under the Indenture. In consideration of providing the Make-Whole Payment to Seller, the Company paid Ascribe $1 million in cash at the closing of the C&J Transaction.

Stockholders Agreement & Governance

directors, comprised of (i) three Class I directors with terms to expire in 2020 (the “Class I Directors”), (ii) two Class II directors with terms to expire in 2021 (the “Class II Directors”) and (iii) two Class III directors with terms to expire in 2022 (the “Class III Directors”). Additionally, effective as of the closing of the C&J Transaction, each of Messrs. Timothy H. Day and Samuel E. Langford resigned from the Board and (a) Lawrence First was appointed as a Class I Director, (b) Derek Jeong was appointed as a Class II Director and (c) Ross Solomon was appointed as a Class III Director. Pursuant to the terms of the Stockholders Agreement, following the closing of the C&J Transaction and until the Board Rights Termination Date (as defined below), Ascribe is entitled to designate for nomination for election to the board of directors all members of the board of directors, provided that such designations must be made in a manner to ensure that at all times the board of directors is comprised of at least two independent directors. In addition, the Stockholders Agreement provides that certain actions of the Company and its subsidiaries require approval of a special committee of the Board comprised solely of at least two independent directors. The “Board Rights Termination Date” means the earlier to occur of (A) the date on which Ascribe Affiliated Entities (as defined below), collectively, no longer beneficially own 25% of the fully-diluted common equity of the Company (including the Series A Preferred Stock) and (B) the date on which Ascribe and its affiliates, collectively, no longer constitute the largest holder of fully-diluted common equity of the Company (including the Series A Preferred Stock). The “Ascribe Affiliated Entities” will be comprised of (x) Ascribe and each investment fund which Ascribe or its affiliates controls or for which Ascribe or its affiliates act as a manager or investment advisor and (y) each other person (including portfolio companies) in which person(s) described in clause (x) of this sentence holds a majority of the outstanding equity or voting securities.

The Senior Secured Promissory Note

Pursuant to the Exchange Agreement, the Company issued a Senior Secured Promissory Note on March 9, 2020, in favor of Ascribe in an aggregate principal amount equal to $15 million (the “Senior Secured Promissory Note”). The Senior Secured Promissory Note is secured by a lien upon certain of the Company’s existing and after-acquired property which are also secured by the Company’s existing senior secured notes. The proceeds of the Senior Secured Promissory Note were used to finance a portion of the purchase price consideration paid in connection with the Stock Purchase.

The Limited Consent and First Amendment to ABL Credit Agreement

The Company is party to that certain ABL Credit Agreement, dated October 2, 2018 (as amended, restated, amended and restated, supplemented or modified from time to time, the “ABL Credit Agreement”), with the guarantors party thereto, the financial institutions party thereto and Bank of America, N.A., a national banking association (“Bank of America”), as administrative agent. In connection with the C&J Transaction, on March 9, 2020, the Company entered into that certain Limited Consent and First Amendment to ABL Credit Agreement by and among the Company, as borrower, the guarantors party thereto, the financial institutions party thereto and Bank of America, as administrative agent (the “ABL Amendment”), pursuant to which, among other things, the Company reduced the Aggregate Commitments (as defined in the ABL Credit Agreement) from $150 million to $120 million.

General Industry Overview

Our business is driven by expenditures of oil and gas companies. Our customers' spending is categorized as either an operating or a capital expenditure. Activities designed to add hydrocarbon reserves are classified as capital expenditures, while those associated with maintaining or accelerating production are categorized as operating expenses.

Because existing oil and natural gas wells require ongoing spending to maintain production, expenditures by oil and gas companies for the maintenance of existing wells historically have been relatively stable and predictable. In contrast, capital expenditures by oil and gas companies for exploration and drilling are more directly influenced by current and expected oil and natural gas prices and generally reflect the volatility of commodity prices. We believe our focus on production and workover activity partially insulates our financial results from the volatility of the active drilling rig count. However, significantly lower commodity prices have impacted production and workover activities due to both customer cash liquidity limitations and well economics for these service activities.

On March 9, 2020, as a result of multiple significant factors impacting supply and demand in the global oil and natural gas markets, including a global outbreak of coronavirus, the announced price reductions and possible production increases by members of Organization of the Petroleum Exporting Countries (“OPEC”) and other oil exporting nations, the posted price for West Texas Intermediate oil declined sharply and may continue to decline. Oil and natural gas commodity prices are expected to continue to be volatile. We cannot predict the duration or effects of this sudden decrease, but if the prices of oil and natural gas continues to decline or remain depressed for a lengthy period, our business, financial condition, results of operations, cash flows, and prospects may be materially and adversely affected.

Significant factors that are likely to affect 2020 commodity prices include the extent to which members of OPEC and other oil exporting nations continue to reduce oil export prices and increase production; the effect of U.S. energy, monetary, and trade policies; the pace of economic growth in the U.S. and throughout the world, including the potential for macro weakness; geopolitical and economic developments in the U.S. and globally; the outcome of the U.S. presidential election and subsequent energy and EPA policies; and overall North American natural gas supply and demand fundamentals, including the pace at which export capacity grows. While it is too soon to estimate how long oil prices may remain depressed, such depressed oil prices may impact the spending patterns of our customers. Thus, the demand for our services, our customer’s ability to undertake capital expenditures, and our operational results could be materially and adversely affected.

Capital expenditures by oil and gas companies tend to be sensitive to volatility in oil or natural gas prices because project decisions are tied to a return on investment spanning a number of years. As such, capital expenditure economics often require the use of commodity price forecasts which may prove inaccurate in the amount of time required to plan and execute a capital expenditure project (such as the drilling of a deep well). When commodity prices are depressed for even a short period of time, capital expenditure projects are routinely deferred until prices return to an acceptable level.

In contrast, both mandatory and discretionary operating expenditures are substantially more stable than exploration and drilling expenditures. Mandatory operating expenditure projects involve activities that cannot be avoided in the short term, such as regulatory compliance, safety, contractual obligations and projects to maintain the well and related infrastructure in operating condition (for example, repairs or replacement of wellbore production equipment, repairs to well casings to maintain mechanical integrity or well interventions to evaluate wellbore integrity). Discretionary operating expenditure projects may not be critical to the short-term viability of a lease or field, but these projects are relatively insensitive to commodity price volatility. Discretionary operating expenditure work is evaluated according to a simple short-term payout criterion that is far less dependent on commodity price forecasts.

Demand for services offered by our industry is a function of our customers’ willingness to make operating and capital expenditures to explore for, develop and produce hydrocarbons in the United States. Our customers’ expenditures are affected by both current and expected levels of commodity prices.

The table below sets forth average closing prices for the Cushing WTI Spot Oil Price and the Henry Hub Natural Gas Spot Price and the corresponding rig counts for oil and natural gas drilling rigs since 2016:


	Spot Price					Average Rig Count
Period:	Cushing WTI Oil ($/Bbl.)		Henry Hub Gas ($/Mcf.)		Oil	Natural Gas

1/1/2016	$	43.14	$	2.52	408	100
1/1/2017	50.88		2.99		703	172
1/1/2018	64.94		3.17		841	190
1/1/2019	56.98		2.57		774	169
12/31/2019	61.14		2.09		677	125

Source: U.S. Department of Energy. Data for each of the foregoing rig counts are based on information from the Baker Hughes rig count.

On February 28, 2020, the latest available month-end, the Cushing WTI Spot Oil Price and the Henry Hub Natural Gas Spot Price were $49.78 and $1.93, respectively. The rig counts for oil and natural gas drilling rigs as of the latest available date of March 6, 2020, were 659 and 109, respectively.

Overview of Our Segments and Services

Well Servicing Segment

Our Well Servicing segment encompasses a full range of services performed with a mobile well servicing rig, also commonly referred to as a workover rig, and ancillary equipment. Our rigs and personnel provide the means for hoisting equipment and tools into and out of the well bore, and our well servicing equipment and capabilities also facilitate most other services performed on a well. Our well servicing segment performs services to maintain and improve production throughout the productive life of an oil and natural gas well, which include:

•maintenance work involving removal, repair and replacement of down-hole equipment, and returning the well to production after these operations are completed;

•hoisting tools and equipment required by the operation into and out of the well, or removing equipment from the well bore, to facilitate specialized production enhancement and well repair operations performed by other oilfield service companies; and

•plugging and abandonment services when a well has reached the end of its productive life.

Our Well Servicing segment also includes the manufacturing and sale of new workover rigs through our wholly-owned subsidiary, Taylor Industries, LLC, which we formed in connection with an acquisition of a rig manufacturing business in 2010.

Regardless of the type of work being performed on the well, our personnel and rigs are often the first to arrive at the wellsite and the last to leave. We typically charge our customers an hourly rate for these services, which varies based on a number of considerations including market conditions in each region, the type of rig and ancillary equipment required, and the necessary personnel.

Our actively marketed fleet included 306 well servicing rigs as of December 31, 2019. Our well servicing equipment operates from facilities in Texas, Wyoming, Oklahoma, North Dakota, New Mexico, Louisiana, Colorado, California, Arkansas, Utah, Montana, and Kansas. Following the closing of the C&J Transaction, we operate 477 well servicing rigs including 411 high spec rigs and have significantly increased our presence in California. Our well servicing rigs are mobile units that normally operate within a radius of approximately 75 to 100 miles from their respective bases.

The following table sets forth the location, characteristics and number of the well servicing rigs that we operated at December 31, 2019. We categorize our rig fleet by the rated height and capacity of the mast, which indicates the maximum weight that the rig is capable of lifting. The maximum weight our rigs are capable of lifting is the limiting factor in our ability to provide these services.


		Market Area
Rig Type:	Rated Capacity	Permian Basin	Gulf Coast	Central	Rocky Mountain	California	Inactive	Total
Swab	N/A	—	—	3	1	—	—	4
Light Duty	< 90 tons	—	—	—	—	2	—	2
Medium Duty	> 90 <125 tons	55	10	38	28	14	42	187
Heavy Duty	> 125 tons	73	14	9	11	—	6	113

Total		128	24	50	40	16	48	306

Maintenance - Regular maintenance is required throughout the life of a well to sustain optimal levels of oil and natural gas production. Regular maintenance currently comprises the largest portion of our work in this segment, and because ongoing maintenance spending is required to sustain production, we generally experience relatively stable demand for these services. We provide well service rigs, equipment and crews to our customers for these maintenance services. Maintenance services are often performed on a series of wells in proximity to each other and consist of routine mechanical repairs necessary to maintain production, such as repairing inoperable pumping equipment in an oil well or replacing defective tubing in a natural gas well, and removing debris such as sand and paraffin, from the well. Other services include pulling the rods, tubing, pumps, and other downhole equipment out of the well bore to identify and repair a production problem. These downhole equipment failures are typically caused by the repetitive pumping action of an oil well. Corrosion, water cut, grade of oil, sand production, and other factors can also result in frequent failures of downhole equipment.

The need for maintenance activity does not directly depend on the level of drilling activity, although it is somewhat impacted by short-term fluctuations in oil and natural gas prices. Demand for our maintenance services is driven primarily by the production requirements of local oil or natural gas fields and is therefore affected by changes in the total number of producing oil and natural gas wells in our geographic service areas.

Our regular well maintenance services involve relatively low-cost, short-duration jobs which are part of normal well operating costs. Well operators cannot delay all maintenance work without a significant impact on production. Operators may, however, choose to shut in producing wells temporarily when oil or natural gas prices are too low to justify additional expenditures, including maintenance.

New Well Completion - New well completion services involve the preparation of newly drilled wells for production. The completion process may involve selectively perforating the well casing in the productive zones to allow oil or natural gas to flow into the well bore, stimulating and testing these zones and installing the production string and other downhole equipment. We provide well service rigs to assist in this completion process. Newly

drilled wells are frequently completed by well servicing rigs to minimize the use of higher cost drilling rigs in the completion process. The completion process typically requires a few days to several weeks, depending on the nature and type of the completion, and require additional auxiliary equipment. Accordingly, completion services require less well-to-well mobilization of equipment and normally provide higher operating margins than regular maintenance work.

The demand for completion services is directly related to drilling activity levels, which are sensitive to expectations relating to and changes in oil and natural gas prices.

Workover - In addition to periodic maintenance, producing oil and natural gas wells occasionally require major repairs or modifications called workovers, which are typically more complex and more time consuming than maintenance operations. Workover services include extensions of existing wells to drain new formations either through perforating the well casing to expose additional productive zones not previously produced, deepening well bores to new zones or the drilling of lateral well bores to improve reservoir drainage patterns. Our workover rigs are also used to convert former producing wells to injection wells through which water or carbon dioxide is then pumped into the formation for enhanced oil recovery operations. Workovers also include major subsurface repairs such as repair or replacement of well casing, recovery or replacement of tubing and removal of foreign objects from the well bore. These extensive workover operations are normally performed by a workover rig with additional specialized auxiliary equipment, which may include rotary drilling equipment, mud pumps, mud tanks and fishing tools, depending upon the particular type of workover operation. Most of our well servicing rigs are designed to perform complex workover operations. A workover may require a few days to several weeks and additional auxiliary equipment. The demand for workover services is sensitive to oil and natural gas producers’ intermediate and long-term expectations for oil and natural gas prices. As oil and natural gas prices increase, the level of workover activity tends to increase as oil and natural gas producers seek to increase output by enhancing the efficiency of their wells.

Plugging and Abandonment - Well servicing rigs are also used in the process of permanently closing oil and natural gas wells no longer capable of producing in economic quantities. Plugging and abandonment work can be performed with a well servicing rig along with wireline and cementing equipment; however, this service is typically provided by companies that specialize in plugging and abandonment work. Many well operators bid this work on a “turnkey” basis, requiring the service company to perform the entire job, including the sale or disposal of equipment salvaged from the well as part of the compensation received, and comply with state regulatory requirements. Plugging and abandonment work can provide favorable operating margins and is less sensitive to oil and natural gas prices than drilling and workover activity since well operators must plug a well in accordance with state regulations when it is no longer productive. We perform plugging and abandonment work throughout our core areas of operation in conjunction with equipment provided by other service companies.

For further discussion of financial results for the Well Servicing segment, see Note 14, Business Segment Information of the notes to our consolidated financial statements included in this Annual Report on Form 10-K.

Water Logistics Segment

Our Water Logistics segment provides oilfield fluid supply, transportation, storage, and midstream services. These services are required in most workover and are routinely used in daily producing well operations. These services include:

•the operation of company-owned fresh water and brine source wells and of non-hazardous wastewater disposal wells;

•the sale and transportation of fresh and brine water used in drilling and workover activities;

•the transportation of fluids used in drilling, completion, workover, and flowback operations and of saltwater produced as a by-product of oil and natural gas production either by truck or pipeline;

•the rental of portable fracturing tanks and test tanks used to store fluids on wellsites;

•the recycling and treatment of wastewater, including produced water and flowback, to be reused in the completion and production process; and

•the preparation, construction and maintenance of access roads, drilling locations, and production facilities.

This segment utilizes our fleet of fluid service trucks and related assets, including specialized tank trucks, portable storage tanks, water wells, disposal facilities and related equipment. The following table sets forth the type, number and location of the water logistics equipment that we operated at December 31, 2019:


	Market Area
Asset Type:	Rocky Mountain	Permian Basin	Central	Gulf Coast	Total
Saltwater Disposal Wells	5	33	38	11	87
Fresh/Brine Water Stations	2	29	—	8	39
Fluid Service Trucks	83	405	149	125	762
Fluid Storage Tanks	234	1,113	1,022	269	2,638

Requirements for minor or incidental water logistics are usually purchased on a “call out” basis and charged according to a published schedule of rates. Larger projects, such as servicing the requirements of a multi-well drilling program or fracturing program, generally involve a bidding process. We compete for both services on a call out basis and for multi-well contract projects.

We provide a full array of fluid sales, transportation, storage, treatment, and disposal services required on most workover, completion and remedial projects. Our breadth of capabilities in this segment allows us to serve as a one-stop source of equipment and services for our customers. Many of our smaller competitors in this segment can provide some, but not all, of the equipment and services required by oil and gas operators, requiring them to use several companies to meet their requirements and increasing their administrative burden.

Our water logistics segment has a base level of business volume related to the regular maintenance of oil and natural gas wells. Most oil and natural gas fields produce residual saltwater in conjunction with oil or natural gas. This residual water remains the legal property of the producer throughout the disposal process. We transport and dispose of this water using several different methods. Fluid service trucks pick up this fluid from tank batteries at the wellsite and transport it to a saltwater disposal well for injection. Water can also be transported from the tank battery to the saltwater disposal well by pipeline. Pipelining of water increased throughout the year, and represented approximately 38% of total disposal volumes in the fourth quarter of 2019. This type of regular maintenance work must be performed if a well is to remain active. Our ability to outperform competitors in this segment depends on our ability to achieve significant economies relating to logistics, specifically the proximity between the areas where saltwater is produced and the areas where our company-owned disposal wells are located. We operate saltwater disposal wells in most of our markets, and our ownership of these disposal wells eliminates the need to pay third parties a fee for disposal.

Completion, remedial, and workover activities also provide the opportunity for higher operating margins from tank rentals and fluid sales. Drilling and workover jobs typically require fresh or brine water for drilling mud or circulating fluid used during the job. Completion and workover procedures often also require large volumes of water for fracturing operations, which involves stimulating a well hydraulically to increase production. Flowback fluids, spent mud, and fluids from drilling and completion activities are required to be transported from the wellsite to an approved disposal facility. Water treatment solutions are also utilized by customers to treat produced water and flowback, in order to be reused during the production and completion process.

Our competitors in the water logistics industry are mostly small, regionally focused companies. There are currently no companies that have a dominant position on a nationwide basis. Activity in the water logistics industry is comprised of a relatively stable demand for services related to the maintenance of producing wells and a highly variable demand for services used in the drilling and completion of new wells. As a result, onshore drilling activity significantly affects the level of activity in the water logistics industry. While there are no industry-wide statistics, the Baker Hughes Land Drilling Rig Count is an indirect indication of demand for water logistics because it directly reflects onshore drilling activity.

Agua Libre Midstream - At December 31, 2019, we owned 87 saltwater disposal wells through our wholly owned subsidiary, Agua Libre Midstream LLC ("Agua Libre," "Agua Libre Midstream"). Our disposal wells have an average permitted injection capacity of over 7,500 bbls per day per well and are strategically located in close proximity to our customers’ producing wells. Basic fluid service trucks frequently transport the fluids that are disposed of to these saltwater disposal wells. Most oil and natural gas wells produce varying amounts of saltwater throughout their productive lives. In the states in which we operate, oil and natural gas wastes and saltwater produced from oil and natural gas wells are required by law to be disposed of in authorized facilities, including permitted saltwater disposal wells. Injection wells are licensed by state authorities and are completed in permeable formations below the fresh water table. We maintain separators at most of our disposal wells, allowing us to salvage residual crude oil that we later sell.

Fresh and Brine Water Stations - Our network of fresh and brine water stations, particularly in the Permian Basin where surface water is normally not available, is used to supply water necessary for the drilling and completion of oil and natural gas wells. Our strategic locations, in combination with our other fluid handling services, give us a competitive advantage over other service providers in those areas in which these other companies cannot provide these services.

Fluid Storage Tanks - Our fluid storage tanks can store up to 500 barrels of fluid and are used by oilfield operators to store various fluids at the wellsite, including fresh water, brine and acid for fracturing jobs, flowback, temporary production and mud storage. We transport the tanks on our trucks to well locations that are usually within a 50-mile radius of our nearest yard. Fracturing tanks are used during all phases of the life of a producing well. We typically rent fluid services tanks at daily rates for a minimum of three days.

Water Transportation - At December 31, 2019, we owned and operated 762 fluid service trucks, each equipped with an average fluid hauling capacity of up to 150 barrels. Each fluid service truck is equipped to pump fluids from or into wells, pits, tanks and other storage facilities. The majority of our fluid service trucks are also used to transport water to fill fracturing tanks on well locations, including fracturing tanks provided by us and others, to transport produced saltwater to disposal wells, including injection wells owned and operated by us, and to transport drilling and completion fluids to and from well locations. In conjunction with the rental of our fracturing tanks, we mainly use our fluid service trucks to transport water for use in fracturing operations. Following completion of fracturing operations, our fluid service trucks are used to transport the flowback produced as a result of the fracturing operations from the wellsite to disposal wells. Fluid service trucks are usually provided to oilfield operators within a 50-mile radius of our nearest yard.

Water Treatment Services - We utilize a number of water treatment methods in order to treat produced water and flowback that is transported to one of several treatment locations throughout our geographic footprint. Treated water is then sold to customers to be reused for fracturing or other oil and gas-related uses on wells. We typically charge for these services on a per-bbl basis.

For further discussion of financial results for the Water Logistics segment, see Note 14, Business Segment Information of the notes to our consolidated financial statements included in this Annual Report on Form 10-K.

Completion & Remedial Services Segment

Our Completion & Remedial Services segment provides oil and natural gas operators with a package of services that include: rental and fishing tools, coiled tubing, snubbing services, thru-tubing, and underbalanced drilling in low pressure and fluid sensitive reservoirs.

This segment operates 24 air compressor packages, including foam circulation units, for underbalanced drilling, 32 snubbing units and 9 coiled tubing units for cased-hole measurement and pipe recovery services.

The following table sets forth the type, number and location of the completion and remedial services equipment that we operated at December 31, 2019:


	Market Area
Asset Type:	Central	Rocky Mountain	Permian Basin	Total
Air/Foam Packages	11	—	13	24
Snubbing Units	29	—	3	32
Rental and Fishing Tool Stores	6	—	7	13
Coiled Tubing Units	2	7	—	9

Our rental and fishing tool business provides a range of specialized services and equipment that is utilized on a non-routine basis for both drilling and well servicing operations. Drilling and well servicing rigs are equipped with an array of tools to complete routine operations under normal conditions for most projects in the geographic area in which they are employed. When downhole problems develop with drilling or servicing operations or conditions require non-routine equipment, our customers will usually rely on a provider of rental and fishing tools to augment equipment that is provided with a typical drilling or well servicing rig package.

The term “fishing” applies to a wide variety of downhole operations designed to correct a problem that has developed during the drilling or servicing of a well. The problem most commonly involves equipment that has become lodged in the well and cannot be removed without special equipment. Our technicians utilize tools that are specifically suited to retrieve, or “fish,” and remove the trapped equipment, allowing our customers to resume operations.

Coiled tubing services involve the use of a continuous metal pipe spooled on a large reel for oil and natural gas well interventions, including wellbore maintenance, plugging and abandonment, nitrogen services, thru-tubing services, and formation stimulation using acid and other chemicals.

Our snubbing service business utilizes specialized equipment to run or remove pipe and other associated downhole tools into a wellbore. This process is accomplished with a wellbore having surface pressure or with the anticipation of surface pressure. Our snubbing services are utilized for both routine and non-routine workover, completion and remedial activities.

For further discussion of financial results for the Completion & Remedial Services segment, see Note 14, Business Segment Information of the notes to our consolidated financial statements included in this Annual Report on Form 10-K.

Discontinued Operations

Our Pumping Services Division focused primarily on lower horsepower cementing, acidizing and fracturing services markets. Our other services segment employed drilling rigs and related equipment to drill new wells. For further discussion of financial results for discontinued operations, see Note 2, Discontinued Operations of the notes to our consolidated financial statements included in this Annual Report on Form 10-K.

Properties

Our principal executive offices are located at 801 Cherry Street, Suite 2100, Fort Worth, Texas 76102. We currently conduct our business from 96 area offices, 55 of which we own and 41 of which we lease. Each office typically includes a yard, administrative office and maintenance facility. Of our 96 area offices, 64 are located in Texas. Additionally, we have seven area offices in each of New Mexico and Oklahoma, four area offices in Colorado, three area offices in Louisiana, North Dakota and Wyoming, two area offices in California, and one area office in each of Kansas, Montana, and Arkansas. With the C&J Transaction, we will initially add approximately 30 offices.

Customers

We serve numerous major and independent oil and gas companies that are active in our core areas of operations. In the current market conditions, the loss of any current material customers could have an adverse effect on our business operations until the equipment is redeployed. During each of 2019 and 2018, our top five customers accounted for 26% and 24% of our revenues, respectively. Occidental Petroleum Corp. comprised 12% of our revenues in 2019. The loss of any one of our largest customers or a sustained decrease in demand by any of such customers could result in a substantial loss of revenues and could have a material adverse effect on our results of operations.

Operating Risks and Insurance

Though we make every effort to maintain a safety-focused culture, our operations are subject to hazards inherent in the oil and natural gas industry, such as accidents, blowouts, explosions, craters, fires, and oil spills that may cause personal injury or loss of life, damage to or destruction of property, equipment and the environment, and suspension of operations.

In addition, claims for loss of oil and natural gas production and damage to formations can occur in the well services industry. If a serious accident were to occur at a location where our equipment and services are being used, it could result in us being named as a defendant in lawsuits asserting large claims.

Because our business involves the transportation of heavy equipment and materials, we may also experience traffic accidents that may result in spills, property damage and personal injury.

Despite our efforts to maintain high safety standards, from time to time, we have suffered accidents in the past and anticipate that we could experience accidents in the future. In addition to the property and personal losses from these accidents, the frequency and severity of these incidents affect our operating costs and insurability and our relationships with customers, employees, and regulatory agencies. Any significant increase in the frequency or severity of these incidents, or the general level of damage awards, could adversely affect the cost of, or our ability to obtain workers’ compensation and other forms of insurance, and could have other material adverse effects on our financial condition and results of operations.

Although we maintain insurance coverage of types and amounts that we believe to be customary in the industry, we are not fully insured against all risks, either because insurance is not available or because of the high premium costs. We do maintain employer’s liability, pollution, cargo, umbrella, comprehensive commercial general liability, workers’ compensation, and limited physical damage insurance. There can be no assurance, however, that any insurance obtained by us will be adequate to cover any losses or liabilities, or that this insurance will continue to

be available or available on terms that are acceptable to us. Liabilities for which we are not insured, or which exceed the policy limits of our applicable insurance, could have a material adverse effect on us.

Competition

Our competition includes small regional contractors as well as larger companies with international operations. We believe our largest well servicing competitors are Key Energy Services, Inc., Superior Energy Services Inc., Ranger Energy Services Inc., and Pioneer Energy Services Corp. All are public companies that operate in most of the large oil and natural gas producing regions in the United States, and because of their size, they market a large portion of their work to the major oil and gas companies.

We differentiate ourselves from our major competition by our operating philosophy. We operate an organization that emphasizes safety, reliability, and trust that the job will be done as required and without incident. Local, experienced management teams are responsible for operations and communication with our customers at the field level. We concentrate on providing services to a diverse group of large and small oil and gas companies. We believe that establishing a track record of safety, integrity, and reliability with these companies will enable us to continue to grow our business in the long-term.

Safety Program

Our approach to safety management is consistent with our corporate values to be a trusted, reliable, and safe service provider for our customers and employees. Our business involves the operation of heavy and powerful equipment, which may result in serious injuries to our employees and third parties and substantial damage to property. We have continuous engagement by executive management in our comprehensive safety and training programs, which are designed to minimize accidents in the workplace and on the roadways. We have directed substantial resources toward employee safety and quality management training programs as well as our employee review process. Our customers place great emphasis on the safety and quality management programs of their contractors, and we expect our continued focus on safety to become a positive market differentiator in the future.

Environmental Regulation and Climate Change

Environment, Health and Safety Regulation, Including Climate Change

Our operations are subject to stringent federal, tribal, state and local laws regulating the discharge of materials into the environment or otherwise relating to health and safety or the protection of the environment. Numerous governmental agencies, such as the U.S. Environmental Protection Agency (the "EPA") and analogous state agencies issue regulations to implement and enforce these laws, which often require stringent and costly compliance measures. These laws and regulations may, among other things, require the acquisition of permits; govern the amounts and types of substances that may be released into the environment in connection with oil and gas drilling; restrict the way we handle or dispose of our materials and wastes; limit or prohibit construction or drilling activities in sensitive areas such as wetlands, wilderness areas or areas inhabited by endangered or threatened species; require the application of specific health and safety criteria addressing worker protection and public health and safety or require investigatory and remedial actions to mitigate pollution conditions. Failure to comply with these laws and regulations may result in the assessment of substantial administrative, civil and criminal penalties, as well as the possible issuance of injunctions limiting or prohibiting our activities. In addition, some laws and regulations relating to protection of the environment may, in certain circumstances, impose liability for environmental damages and cleanup costs without regard to negligence or fault. Strict adherence with these regulatory requirements increases our cost of doing business and consequently affects our profitability. Historically, our environmental compliance costs have not had a material adverse effect on our results of operations; however, there can be no assurance that such costs will not be material in the future or that such future compliance will not have a material adverse effect on our business and operating results. Moreover, environmental laws and regulations have been subject to frequent changes over the years, and the imposition of more stringent requirements could have a material adverse effect upon our capital expenditures, earnings or our competitive position. Below is a discussion of the principal environmental laws and regulations, as amended from time to time that relate to our business.

The Comprehensive Environmental Response, Compensation and Liability Act, referred to as “CERCLA” or the Superfund law, and comparable state laws impose liability, potentially without regard to fault or legality of the activity at the time, on certain classes of persons that are considered to be responsible for the release of a hazardous substance into the environment. These persons include the current or former owner or operator of the disposal site or sites where the release occurred and companies that disposed or arranged for the disposal of hazardous substances that have been released at the site. Under CERCLA, these persons may be subject to joint and several liabilities for the costs of investigating and cleaning up hazardous substances that have been released

into the environment, for damages to natural resources and for the costs of some health studies. In addition, neighboring landowners and other third parties may file claims for personal injury and property damage allegedly caused by hazardous substances or other pollutants released into the environment.

The federal Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976, referred to as “RCRA,” regulates the management and disposal of solid and hazardous waste. Some wastes associated with the exploration and production of oil and natural gas are exempted from the most stringent regulation in certain circumstances, such as drilling fluids, produced waters and other wastes associated with the exploration, development or production of oil and natural gas. However, this exemption for such drilling fluids, produced waters and other oil and gas wastes is subject to being limited or lost. For example, the EPA and certain non-governmental environmental groups that were contesting the EPA’s alleged failure to timely assess its RCRA Subtitle D criteria regulations for oil and natural gas wastes entered into an agreement that was finalized in a consent decree issued by the U.S. District Court for the District of Columbia in December 2016. Under the decree, the EPA was required to propose no later than March 15, 2019, a rulemaking for revision of certain Subtitle D criteria regulations pertaining to oil and natural gas wastes or sign a determination that revision of the regulations is not necessary. If the EPA were to propose a rulemaking for revised oil and natural gas waste regulations, the consent decree requires that the EPA take final action following notice and comment rulemaking no later than July 15, 2021. After initially postponing the decision due to a government shutdown, EPA ultimately concluded in April 2019 that revisions to the federal regulations pertaining to oil and natural gas wastes under Subtitle D of RCRA are not necessary at this time. Nevertheless, a loss of the RCRA hazardous waste exemption for drilling fluids, produced waters and related wastes could result in an increase in customers’ drilling programs’ costs to manage and dispose of wastes they generate, which development could have a material adverse effect on the drilling program’s operations and reduce the demand for our services. Moreover, these wastes and other wastes may be otherwise regulated by the EPA or state agencies. In the ordinary course of our operations, industrial wastes such as paint wastes and waste solvents may be regulated as hazardous waste under RCRA or considered hazardous substances under CERCLA.

We currently own or lease, and have in the past owned or leased, a number of properties that have been used as service yards in support of oil and natural gas exploration and production activities. Although we have utilized operating and disposal practices that we considered standard in the industry at the time, there is the possibility that repair and maintenance activities on rigs and equipment stored in these service yards, as well as fluids stored at these yards, may have resulted in the disposal or release of hydrocarbons or other wastes on or under these yards or other locations where these wastes have been taken for disposal. In addition, we own or lease properties that in the past were operated by third parties whose operations were not under our control. These properties and the hydrocarbons or wastes disposed thereon may be subject to CERCLA, RCRA and analogous state laws. Under these laws, we could be required to remove or remediate previously disposed wastes or property contamination.

In the course of our operations, some of our equipment may be exposed to naturally occurring radiation associated with oil and natural gas deposits, and this exposure may result in the generation of wastes containing naturally occurring radioactive materials, or “NORM.” NORM wastes exhibiting trace levels of naturally occurring radiation in excess of established state standards are subject to special handling and disposal requirements, and any storage vessels, piping and work area affected by NORM may be subject to remediation or restoration requirements. Because many of the properties presently or previously owned, operated or occupied by us or our customers have been used for oil and natural gas production operations for many years, it is possible that we may incur costs or liabilities associated with elevated levels of NORM.

Our operations are also subject to the federal Clean Water Act and analogous state laws. Under these laws, permits must be obtained to discharge pollutants into regulated surface or subsurface waters. Spill prevention, control and countermeasure requirements under federal law require some owners or operators of facilities that store or otherwise handle oil to prepare plans and implement appropriate operating protocols, including containment berms and similar structures, to help prevent the contamination of regulated waters in the event of a petroleum hydrocarbon spill, rupture or leak. In addition, the Clean Water Act and analogous state laws require individual permits or coverage under general permits for discharges of storm water runoff from certain types of facilities or during construction or operation activities. This program requires covered facilities to obtain individual permits, or seek coverage under a general permit. Accordingly, permits for discharges of storm water runoff may be required for certain of our properties.

The Clean Water Act ("CWA") also prohibits the discharge of dredge and fill material in regulated waters, including wetlands, unless authorized by permit. In June 2015, the EPA and the U.S. Army Corps of Engineers (“Corps”) released a final rule that attempted to clarify federal jurisdiction under the Clean Water Act over waters of the United States, ("WOTUS") including wetlands, but legal challenges to this rule followed. The 2015 rule was

stayed nationwide to determine whether federal district or appellate courts had jurisdiction to hear cases in the matter and, in January 2017, the U.S. Supreme Court agreed to hear the case. On January 22, 2018, the U.S. Supreme Court issued a decision finding that jurisdiction resides with the federal district courts. In addition, the EPA and Corps proposed a rulemaking in June 2017 to repeal the June 2015 rule, announced their intent to issue a new rule defining the Clean Water Act’s jurisdiction, and published a final rule on February 6, 2018 specifying that the contested June 2015 rule would not take effect until February 6, 2020. In July 2018, the EPA issued a supplemental notice of proposed rulemaking, offering support and clarification regarding the Agency’s June 2017 proposed repeal of the 2015 WOTUS rule. Later in 2018, the EPA’s decision was challenged in court, which resulted in a decision by the U.S. District Court for the District of South Carolina to enjoin the EPA’s February 2018 delay rule. Several states then acted to halt reinstatement of the 2015 WOTUS rule, the effect of all of which was that the 2015 WOTUS definition was in effect in 22 states. In September 2019, EPA finalized the repeal of the 2015 WOTUS rule, and the repeal became effective in December 2019, reinstating the pre-2015 standards. Litigation of the repeal quickly ensued. Meanwhile, in December 2018, the EPA and the Corps issued a proposed rule to revise the definition of “Waters of the United States” or “WOTUS.” The rule was finalized in January 2020, and will become effective 60 days after publication in the Federal Register. The rule narrows the WOTUS definition, excluding, for example, streams that flow only after precipitation and wetlands without a direct surface connection to traditional navigable waters. The rule is expected to be heavily litigated, which could delay its implementation. Regardless, the applicable WOTUS definition affects what CWA permitting or other regulatory obligations may be triggered during development and operation of our or our customers’ properties, and changes to the WOTUS definition could cause delays in development and/or increase the cost of development and operation of those properties.

Our underground injection operations are subject to the Safe Drinking Water Act ("SDWA") as well as analogous state and local laws and regulations including the Underground Injection Control (UIC") UIC program, which includes requirements for permitting, testing, monitoring, record keeping and reporting of injection well activities. The federal Energy Policy Act of 2005 amended the UIC provisions to exclude certain hydraulic fracturing activities from the definition of “underground injection” under certain circumstances. However, the repeal of this exclusion has been advocated by certain advocacy organizations and others in the public. Legislation regulating underground injection has been introduced at the state level. For example, at the state level, several states in which we operate, including Wyoming, Texas, Colorado and Oklahoma, have adopted regulations requiring operators to disclose certain information regarding hydraulic fracturing fluids.

In addition, public concerns have recently been raised regarding the disposal of hydraulic fluid in injection wells. The substantial majority of our saltwater disposal wells are located in Texas and are regulated by the Railroad Commission of Texas ("RRC"). Partly in response to public concerns, the RRC, amended its existing oil and gas disposal well regulations to require seismic activity data in permit applications and provisions to authorize the imposition of certain limitations on existing wells if seismic activity increases in the area of an injection well, including a temporary injection ban. We also operate saltwater disposal wells in New Mexico, Oklahoma, Arkansas, Louisiana and North Dakota and are subject to similar regulatory controls in those states. In addition, in response to reports tying the increase in seismic activity in Oklahoma to the injection of produced water, the Oklahoma Corporation Commission ("OCC") has implemented a variety of measures, including the adoption of the National Academy of Science’s “traffic light system”, pursuant to which the agency reviews new disposal well applications and may restrict operations at existing wells. The OCC and the Oklahoma Geologic Survey continue to release well completion seismicity guidance, which most recently directs operators to adopt a seismicity response plan and take certain prescriptive actions, including mitigation, following anomalous seismic activity within a certain radius of hydraulic fracturing operations. Beginning in 2013, the OCC has ordered the reduction of disposal volumes into the Arbuckle formation. More recently, the OCC directed the shut in of a number of disposal wells due to increased earthquake activity in the Arbuckle formation and imposed further disposal well volume reductions in the Covington, Crescent, Enid and Edmond areas. In addition, since 2015, the OCC’s Oil and Gas Conservation Division has issued a number of directives restricting the future volume of wastewater disposed of via subsurface injection and directing the shut in of certain injection wells. To date, none of our wells have been restricted. Regulations in the states in which we operate require us to obtain a permit from the applicable regulatory agencies to operate each of our underground saltwater disposal wells. We believe that we have obtained the necessary permits from these agencies for each of our underground injection wells and that we are in substantial compliance with permit conditions and commission rules. Nevertheless, these regulatory agencies have the general authority to suspend or modify one or more of these permits if continued operation of one of our underground injection wells is likely to result in pollution of freshwater, substantial violation of permit conditions or applicable rules, leaks to the environment or other conditions such as earthquakes. Although we monitor the injection process of our wells, any leakage from the subsurface portions of the injection wells could cause degradation of fresh groundwater resources, potentially resulting in cancellation of operations of a well, issuance of fines and penalties from governmental agencies, incurrence of expenditures for remediation of the affected resource and imposition of liability by third

parties for property damages and personal injuries. In addition, our sales of residual crude oil collected as part of the saltwater injection process could impose liability on us in the event that the entity to which the oil was transferred fails to manage the residual crude oil in accordance with applicable environmental health and safety laws.

In addition, several cases have recently put a spotlight on the issue of whether injection wells may be regulated under the Clean Water Act if a direct hydrological connection to a jurisdictional surface water can be established. The split among federal circuit courts of appeals that decided these cases engendered two petitions for writ of certiorari to the United States Supreme Court in August 2018, one of which was granted in February 2019. Oral arguments were presented to the Supreme Court in November 2019, and the Court is expected to rule sometime this year (2020). The EPA has also brought attention to the reach of the Clean Water Act’s jurisdiction in such instances by issuing a request for comment in February 2018 regarding the applicability of the Clean Water Act permitting program to discharges into groundwater with a direct hydrological connection to jurisdictional surface water, which hydrological connections should be considered “direct,” and whether such discharges would be better addressed through other federal or state programs. In a statement issued by EPA in April 2019, the Agency concluded that the CWA should not be interpreted to require permits for discharges of pollutants that reach surface waters via groundwater. But should the Supreme Court rule that Clean Water Act permitting be required for saltwater injections wells, the costs of permitting and compliance for our operations could increase.

We maintain insurance against some risks associated with environmental liabilities that may occur as a result of well service activities. However, there can be no assurance this insurance will cover all potential losses, or that insurance will continue to be commercially available or will be available at premium levels that justify its purchase by us. The occurrence of a significant event that is not fully insured or indemnified against could have a material adverse effect on our financial condition and operations.

We are also subject to the requirements of the federal Occupational Safety and Health Act (“OSHA”) and comparable state statutes that regulate the protection of the health and safety of workers. In addition, the U.S. Occupational Safety and Health Administration’s hazard communication standard, the EPA’s community right-to-know regulations under Title III of the federal Superfund Amendment and Reauthorization Act, the general duty clause and Risk Management Planning regulations promulgated under Section 112(r) of the Clean Air Act, and comparable state statutes require that information be maintained about hazardous materials used or produced in operations, and that this information be provided to employees, state and local government authorities and the public, and that plans for response to a release be developed for certain facilities.

We are also subject to the requirements of the Federal Motor Carrier Safety Act (“FMCSA”) regulations of the U.S. Department of Transportation (“DOT”) and comparable state statutes and implementing regulations that regulate commercial motor vehicle operations. In addition, we are also subject to the Pipeline and Hazardous Materials Safety Administration (“PHMSA”) and comparable state statutes that regulate hazardous materials shipments.

The federal Clean Air Act (“CAA”) and comparable state laws and regulations restrict the emission of various air pollutants from many sources through air emissions standards, construction and operating permitting programs, and the imposition of other monitoring and reporting requirements. These laws and regulations may require us to obtain pre-approval for the construction or modification of certain projects or facilities expected to produce or significantly increase air emissions, obtain and strictly comply with stringent air permit requirements or utilize specific equipment, operating practices, or technologies to control emissions of certain pollutants. Obtaining required permits has the potential to delay the development of oil and natural gas projects.

Over the next several years, we and our customers may be required to incur certain capital expenditures for air pollution control equipment or other air emissions-related issues. For example, in October 2015, the EPA issued a final rule under the CAA, lowering the National Ambient Air Quality Standard for ground-level ozone to 70 parts per billion under both the primary and secondary standards. The EPA published a final rule in November 2017 that issued area designations with respect to ground-level ozone for approximately 85% of the U.S. counties as either “attainment/unclassifiable” or “unclassifiable” and completed the remaining area designations not addressed under the November 2017 final rule in April and July of 2018. Additionally, state implementation of these revised standards could result in stricter permitting requirements, delay or prohibit our ability to obtain such permits, and result in increased expenditures for pollution control equipment, the costs of which could be significant. Compliance with this final rule or any other new legal requirements could, among other things, require us or our customers to install new emission controls on some equipment and to incur longer permitting timelines or significantly increased capital expenditures and operating costs. Additionally, if such compliance reduces demand for the oil and natural gas that our customers produce, we could also incur reduced demand for our services, which one or more developments could adversely impact our business.

Responding to scientific studies that have suggested that emissions of gases, commonly referred to as “greenhouse gases,” including gases associated with the oil and gas sector such as carbon dioxide, methane, and nitrous oxide among others, may be contributing to global warming and other environmental effects, the EPA has begun to adopt regulations to report and reduce emissions of greenhouse gases. Any such regulations may have the potential to affect our business, customers or the energy sector generally. In addition, the United States has been involved in international negotiations regarding greenhouse gas reductions under the United Nations Framework Convention on Climate Change (“UNFCCC”). The U.S. was among approximately 195 nations that signed an international accord in December 2015, the so-called Paris Agreement, which became effective in 2016, with the objective of limiting greenhouse gas emissions. However, in August 2017, the U.S. State Department informed the United Nations of its intent to withdraw from the Paris Agreement and in November 2019, the U.S. took another step toward withdrawal by submitting a formal notice of its withdrawal to the United Nations. Notably, the earliest date of withdrawal under the terms of the agreement is November 4, 2020, one day after the 2020 U.S. Presidential election.

A number of states, individually or in regional cooperation, have also imposed restrictions on greenhouse gas emissions under various policies and approaches, including establishing a cap on emissions, requiring efficiency measures, or providing incentives for pollution reduction, use of renewable energy, or use of fuels with lower carbon content.

These federal, regional and state measures generally apply to industrial sources, including facilities in the oil and gas sector, and could increase the operating and compliance costs of our services and facilities. International accords such as the Paris Agreement may result in additional regulations to control greenhouse gas emissions. These regulations could also adversely affect market demand or pricing for our services, by affecting the price of, or reducing the demand for, fossil fuels or providing competitive advantages to competing fuels and energy sources. The potential increase in the costs of our operations could include costs to operate and maintain our equipment or facilities, install new emission controls on our equipment or facilities, acquire allowances to authorize our greenhouse gas emissions, pay taxes related to our greenhouse gas emissions, or administer and manage a greenhouse gas emissions program. While we may be able to include some or all of such increased costs in the rates charged for our services, such recovery of costs is uncertain and may depend on events beyond our control, including the provisions of any final regulations. In addition, changes in regulatory policies that result in a reduction in the demand for hydrocarbon products that are deemed to contribute to greenhouse gases, or restrictions on their use, may reduce demand for our services.

There is considerable debate as to global warming and the environmental effects of greenhouse gas emissions and associated consequences affecting global climate, oceans, and ecosystems. As a commercial enterprise, we are not in a position to validate or repudiate the existence of global warming or various aspects of the scientific debate. However, if global warming is occurring, it could have an impact on our operations. For example, our operations in low lying areas such as the coastal regions of Louisiana and Texas may be at increased risk due to flooding, rising sea levels or disruption of operations from more frequent and severe weather events. Facilities in areas with limited water availability may be impacted if droughts become more frequent or severe. Changes in climate or weather may hinder exploration and production activities or increase or decrease the cost of production of oil and natural gas resources and consequently affect demand for our field services. Changes in climate or weather may also affect consumer demand for energy or alter the overall energy mix. However, we are not in a position to predict the precise effects of global warming on energy markets or the physical effects of global warming. We are providing this disclosure based on publicly available information on the matter.

Finally, it should be noted that, recently, activists concerned about the potential effects of climate change have directed their attention at sources of funding for fossil-fuel energy companies, which has resulted in certain financial institutions, funds and other sources of capital restricting or eliminating their investment in oil and natural gas activities. Ultimately, this could make it more difficult for our customers to secure funding for exploration and production activities, which could reduce demand for our services. Notwithstanding potential risks related to climate change, the International Energy Agency estimates that global energy demand will continue to rise and will not peak until after 2040 and that oil and natural gas will continue to represent a substantial percentage of global energy use over that time.

Employees

As of December 31, 2019, we employed approximately 3,000 people, with approximately 81% employed on an hourly basis. Our future success will depend partially on our ability to attract, retain and motivate qualified personnel. We are not a party to any collective bargaining agreements, and we consider our relations with our employees to be satisfactory.

Additional Information

We make available free of charge on our website, www.basices.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to the Exchange Act, as soon as reasonably practicable after we electronically file such information with, or furnish it to, the SEC. These documents are also available on the SEC’s website at www.sec.gov, or you may read and copy any materials that we file with or furnish to the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington D.C. 20549. The information on our website is not, and shall not be deemed to be, a part of this Annual Report on Form 10-K or incorporated into any of our other filings with the SEC.

We have a Code of Conduct that applies to all of our directors, officers and employees. The Code of Conduct is available publicly on our website at www.basices.com. Any waivers granted to directors or executive officers and any material amendments to our Code of Ethics will be posted promptly on our website and/or disclosed in a current report on Form 8-K.

The certifications by our Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 are filed as exhibits to this Annual Report on Form 10-K. We have also filed with the New York Stock Exchange the most recent Annual CEO Certification as required by Section 303A.12(a) of the New York Stock Exchange Listed Company Manual.

ITEM 1A. RISK FACTORS

The following are some of the important factors that could affect our financial performance or could cause actual results to differ materially from estimates contained in our forward-looking statements. We may encounter risks in addition to those described below. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, may also impair or adversely affect our business, results of operations, financial condition and prospects.

Risks Relating to Our Business

Our business depends on domestic spending by the oil and natural gas industry, and this spending and our business has been in the past, and may in the future be, adversely affected by industry and financial market conditions that are beyond our control.

We depend on our customers’ willingness to make operating and capital expenditures to explore for, develop and produce oil and natural gas in the United States. Customers’ expectations for lower market prices for oil and natural gas, as well as the availability of capital for operating and capital expenditures, may cause them to curtail spending, thereby reducing demand for our services and equipment.

Industry conditions are influenced by numerous factors over which we have no control, such as the supply of and demand for oil and natural gas, domestic and worldwide economic conditions, political instability in oil and natural gas producing countries and merger, acquisition and divestiture activity among oil and gas producers. Activities by non-governmental organizations to limit certain sources of funding for the energy sector or to restrict the exploration, development and production of oil and natural gas may adversely affect the ability of certain of our customers to conduct operations. The volatility of the oil and natural gas industry, environmental and other governmental regulations regarding the exploration for and production and development of oil and natural gas reserves, and the consequent impact on exploration and production activity could adversely impact the level of drilling and workover activity by some of our customers. This reduction may cause a decline in the demand for our services or adversely affect the price of our services. In addition, reduced discovery rates of new oil and natural gas reserves in our market areas also may have a negative long-term impact on our business, even in an environment of stronger oil and natural gas prices, to the extent existing production is not replaced and the number of producing wells for us to service declines.

Oil and gas industry pricing remained relatively stable through the middle of 2014. From the second half of 2014 through 2016, oil and natural gas prices declined significantly, due in large part to increasing supplies and weakening demand growth. Although oil prices increased from 2017 into 2018, they have since declined towards the end of 2018 and remained low throughout 2019. Natural gas prices have been depressed for a prolonged period and utilization and pricing for our services in our natural gas-based operating areas have remained challenged. As a result, demand for our products and services and the prices we are able to charge our customers for our products and services have declined. Oil and gas prices may remain depressed for the foreseeable future.

Limitations on the availability of capital, or higher costs of capital, for financing expenditures may cause oil and natural gas producers to make further reductions to capital budgets in the future even if oil or natural gas prices increase from current levels. Any such cuts in spending will curtail drilling programs as well as discretionary spending on well services, which may result in a reduction in the demand for our services, the rates we can charge and our utilization. In addition, certain of our customers could become unable to pay their suppliers, including us. Any of these conditions or events could adversely affect our operating results.

If oil and natural gas prices remain volatile, or if oil or natural gas prices remain low or decline further, the demand for our services could be adversely affected.

The demand for our services is primarily determined by current and anticipated oil and natural gas prices and the related general production spending and level of drilling activity in the areas in which we have operations. Volatility or weakness in oil or natural gas prices (or the perception that oil or natural gas prices will decrease) affects the spending patterns of our customers and may result in the drilling of fewer new wells or lower production spending on existing wells. This, in turn, could result in lower demand for our services and may cause lower rates and lower utilization of our well service equipment. If oil or natural gas prices continue to remain low or decline further, or if there is a reduction in drilling activities, the demand for our services and our results of operations could be materially and adversely affected.

Prices for oil and natural gas historically have been extremely volatile and are expected to continue to be volatile. The Cushing WTI Spot Oil Price averaged $64.94 and $56.98 per barrel ("bbl") in 2018 and 2019, respectively. The Cushing WTI oil prices have declined from over $107 per bbl in June 2014 to $61.14 per bbl on December 31, 2019. The Henry Hub Natural Gas Spot Price averaged $3.17 and $2.57 per Mcf for 2018 and 2019, respectively.

On March 9, 2020, as a result of multiple significant factors impacting supply and demand in the global oil and natural gas markets, including the announced price reductions and possible production increases by members of OPEC and other oil exporting nations, the posted price for West Texas Intermediate oil declined sharply and may continue to decline. Oil and natural gas commodity prices are expected to continue to be volatile. We cannot predict the duration or effects of this sudden decrease, but if the prices of oil and natural gas continues to decline or remain depressed for a lengthy period, our business, financial condition, results of operations, cash flows, and prospects may be materially and adversely affected.

Competition within the well services industry may adversely affect our ability to market our services.

The well services industry is highly competitive and fragmented and includes numerous small companies capable of competing effectively in our markets on a local basis, as well as several large companies that have longer operating histories, possess substantially greater financial, technological and other resources and have greater name recognition in certain operating areas than we do. With decreased demand for well services, multiple sources of comparable well services are available from a number of different competitors. Our larger competitors’ greater resources could allow those competitors to compete more effectively than we can. The amount of equipment available may exceed demand, which could result in active price competition. Many contracts are awarded on a bid basis, which may further increase competition based primarily on price. In addition, adverse market conditions lower demand for well servicing equipment, which results in excess equipment and lower utilization rates. If adverse oil and natural gas market conditions persist or deteriorate further, our utilization rates may decline.

Fuel conservation measures could reduce demand for oil and natural gas, which would in turn reduce the demand for our services.

Fuel conservation measures, alternative fuel requirements, technological advances in fuel economy and energy generation, and increasing consumer demand for alternatives to oil and natural gas could reduce demand for oil and natural gas. The impact of the changing demand for oil and natural gas may have a material adverse effect on our business, financial condition, prospects, results of operations, and cash flows. Additionally, the increased competitiveness of alternative energy sources (such as wind, solar geothermal, tidal and biofuels) could reduce demand for hydrocarbons and therefore for our services, which would lead to a reduction in our revenues.

We may require additional capital in the future. We cannot assure you that we will be able to generate sufficient cash internally or obtain alternative sources of capital on favorable terms, if at all. If we are unable to fund capital expenditures, our business may be adversely affected.

We anticipate we will need to make substantial capital investments in the future to purchase additional equipment to expand our services, refurbish our well servicing rigs and replace existing equipment including idled equipment brought back into service as activity levels improved. For the year ended December 31, 2018, we invested approximately $68.7 million in cash for capital expenditures and $20.2 million of capital leases. For the

year ended December 31, 2019, we invested approximately $55.4 million in cash for capital expenditures and $7.9 million of capital leases. For 2020, we have currently budgeted $42.6 million for capital expenditures, excluding acquisitions, including $14.2 million for capital leases. Historically, we have financed these investments through internally generated funds, debt and equity offerings, our capital lease program and borrowings under our credit facilities. Please read Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operation - Liquidity and Capital Resources” for more information.

Our significant capital investments require cash that we could otherwise apply to other business needs. However, if we do not incur these expenditures while our competitors make substantial fleet investments, our market share may decline and our business may be adversely affected. In addition, if we are unable to generate sufficient cash internally or obtain alternative sources of capital to fund our proposed capital expenditures and acquisitions, take advantage of business opportunities or respond to competitive pressures, it could materially and adversely affect our results of operations, financial condition and growth. If we raise additional funds by issuing equity securities, dilution to existing stockholders may result. Adverse changes in the capital markets could make it difficult to obtain additional capital or obtain it at attractive rates or at all. If we are unable to maintain or obtain access to capital, we could experience a reduction of liquidity and may result in difficulty funding our operations, repayment of short-term borrowings, payments of interest and other obligations.

Our future financial results could be adversely impacted by asset impairments or other charges.

We have recorded goodwill impairment charges and asset impairment charges in the past. We periodically evaluate our long-lived assets, including our property and equipment, and intangible assets. If any indication of impairment for our long lived assets exists, we project future cash flows on an undiscounted basis for other long-lived assets, and compare these cash flows to the carrying amount of the related assets. These cash flow projections are based on our current operating plans, estimates and judgmental assumptions. We perform the assessment of potential impairment for our long-lived assets whenever facts and circumstances indicate that the carrying value of those assets may not be recoverable due to various external or internal factors. If we determine that our estimates of future cash flows were inaccurate or our actual results are materially different from what we have predicted, we could record additional impairment charges in future periods, which could have a material adverse effect on our financial position and results of operations.

Our assets require significant amounts of capital for maintenance, upgrades and refurbishment and may require significant capital expenditures for new equipment.

Our well servicing and other completion service-related equipment requires significant capital investment in maintenance, upgrades and refurbishment to maintain competitiveness. Our equipment typically does not generate revenue while undergoing maintenance, upgrades or refurbishments. Any maintenance, upgrade or refurbishment project for our assets could increase our indebtedness or reduce cash available for other opportunities. Furthermore, such projects may require proportionally greater capital investments as a percentage of total asset value, which may make such projects difficult to finance on acceptable terms. To the extent we are unable to fund such projects, we may have less equipment available for service, or our equipment may not be attractive to potential or current customers. Additionally, increased demand, competition or advances in technology within our industry may require us to update or replace existing fleets or build or acquire new fleets. Such demands on our capital or reductions in demand for our well servicing equipment and other completion service-related equipment and the increase in cost to maintain labor necessary for such maintenance and improvement, in each case, could have a material adverse effect on our business, liquidity position, financial condition, prospects and results of operations.

We have operated at a loss in the past, and there is no assurance of our profitability in the future.

Historically, we have experienced periods of low demand for our services and have incurred operating losses. In the future, we may not be able to reduce our costs, increase our revenues, or reduce our debt service obligations sufficient to achieve or maintain profitability and generate positive operating income. Under such circumstances, we may incur further operating losses and experience negative operating cash flow.

Our indebtedness could restrict our operations and make us more vulnerable to adverse economic conditions.

As of December 31, 2019, we had total outstanding debt of $327.1 million, net of discount and deferred financing costs, including $300 million of aggregate principal amount due under the Senior Notes, capital lease obligations in the aggregate amount of $35.9 million. As of December 31, 2019, Basic had $34.2 million of letters of credit outstanding under the Credit Facility, giving Basic $35.7 million of available borrowing capacity under the Credit Facility. For the years ended December 31, 2019 and 2018, we made cash interest payments totaling $39.8 million and $35.1 million, respectively. In addition, on March 9, 2020, the Company issued a Senior Secured Promissory Note in favor of Ascribe in an aggregate principal amount equal to $15 million.

Our current and future indebtedness could have important consequences. For example, it could:

•impair our ability to make investments and obtain additional financing for working capital, capital expenditures, acquisitions or other general corporate purposes;

•limit our ability to use operating cash flow in other areas of our business because we must dedicate a substantial portion of these funds to make principal and interest payments on our indebtedness;

•make us more vulnerable to a downturn in our business, our industry or the economy in general as a substantial portion of our operating cash flow will be required to make principal and interest payments on our indebtedness, making it more difficult to react to changes in our business and in industry and market conditions;

•limit our ability to obtain additional financing that may be necessary to operate or expand our business;

•limit management's flexibility in operating our business;

•limit our flexibility in planning for, and reacting to, changes in our business or industry;

•put us at a competitive disadvantage to competitors that have less debt; and

•increase our vulnerability to interest rate increases to the extent that we incur variable rate indebtedness.

If we are unable to generate sufficient cash flow or are otherwise unable to obtain the funds required to make principal and interest payments on our indebtedness, or if we otherwise fail to comply with the various covenants in instruments governing any existing or future indebtedness, we could be in default under the terms of such instruments. In the event of a default, the holders of our indebtedness could elect to declare all the funds borrowed under those instruments to be due and payable together with accrued and unpaid interest, secured lenders could foreclose on any of our assets securing their loans and we or one or more of our subsidiaries could be forced into bankruptcy or liquidation. If our indebtedness is accelerated, or we enter into bankruptcy, we may be unable to pay all of our indebtedness in full. Any of the foregoing consequences could restrict our ability to grow our business and cause the value of our common stock to decline.

We may not be able to generate sufficient cash flows to service our indebtedness and may be forced to take actions in order to satisfy our obligations under our indebtedness. If we are unable to service our capital needs, we may have to undertake alternative financing plans, which may have onerous terms or may be unavailable. As a result, our indebtedness and liabilities could expose us to risks that could adversely affect our business, financial condition and results of operations and restrict or impair our ability to satisfy our debt obligations.

As of December 31, 2019, we had approximately $327.1 million of indebtedness, net of discount and deferred financing costs, including $300 million of aggregate principal amount due under the Senior Notes, and capital lease obligations in the aggregate amount of $35.9 million under the ABL Facility. On March 9, 2020, the Company issued a Senior Secured Promissory Note in favor of Ascribe in an aggregate principal amount equal to $15 million. Based on our Senior Note obligations, we expect to incur interest payments of approximately $16.1 million due April 2020. If we do not generate enough cash flow from operations to satisfy our debt obligations, we may have to undertake alternative financing plans, such as:

•selling assets;

•dedicating a substantial portion of our cash flow from operations to service our indebtedness, thereby reducing, delaying or eliminating capital investments;

•seeking to raise additional capital, which may or may not be available to us on onerous terms or at all or may be dilutive to our existing stockholders; or

•financing or restructuring our remaining debt.

However, we cannot assure you that we would be able to implement alternative financing plans, if necessary, on commercially reasonable terms or at all, or that undertaking alternative financing plans, if necessary, would allow us to meet our debt obligations and capital requirements or that these actions would be permitted under the terms of our various debt instruments. Our ability to make scheduled payments on, or to refinance, our debt obligations will depend on our financial and operating performance, which is subject to prevailing economic and competitive conditions and certain financial, business and other factors beyond our control. Lower commodity prices and in turn lower demand for our products and services have negatively impacted our revenues, earnings and cash flows, and sustained low oil and natural gas prices could have a further adverse effect on our liquidity position. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business and operations. If we continue to experience operating losses and we are not able to generate additional liquidity, including through our proposed strategic divestitures and other business

operations, then our liquidity needs may exceed availability under our ABL Facility and other facilities that we may enter into in the future, and we might need to secure additional sources of funds, which may or may not be available to us. If we are unable to secure such additional funds, we may not be able to meet our future obligations as they become due. If, for any reason, we are unable to meet our debt service and repayment obligations, we would be in default under the terms of the agreements governing our debt, which would allow our creditors at that time to declare all outstanding indebtedness to be due and payable, which could in turn trigger cross-acceleration or cross-default rights between the relevant agreements. In addition, our lenders could compel us to apply all of our available cash to repay our borrowings, or they could prevent us from making payments on the Senior Notes. If amounts outstanding under our ABL Facility or the Senior Notes were to be accelerated, we cannot be certain that our assets would be sufficient to repay in full the money owed to the lenders or to our other debt holders.

Our ABL Credit Agreement and the indenture governing our Senior Notes impose restrictions on us that may affect our ability to successfully operate our business.

Our ABL Credit Agreement and the indenture governing our Senior Notes impose limitations on our ability to take various actions, such as:

•limitations on the incurrence of additional indebtedness;

•restrictions on mergers, sales or transfers of assets without the lenders’ consent; and

•limitations on dividends and distributions.

In addition, our ABL Credit Agreement, our indenture and our current and future indebtedness may require us to maintain certain financial ratios and to satisfy certain financial conditions, some of which become more restrictive over time and may require us to reduce our debt or take some other action in order to comply with them. The failure to comply with any of these financial conditions, including the financial ratios or covenants, would cause a default under our ABL Credit Agreement, our indenture or future indebtedness. A default under any of our indebtedness, if not waived, could result in the acceleration of such indebtedness or other indebtedness, in which case the debt would become immediately due and payable. In addition, a default or acceleration of any of our indebtedness under any of our indebtedness could result in a default under or acceleration of other indebtedness with cross-default or cross-acceleration provisions. In the event of any acceleration of our indebtedness, we may not be able to pay our debt or borrow sufficient funds to refinance it, and any holders of secured indebtedness may seek to foreclose on the assets securing such indebtedness. Even if new financing is available, it may not be available on terms that are acceptable to us. These restrictions could also limit our ability to obtain future financings, make needed capital expenditures, withstand a downturn in our business or the economy in general, or otherwise conduct necessary corporate activities. We also may be prevented from taking advantage of business opportunities that arise because of the limitations imposed on us by the restrictive covenants under our ABL Credit Agreement, our indenture or future indebtedness or existing limitations on the incurrence of additional indebtedness, including in connection with acquisitions. Please read Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Credit Facility” for a discussion of our ABL Credit Agreement.

A further downgrade in our credit rating could negatively impact our cost of and ability to access capital.

As of December 31, 2019, our long-term debt was rated “Caa1” with a stable outlook by Moody’s Investors Service ("Moody's"). On January 31, 2020, our long-term debt was lowered to “CCC+” with a negative outlook by S&P Global Ratings ("S&P"). Following the C&J Transaction, on March 10, 2020, Moody's and S&P affirmed these ratings. As of the time of filing this Form 10-K, no additional changes in our credit rating have occurred; however, we cannot be assured that our credit ratings will not be further downgraded. Any further downgrade in our credit ratings could negatively impact our cost of capital and could also adversely affect our ability to effectively execute aspects of our strategy or to raise debt in the public debt markets.

While we expect to continue to have access to credit markets, our non-investment grade status may limit our ability to refinance our existing debt, could cause us to refinance or issue debt with less favorable and more restrictive terms and conditions, and could increase certain fees and interest of our borrowings. This could make it significantly more costly for us to borrow money, to issue debt securities, to enter into new credit facilities and to raise certain other types of capital and/or complete additional financings. Our inability to access the capital markets may increase the need for higher levels of cash on hand, which could decrease our ability to repay debt balances, negatively affect our cash flow and impact our access to the inventory and services needed to operate our business. Negative credit rating actions and the reasons for such actions could materially and adversely affect our cash flows, results of operations and financial condition and the market price of, and our ability to pay the principal of and interest on, our debt securities.

We may not have sufficient funds to repurchase the Senior Notes upon a Change of Control as defined therein.

If the transactions contemplated by the Exchange Agreement are followed by a downgrade in our rating by either S&P or Moody’s within 90 days, a “Change of Control” as defined in our Senior Notes will be deemed to have occurred. If the Company experiences such a Change of Control, the Company will be required to offer to purchase the Senior Notes at a purchase price equal to 101% of the principal amount, plus accrued and unpaid interest, if any, to the purchase date. We may not have sufficient funds to repurchase the Senior Notes and may not be able to obtain financing on commercially reasonable terms, or on terms acceptable to us, or at all. Failure to repurchase the Senior Notes as required under the Indenture will constitute an Event of Default (as defined in the Indenture) resulting in acceleration of the principal of and accrued and unpaid interest, if any, on all the Senior Notes.

Variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.

Borrowings under our ABL Facility bear interest at variable rates, exposing us to interest rate risk. If the interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed would remain the same, and our results of operations and cash flows for servicing our indebtedness would decrease.

Our operations are subject to inherent risks, including operational hazards and cyber-attacks. These risks may be self-insured, or may not be fully covered under our insurance policies.

Our operations are subject to hazards inherent in the oil and natural gas industry, such as, but not limited to, accidents, blowouts, explosions, craters, fires and oil spills. These conditions can cause:

•personal injury or loss of life;

•damage to or destruction of property, equipment and the environment; and

•suspension of operations.

The occurrence of a significant event or adverse claim in excess of the insurance coverage that we maintain or that is not covered by insurance could have a material adverse effect on our financial condition and results of operations. In addition, claims for loss of oil and natural gas production and damage to formations can occur in the well services industry. Litigation arising from a catastrophic occurrence at a location where our equipment and services are being used may result in our being named as a defendant in lawsuits asserting large claims.

As is customary in our industry, our service contracts generally provide that we will indemnify and hold harmless our customers from any claims arising from personal injury or death of our employees, damage to or loss of our equipment, and pollution emanating from our equipment and services. Similarly, our customers agree to indemnify and hold us harmless from any claims arising from personal injury or death of their employees, damage to or loss of their equipment, and pollution caused from their equipment or the well reservoir (including uncontained oil flow from a reservoir). Our indemnification arrangements may not protect us in every case. For example, from time to time we may enter into contracts with less favorable indemnities or perform work without a contract that protects us. In addition, our indemnification rights may not fully protect us if the customer is insolvent or becomes bankrupt, does not maintain adequate insurance or otherwise does not possess sufficient resources to indemnify us. In addition, our indemnification rights may be held unenforceable in some jurisdictions. For instance, certain states, including Texas, Louisiana, New Mexico and Wyoming, have enacted statutes generally referred to as “oilfield anti-indemnity acts” expressly prohibiting certain indemnity agreements contained in or related to oilfield services agreements. Our inability to fully realize the benefits of our contractual indemnification protections could result in significant liabilities and could adversely affect our financial condition, results of operations and cash flows.

We maintain insurance coverage that we believe to be customary in the industry against many of these hazards. However, we do not have insurance against all foreseeable risks, including cybersecurity risks, either because insurance is not available or because of the high premium costs. As such, not all of our property is insured. We are also self-insured up to retention limits with regard to workers’ compensation, general liability, and medical and dental coverage. We maintain accruals in our consolidated balance sheets related to self-insurance retentions by using third-party data and historical claims history. The occurrence of an event not fully insured against, or the failure of an insurer to meet its insurance obligations, could result in substantial losses. In addition, we may not be able to maintain adequate insurance in the future at rates we consider reasonable. Insurance may not be available to cover any or all of the risks to which we are subject, or, even if available, it may be inadequate, or insurance premiums or other costs could rise significantly in the future so as to make such insurance prohibitively expensive. It is likely that, in our insurance renewals, our premiums and deductibles will be higher, and certain insurance coverage either will be unavailable or considerably more expensive than it has been in the recent past. In addition,

our insurance is subject to coverage limits, and some policies exclude coverage for damages resulting from environmental contamination.

We may not be successful in implementing and maintaining technology development and enhancements. New technology may cause us to become less competitive.

The oilfield services industry is subject to the introduction of new drilling and completion techniques and services using new technologies, some of which may be subject to patent protection. Our competitors may develop or acquire the right to use new technologies not available to us, which may place us at a competitive disadvantage. In addition, we may face competitive pressure to implement or acquire new technologies at a substantial cost. Some of our competitors have greater resources that may allow them to implement new technologies before we can. Our inability to develop and implement new technologies or products on a timely basis and at competitive cost could have a material adverse effect on our financial position and results of operations.

We are subject to environmental, health and safety laws and regulations that may expose us to significant liabilities for penalties, damages or costs of remediation or compliance.

Our operations are subject to federal, regional, state, local and tribal laws and regulations relating to protection of natural resources and the environment, health and safety aspects of our operations and waste management, including the storage, transportation and disposal of waste and other materials. These laws and regulations may impose numerous obligations on our operations, including the acquisition of permits to conduct regulated activities, the incurrence of capital or other substantial expenditures to mitigate or prevent releases of materials from our facilities, the imposition of substantial liabilities for pollution resulting from our operations and the application of specific health and safety criteria addressing worker protection and public health and safety. Regulations concerning equipment certification also create an ongoing need for regular maintenance. Failure to comply with these laws and regulations could result in investigations, restrictions or orders suspending well or other service operations, the assessment of administrative, civil and criminal penalties, the revocation of permits and the issuance of corrective action orders, any of which could have a material adverse effect on our business, results of operations and financial condition.

There is inherent risk of environmental costs and liabilities in our business as a result of our handling of petroleum hydrocarbons and oilfield and industrial wastes, air emissions and wastewater discharges related to our operations, and historical industry operations and waste disposal practices. Our water logistics segment includes disposal operations into injection wells that pose risks of seismic activity and environmental liability, including leakage from the wells to surface or subsurface soils, surface water or groundwater. Some environmental laws and regulations may impose strict liability, which means that in some situations, we could be exposed to liability as a result of our conduct that was without fault or lawful at the time it occurred or as a result of the conduct of, or conditions caused by, prior operators or other third parties. Clean-up costs and other damages arising as a result of environmental laws and costs associated with past operations or changes in environmental laws and regulations could be substantial and could have a material adverse effect on our financial condition and results of operations.

We operate as a motor carrier and therefore are subject to regulation by the U.S. Department of Transportation and by various state agencies and other regulatory authorities. These regulatory authorities exercise broad powers, governing activities such as the authorization to engage in motor carrier operations and regulatory safety and hazardous materials manifesting, labeling, placarding and marking. There are additional regulations specifically relating to the trucking industry, including testing and specification of equipment and product handling requirements. In addition, the trucking industry is subject to possible regulatory and legislative changes that may affect the economics of the industry by requiring changes in operating practices or by changing the demand for common or contract carrier services or the cost of providing truckload services. Some of these possible changes include increasingly stringent environmental regulations, changes in the hours of service regulations which govern the amount of time a driver may drive in any specific period, requirements for recording devices or electronic logging devices or limits on vehicle weight and size.

Laws protecting the environment generally have become more stringent over time and could continue to do so, which could lead to material increases in costs for future environmental compliance and remediation. The modification or interpretation of existing laws or regulations, or the adoption of new laws or regulations, could curtail exploratory or developmental drilling for oil and natural gas and production of oil and natural gas and could limit well servicing opportunities. We may not be able to recover some or any of our costs of compliance with these laws and regulations from insurance.

Please read Items 1 and 2. “Business and Properties — Environmental Regulation and Climate Change” for more information on the environmental laws and government regulations that are applicable to us.

We may not be able to grow successfully through future acquisitions or successfully manage future growth, and we may not be able to effectively integrate the businesses we do acquire.

Our business strategy includes growth through the acquisitions of other businesses. We may not be able to continue to identify attractive acquisition opportunities or successfully acquire identified targets. In addition, we may not be successful in integrating our current or future acquisitions into our existing operations, which may result in unforeseen operational difficulties or diminished financial performance or require a disproportionate amount of our management’s attention. Even if we are successful in integrating our current or future acquisitions into our existing operations, we may not derive the benefits, such as operational or administrative synergies, that we expected from such acquisitions, which may result in the commitment of our capital resources without the expected returns on such capital. Furthermore, competition for acquisition opportunities may escalate, increasing our cost of making further acquisitions or causing us to refrain from making additional acquisitions. We may also be limited in our ability to incur additional indebtedness in connection with or to fund future acquisitions under our credit agreements.

Whether we realize the anticipated benefits from an acquisition, including the recent C&J Transaction, depends, in part, upon our ability to integrate the operations of the acquired business, the performance of the underlying product and service portfolio, and the performance of the management team and other personnel of the acquired operations. Accordingly, our financial results could be adversely affected from unanticipated performance issues, legacy liabilities, transaction-related charges, amortization of expenses related to intangibles, charges for impairment of long-term assets, credit guarantees, partner performance and indemnifications. While we believe that we have established appropriate and adequate procedures and processes to mitigate these risks, there is no assurance that these transactions will be successful.

We may not be able to successfully integrate the business of CJWS in the expected timeframe. This could adversely affect our future results. If our intended expansion of our business is not successful, our business, financial condition and results of operations could be materially adversely affected, and we may not achieve the increases in revenue and profitability that we hope to realize.

Following the C&J Transaction, our success will depend, in large part, on our ability to realize the anticipated benefits from purchasing the business of CJWS.

An inability to manage the challenges presented by the integration process may result in our failure to realize all of the anticipated benefits of the C&J Transaction.

Potential difficulties that may be encountered in the integration process include the following:

•greater than expected strain on the Company’s cash position;

•appropriately managing our liabilities;

•potential unknown operational difficulties, such as inability to retain C&J personnel or customers;

•performance shortfalls as a result of the diversion of management’s attention caused by focusing on the integration of operations following the C&J Transaction.

A key element of our business strategy involves the expansion of the services we will provide to our customer base. This aspect of our business strategy is subject to numerous uncertainties, including:

•our ability to retain or hire experienced crews and other personnel;

•the amount of customer demand for the services we intend to provide;

•our ability to secure necessary equipment, materials or technology to successfully execute our expansion objective; and

•any shortages of water used in our hydraulic fracturing operations;

Encountering any of these or any unforeseen problems in implementing our planned expansion of the services we offer could have a material adverse impact on our ability to compete, business, financial condition and results of operations, and could prevent us from achieving the increases in revenues and profitability that we hope to realize.

Following the completion of the Exchange Transaction, Ascribe has voting control over the Company.

Upon completion of the Exchange Transaction, Ascribe will collectively beneficially controls a majority of the combined voting power of all classes of our outstanding voting stock. Additionally, in connection with the Exchange Agreement, the Company and Ascribe entered into a Stockholders Agreement. As contemplated by the Stockholders Agreement, simultaneously with the closing of the transactions contemplated by the Exchange Agreement, the board of directors was reconstituted from six directors to seven directors, comprised of (i) three Class I Directors, (ii) two Class II Directors, and (iii) two Class III Directors. Additionally, effective as of the closing of the C&J Transaction, each of Messrs. Timothy H. Day and Samuel E. Langford resigned from the Board and (a) Lawrence First was appointed as a Class I Director, (b) Derek Jeong was appointed as a Class II Director and (c)

Ross Solomon was appointed as a Class III Director. Pursuant to the terms of the Stockholders Agreement, following the closing of the C&J Transaction and until the Board Rights Termination Date, Ascribe is entitled to designate for nomination for election to the board of directors all members of the board of directors, provided that such designations must be made in a manner to ensure that at all times the board of directors is comprised of at least two independent directors. In addition, the Stockholders Agreement provides that certain actions of the Company and its subsidiaries require approval of a special committee of the board of directors comprised solely of at least two independent directors.

As a result, Ascribe may control all matters that require stockholder approval, as well as its management and affairs. For example, Ascribe may unilaterally approve the election of directors, changes to our organizational documents, and any merger, consolidation or sale of all or substantially all of our assets. This concentration of ownership makes it unlikely that any other holder or group of holders of our common stock will be able to affect the way the Company is managed or the direction of its business. The interests of Ascribe with respect to matters potentially or actually involving or affecting the Company, such as future acquisitions, financings and other corporate opportunities and attempts to acquire the Company, may conflict with the interests of our other stockholders. In addition, this concentration of ownership control may:

• delay, defer or prevent a change in control;

• entrench its management and the board of directors; or

• impede a merger, consolidation, takeover or other business combination involving the Company that other stockholders may desire.

Ascribe’s concentration of stock ownership may adversely affect the trading price of our common stock to the extent investors perceive a disadvantage in owning stock of a company with significant stockholders.

We may not be able to execute previously-announced dispositions or may incur a loss on such dispositions.

On December 10, 2019, our board of directors approved a plan to divest our pressure pumping assets, not inclusive of coiled tubing, in one or more transactions. While the divestiture is designed to strengthen our remaining production businesses of well servicing and water logistics, we may not be able to successfully negotiate definitive agreements and consummate the contemplated dispositions on terms favorable to us, or may incur a loss on such dispositions. Additionally, the contemplated dispositions or the announcement of the plan of disposition may disrupt our operations and could have a material adverse effect on our results of operations.

We depend on several significant customers, and a loss of one or more significant customers could adversely affect our results of operations.

Our customers consist primarily of major and independent oil and gas companies. During each of 2019 and 2018, our top five customers accounted for 26% and 24% of our revenues, respectively. One individual customer comprised 12% of our revenues in 2019. The loss of any one of our largest customers or a sustained decrease in demand by any of such customers could result in a substantial loss of revenues and could have a material adverse effect on our results of operations.

If our customers delay paying or fail to pay a significant amount of our outstanding receivables, it could have a material adverse effect on our liquidity, consolidated results of operations, and consolidated financial condition.

In most cases, we bill our customers for our services in arrears and are, therefore, subject to our customers delaying or failing to pay our invoices. In weak economic environments, we may experience increased delays and failures due to, among other reasons, a reduction in our customers’ cash flow from operations and their access to the credit markets. In addition, customers who are more highly leveraged or otherwise unable to pay their creditors in the ordinary course of business may become insolvent or be unable to operate as a going concern. We may be unable to collect amounts due or damages we are awarded from these customers, and our efforts to collect such amounts may damage our customer relationships. If our customers delay paying or fail to pay us a significant amount of our outstanding receivables, it could have a material adverse effect on our liquidity, consolidated results of operations, and consolidated financial condition.

Our industry has experienced a high rate of employee turnover. Any difficulty we experience replacing or adding personnel could adversely affect our business.

We may not be able to find enough skilled labor to meet our needs, which could limit our growth. Our business activity historically decreases or increases with the prices of oil and natural gas. In addition, we compete with other oilfield services businesses and other employers to attract and retain qualified personnel with the requisite technical skills and experience. We are also subject to the Fair Labor Standards Act, which governs such

matters as minimum wage, overtime and other working conditions, which can increase our labor costs or subject us to liabilities to our employees. We may have problems finding enough skilled and unskilled laborers in the future if the demand for our services increases. A shortage in the labor pool of skilled workers or other general inflationary pressures or changes in applicable laws and regulations could make it more difficult for us to attract and retain personnel and could require us to enhance our wage and benefits packages. If we are not able to increase our service rates sufficiently to compensate for wage rate increases, our operating results may be adversely affected.

Other factors may also inhibit our ability to find enough workers to meet our employment needs. Our services require skilled workers who can perform physically demanding work. As a result of our industry volatility and the demanding nature of the work, workers may choose to pursue employment in fields that offer a more desirable work environment at wage rates that are competitive with ours. We believe that our success is dependent upon our ability to continue to employ and retain skilled technical personnel. Our inability to employ or retain skilled technical personnel generally could have a material adverse effect on our operations.

Our success depends on key members of our management, the loss of any of whom could disrupt our business operations.

We depend to a large extent on the services of some of our executive officers. These individuals possess extensive expertise, talent and leadership. The loss of the services of our key personnel could disrupt our operations. Although we have entered into employment agreements with our executive officers that contain, among other provisions, non-compete agreements, we may not be able to enforce the non-compete provisions in the employment agreements.

Our business could be negatively affected by cybersecurity threats and other disruptions.

We rely heavily on information systems to conduct and protect our business. These information systems are increasingly subject to sophisticated cybersecurity threats such as unauthorized access to data and systems, loss or destruction of data (including confidential customer information), computer viruses, or other malicious code, phishing and cyber-attacks, and other similar events. These threats arise from numerous sources, not all of which are within our control, including fraud or malice on the part of third parties, accidental technological failure, electrical or telecommunication outages, failures of computer servers or other damage to our property or assets, or outbreaks of hostilities or terrorist acts. While we attempt to mitigate these risks, we remain vulnerable to additional known or unknown threats.

Given the rapidly evolving nature of cyber threats, there can be no assurance that the systems we have designed and implemented to prevent or limit the effects of cyber incidents or attacks will be sufficient in preventing all such incidents or attacks, or avoiding a material impact to our systems when such incidents or attacks do occur. A cyber incident or attack could result in the disclosure of confidential or proprietary customer information, theft or loss of intellectual property, damage to our reputation with our customers and the market, temporary disruptions of service, failure to meet customer requirements or customer dissatisfaction, theft or exposure to litigation, damage to equipment (which could cause environmental or safety issues) and other financial costs and losses. In addition, as cybersecurity threats continue to evolve, we may be required to devote additional resources to continue to enhance our protective measures or to investigate or remediate any cybersecurity vulnerabilities. We do not presently maintain insurance coverage to protect against cybersecurity risks. If we procure such coverage in the future, we cannot ensure that it will be sufficient to cover any particular losses we may experience as a result of such cyber-attacks. A cyber-related attack could adversely impact our operating results and result in other negative consequences, including damage to our reputation or competitiveness, remediation or increased protection costs, litigation or regulatory action.

Adverse weather conditions may affect our operations.

Our operations may be materially affected by severe weather conditions in areas where we operate. Some of these areas are adversely affected by seasonal weather conditions, primarily in the winter and spring. During periods of heavy snow, ice or rain, we may be unable to move our equipment between locations, thereby reducing our ability to provide services and generate revenues. Extended drought conditions in our operating regions could impact our ability or our customers’ ability to source sufficient water or increase the cost for such water. Severe weather, such as blizzards, tornadoes, droughts, flooding, extreme temperatures and hurricanes may cause evacuation of personnel, curtailment of services and suspension of operations, and loss of or damage to equipment and facilities. Damage from any adverse weather conditions could delay our operations and adversely affect our financial condition, results of operations and cash flows.

Weather conditions may also affect the price of crude oil and natural gas, and related demand for our services. Please read the risk factor above, “If oil and natural gas prices remain volatile, or if oil or natural gas prices remain low or decline further, the demand for our services could be adversely affected.”

The rapid spread of a contagious illness, including the recent spread of the COVID-19 or novel coronavirus, or fear of such an event, may adversely affect our business, operations and financial condition.

Our business could be adversely affected by a widespread outbreak of contagious disease, including the recent outbreak of respiratory illness caused by a novel coronavirus. As the coronavirus outbreak is still evolving, much of its international and domestic impact remains unknown. If our customers, commodity markets or the U.S. or global economy is negatively impacted, we may experience a lower demand for our services. In addition, our reliance on third-party supplier, contractors, and service providers exposes us to possibility of delay or interruption of our operations. It is impossible to predict the effect of the continued spread, or fear of continued spread, of the coronavirus globally. Should the coronavirus continue to spread globally or within the U.S., our business, financial condition and results of operations could be materially and adversely impacted.

Climate change legislation or regulations restricting or regulating emissions of greenhouse gases could result in increased operating costs and reduced demand for our field services.

In response to studies finding that emissions of carbon dioxide, methane and other greenhouse gases (“GHGs”) from industrial and energy sources contribute to increases of carbon dioxide levels in the earth’s atmosphere and oceans and contribute to global warming and other environmental effects, Environmental Protection Agency (“EPA”) has adopted various regulations under the federal Clean Air Act addressing emissions of GHGs that may affect the oil and gas industry. In 2012 the EPA published a final rule, known as New Source Performance Standards (“NSPS”) Subpart OOOO, that include standards to reduce volatile organic compound (“VOC”) emissions associated with oil and natural gas production. In June 2016, the EPA also published a final rule, known as NSPS Subpart OOOOa, to reduce methane and additional VOC emissions from oil and natural gas facilities that were constructed, reconstructed or modified after September 18, 2015. The rules and the EPA’s subsequent actions to reconsider and propose stays of the rules have been heavily litigated, and in October 2018, the EPA released proposed revisions to some of the 2016 requirements, including reducing the required frequency of fugitive emissions monitoring at wellsites and compressor stations. As recently as August 2019, the EPA has proposed modifications to the NSPS Subparts OOOO and OOOOa rules—for example, proposing to remove sources in the transmission and storage segment of the oil and natural gas industry from regulation under NSPS Subparts OOOO and OOOOa and to rescind methane requirements for all production and processing sources in the oil and natural gas industry or, alternatively, rescind all methane requirements under the rules without removing any sources from the oil and natural gas source category. These proposed revisions have not yet been finalized and, as a result the EPA’s 2012 and 2016 standards are currently in effect. Accordingly, future implementation and the ultimate scope of the 2012 and 2016 standards are uncertain at this time. Federal changes will affect state air permitting programs in states that administer the federal Clean Air Act under a delegation of authority, including states in which we have operations.

Numerous legislative measures have been introduced in the past that would have imposed restrictions or costs on GHG emissions, including from the oil and gas industry. Additionally, in 2010, EPA promulgated final rules for mandatory annual reporting of GHGs from certain onshore oil and natural gas production, processing, transmission, storage, and distribution facilities, as well as from facilities in other industries. In addition, the United States has been involved in international negotiations regarding GHG reductions under the United Nations Framework Convention on Climate Change, which led to the signing of the Paris Agreement in December 2015. Although the Paris Agreement became effective in November 2016, in August 2017, the U.S. State Department informed the United Nations of its intent to withdraw from the Paris Agreement, and in November 2019, the U.S. took another step toward withdrawal by submitting a formal notice of its withdrawal to the United Nations. Notably, the earliest date of withdrawal under the terms of the Agreement is November 4, 2020, one day after the 2020 U.S. Presidential election. Additionally, certain U.S. states or regional coalitions of states have adopted measures regulating or limiting greenhouse gases from certain sources or have adopted policies seeking to reduce overall emissions of greenhouse gases. The adoption and implementation of any international treaty or of any federal or state legislation or regulations imposing new or additional reporting obligations on, or limiting emissions of GHGs from our equipment and operations could require us to incur costs to comply with such requirements and possibly require the reduction or limitation of emissions of greenhouse gases associated with our operations and other sources within the industrial or energy sectors. Such legislation or regulations could adversely affect demand for the production of oil and natural gas and thus reduce demand for the services we provide to oil and natural gas producers as well as increase our operating costs by requiring additional costs to operate and maintain equipment and facilities, install emissions controls, acquire allowances or pay taxes and fees relating to emissions, which could adversely affect our results of operations.

Recently, activists concerned about the potential effects of climate change have directed their attention at sources of funding for fossil-fuel energy companies, which has resulted in certain financial institutions, funds and

other sources of capital restricting or eliminating their investment in oil and natural gas activities. Ultimately, this could make it more difficult for our customers to secure funding for exploration and production activities, which could reduce demand for our services. Notwithstanding potential risks related to climate change, the International Energy Agency estimates that global energy demand will continue to rise and will not peak until after 2040 and that oil and natural gas will continue to represent a substantial percentage of global energy use over that time. Finally, it should be noted that some scientists have concluded that increasing concentrations of GHGs may produce changes in climate or weather, such as increased frequency and severity of storms, floods and other climatic events, which if any such effects were to occur, could have adverse physical effects on our operations, physical assets and field services to exploration and production operators.

Federal, state and local legislative and regulatory initiatives related to hydraulic fracturing could result in operating restrictions or delays in the completion of oil and natural gas wells that may reduce demand for our well servicing activities and could adversely affect our financial position, results of operations and cash flows.

We provide hydraulic fracturing and fluid handling services to our customers. Hydraulic fracturing is a commonly used process that involves injection of water, sand, and certain chemicals to fracture the hydrocarbon-bearing rock formation to allow flow of hydrocarbons into the wellbore. The federal Energy Policy Act of 2005 amended the Underground Injection Control (“UIC”) provisions of the federal Safe Drinking Water Act (“SDWA”) to expressly exclude certain hydraulic fracturing practices from the definition of “underground injection.” The EPA has asserted regulatory authority over certain hydraulic fracturing activities involving diesel fuel and published proposed guidance relating to such practices. At the state level, several states in which we operate have adopted regulations requiring the disclosure of certain information regarding hydraulic fracturing fluids.

Scrutiny of hydraulic fracturing activities continues in other ways, as the EPA released its report on environmental impacts of hydraulic fracturing in December 2016, concluding that hydraulic fracturing could impact drinking water resources. The federal Bureau of Land Management (“BLM”), an agency of the U.S. Department of the Interior published a final rule in March 2015 relating to the use of hydraulic fracturing techniques on public lands and disclosure of fracturing fluid constituents. However, in June 2016, a Wyoming federal judge struck down this final rule, finding that the BLM lacked authority to promulgate the rule. The BLM appealed the decision to the U.S. Court of Appeals for the Tenth Circuit in July 2016, and the appellate court issued a ruling in September 2017 to vacate the Wyoming trial court decision and dismiss the lawsuit challenging the 2015 rule in response to the BLM’s issuance of a proposed rulemaking to rescind the 2015 rule. In December 2017, the BLM published a final rule rescinding the March 2015 rule. However, in January 2018, litigation challenging the BLM’s rescission of the 2015 rule was brought in federal court, and a hearing on cross-motions for summary judgement was held in the District Court for the Northern District of California in January of 2020. These BLM hydraulic fracturing rules are in various stages of suspension, implementation, delay, rescission, and court challenges; accordingly, the future implementation and ultimate scope of these rules is uncertain. The EPA also issued a final rule prohibiting the discharge of wastewater resulting from hydraulic fracturing activities into publicly owned wastewater treatment plants in June 2016. In addition, some states and localities have adopted, and others are considering adopting, regulations or ordinances that could restrict hydraulic fracturing in certain circumstances, that would require, with some exceptions, disclosure of constituents of hydraulic fracturing fluids, or that would impose higher taxes, fees or royalties on natural gas production. Recent research has linked disposal of produced water into disposal wells to an increase in earthquakes across the South and Midwest. Certain state agencies, including those in Texas and Oklahoma, have implemented regulations authorizing the imposition of certain limitations on existing wells if seismic activity increases in the area of an injection well, including a temporary injection ban. For example, in Oklahoma, the Oklahoma Corporations Commission (“OCC”) has implemented a variety of measures, including the adoption of the National Academy of Science’s “traffic light system,” pursuant to which the agency reviews new disposal well applications and may restrict operations at existing wells. Beginning in 2013, the OCC has ordered the reduction of disposal volumes into the Arbuckle formation. More recently, the OCC directed the shut in of a number of disposal wells due to increased earthquake activity in the Arbuckle formation and imposed further disposal well volume reductions in the Covington, Crescent, Enid, and Edmond areas. Moreover, vigorous public debate over hydraulic fracturing and shale gas production continues, and has resulted in delays of well permits in some areas.

Further, several cases have recently put a spotlight on the issue of whether injection wells may be regulated under the Clean Water Act (“CWA”) if a direct hydrological connection to a jurisdictional surface water can be established. The split among federal circuit courts of appeals that decided these cases engendered two petitions for writ of certiorari to the United States Supreme Court in August 2018, one of which was granted in February 2019. Oral arguments were presented to the Supreme Court in November 2019, and the Court is expected to rule sometime this year (2020). EPA has also brought attention to the reach of the CWA’s jurisdiction in such instances by issuing a request for comment in February 2018 regarding the applicability of the CWA permitting program to

discharges into groundwater with a direct hydrological connection to jurisdictional surface water, which hydrological connections should be considered “direct,” and whether such discharges would be better addressed through other federal or state programs. In a statement issued by EPA in April 2019, the Agency concluded that the CWA should not be interpreted to require permits for discharges of pollutants that reach surface waters via groundwater. But should the Supreme Court rule that CWA permitting is required for saltwater injections wells, the costs of permitting and compliance for our injection well operations could increase.

Increased regulation and attention given to the hydraulic fracturing process could lead to greater opposition, including litigation, to oil and gas production activities using hydraulic fracturing techniques. Additional legislation or regulation at the federal, state, tribal or local level could also lead to operational delays or increased operating costs in the production of oil and natural gas, including from the developing shale plays, incurred by our customers or could make it more difficult to perform hydraulic fracturing. The adoption of any federal, state, tribal or local laws or the implementation of regulations or ordinances restricting or increasing the costs of hydraulic fracturing could potentially increase our costs of operations and cause a decrease in the completion of new oil and natural gas wells and an associated decrease in demand for our well servicing activities, any or all of which could adversely affect our financial position, results of operations and cash flows.

Potential listing of species as “threatened” or “endangered” under the federal Endangered Species Act could result in increased costs and new operating restrictions or delays on our oil and natural gas exploration and production customers, which could adversely reduce the amount of contract drilling services that we provide to such customers.

The federal Endangered Species Act (the "ESA") and analogous state laws regulate a variety of activities, including oil and gas development, which could have an adverse effect on species listed as threatened or endangered under the ESA or their habitats. The designation of previously unidentified endangered or threatened species could cause oil and natural gas exploration and production operators to incur additional costs or become subject to operating delays, restrictions or bans in affected areas, which impacts could adversely reduce the amount of drilling activities in affected areas, including support services that we provide to such operators under our contract drilling services segment. Numerous species have been listed or proposed for protected status in areas in which we provide or could in the future provide field services. Certain wildflower species, among others, are also species that have been or are being considered for protected status under the ESA and whose range can coincide with oil and natural gas production activities. The presence of protected species in areas where operators to whom we provide contract drilling services conduct exploration and production operations could impair such operators’ ability to timely complete well drilling and development and, consequently, adversely affect the amount of contract drilling or other field services that we provided to such operators, which reduction of services could have a significant adverse effect on our results of operations and financial position.

Limitations or restrictions on our ability to obtain, dispose of or treat water may impact the services that we can provide to our customers.

Our water logistics operations involve the supply of significant amounts of water for drilling and hydraulic fracturing, treatment of produced and flowback water, and disposal of a variety of fluids. Limitations or restrictions on our ability to obtain water from local sources, such as restrictions that could be imposed during extreme drought conditions, may require us to find remote sources of water and transport that water to our service locations. In addition, treatment and disposal of such water after use is becoming more highly regulated and restricted, as discussed in more detail above. Thus, costs for obtaining, treating, and disposing of water could increase significantly, potentially limiting the services that we can provide to our customers. This could have an adverse effect on our business, financial condition, results of operations and cash flow.

Diminished access to functional salt water disposal wells may adversely affect operations.

Fracking results in large volumes of produced water, much of which must be disposed of. The resulting water, which is referred to as salt water, contains significant contaminants and must be handled carefully and disposed of properly. Most salt water is disposed of at specialty disposal sites where the salt water is injected by way of a salt water disposal well into natural underground formations. If our salt water disposal wells are damaged, then salt water may contaminate the water supply in underground aquifers. As a result, we may face civil, criminal and administrative penalties by local, state and federal regulatory authorities. Such penalties may have an adverse effect on our business, financial condition, results of operations and cash flows.

Our ability to use net operating losses and credit carry-forwards to offset future taxable income for U.S. federal income tax purposes may be limited as a result of issuances of equity or other transactions.

In general, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net

operating losses (“NOLs”), Section 163(j) disallowed interest carryforwards, recognized built in losses, and certain tax credits to offset future taxable income and tax. In general, an ownership change occurs if the aggregate stock ownership of certain stockholders changes by more than 50 percentage points over such stockholders’ lowest percentage ownership during the testing period (generally three years).

In connection with our emergence from our Chapter 11 Cases, we experienced an ownership change for the purposes of Section 382 of the Code. The ownership changes have not resulted in the expiration or limitation of any NOLs generated prior to the emergence date. However, any subsequent ownership changes under the provisions of Section 382 could eliminate, substantially limit or otherwise adversely affect the use of our NOLs in future periods. The amount of consolidated federal NOLs available as of December 31, 2019 is approximately $900.7 million.

Recently enacted U.S. tax legislation, as well as future U.S. tax legislation, may adversely affect our business, results of operations, financial condition and cash flow.

The Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017, which made significant changes to U.S. federal income tax laws. The Tax Act made broad and complex changes to the U.S. tax code which includes, among other things, reducing the U.S. corporate income tax rate to 21%, limiting the potential deductibility of business interest expense and net operating losses, limiting the deductibility for certain types of executive compensation, and allowing for the immediate tax deduction of certain new investments instead of deductions for tax depreciation over time. Although we have estimated the impact of the Tax Act by incorporating assumptions based upon our current interpretation and analysis to date, the Tax Act is complex, far-reaching and is in a state of being clarified by regulation. Consequently, our analysis of the actual impact of its enactment on us is ongoing and subject to change as provisions of the Tax Act are clarified by regulation. Accordingly, either future regulations under the Tax Act or our further analysis of the Tax Act could have an adverse effect on our business, results of operations, financial condition and cash flow.

Risks Relating to Ownership of Our Common Stock or Warrants

Our Second Amended and Restated Certificate of Incorporation and Second Amended and Restated Bylaws, as well as Delaware law, contain provisions that could discourage acquisition bids or merger proposals, which may adversely affect the market price of our common stock.

Our Second Amended and Restated Certificate of Incorporation authorizes our board of directors to issue preferred stock without stockholder approval. If our board of directors elects to issue preferred stock, it could be more difficult for a third party to acquire us. In addition, some provisions in our Second Amended and Restated Certificate of Incorporation and Second Amended and Restated Bylaws could make it more difficult for a third party to acquire control of us, even if the change of control would be beneficial to our stockholders, including:

•a classified board of directors, so that only approximately one third of our directors are elected each year;

•limitations on the removal of directors;

•the prohibition of stockholder action by written consent;

•limitations on the ability of our stockholders to call special meetings; and

•advance notice provisions for stockholder proposals and nominations for elections to the board of directors to be acted upon at meetings of stockholders.

Delaware law prohibits us from engaging in any business combination with any “interested stockholder,” meaning generally that a stockholder who beneficially owns more than 15% of our stock cannot acquire us for a period of three years from the date this person became an interested stockholder, unless various conditions are met, such as approval of the transaction by our board of directors.

We are a "smaller reporting company" and, as a result of the reduced disclosure and governance requirements applicable to smaller reporting companies, our common stock may be less attractive to investors.

We are a “smaller reporting company,” within the meaning of the Exchange Act. As a “smaller reporting company,” we are subject to lesser disclosure obligations in our SEC filings compared to other issuers. Specifically, “smaller reporting companies” are able to provide simplified executive compensation disclosures in their filings, are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting, and have certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports. Decreased disclosures in our SEC

filings due to our status a “smaller reporting company” may make it harder for investors to analyze our operating results and financial prospects and make our common stock less attractive to investors.

Because we have no plans to pay dividends on our common stock, investors must look solely to stock appreciation for a return on their investment in us.

We do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently intend to retain all future earnings to fund the development and growth of our business. Any payment of future dividends will be at the discretion of our board of directors and will depend on, among other things, our earnings, financial condition, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends and other considerations that the board of directors deems relevant. Investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize a return on their investment. Investors seeking cash dividends should not purchase our common stock.

The transition of our common stock to the OTCQX® Best Market tier of the OTC Markets Group Inc. may have a negative impact on the market price of our common stock.

On December 17, 2019, the New York Stock Exchange (“NYSE”) filed a Form 25 to delist our common stock from the NYSE. Effective December 3, 2019, our common stock began trading on the OTCQX® Best Market tier of the OTC Markets Group Inc. Securities traded in over-the-counter markets generally have substantially less volume and liquidity than securities traded on a national securities exchange such as the NYSE as a result of various factors, including the reduced number of investors that will consider investing in the securities, fewer market makers in the securities and a reduction in securities analyst and news media coverage. As a result, holders of our common stock may have difficulty selling their shares and our stock price could experience additional downward pressure. Furthermore, the price of our common stock could be subject to greater volatility and could be more likely to be affected by market conditions and fluctuations, changes in our operating results, market perception of us and our business, and announcements by us or other parties with an interest in our business. The lack of liquidity in our common stock may also make it difficult for us to issue additional securities for financing or other purposes, or to otherwise arrange for any financing we may need in the future. The delisting of our common stock from the NYSE could negatively impact us by (i) reducing the liquidity and market price of our common stock; (ii) reducing the number of investors willing to hold or acquire our common stock, which could negatively impact our ability to raise equity financing; (iii) impacting our ability to use a registration statement to offer and sell freely tradable securities, thereby preventing or limiting us from accessing the public capital markets; and (iv) impairing our ability to provide equity incentives to our employees.

Our outstanding warrants are exercisable for shares of our common stock. The exercise of such equity instruments could have a dilutive effect to stockholders of the Company.

We currently have outstanding warrants that are exercisable into 2,066,576 shares of our common stock at an initial exercise price of $55.25 per warrant. The exercise of these warrants into our common stock could have a dilutive effect to the holdings of our existing stockholders. However, as long as our stock price is below $55.25 per share, the warrants will have limited economic value, and they may expire worthless. In addition, the warrant agreement provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but requires the approval by the holders of at least a certain percentage of the then-outstanding warrants originally issued to make any change that adversely affects the interests of the holders. Accordingly, we may amend the terms of the warrants in a manner adverse to a holder if holders of at least a certain percentage of the then outstanding warrants approve of such amendment. The warrants will not expire until December 23, 2023 and may create an overhang on the market for, and have a negative effect on the market price of, our common stock.

Future sales or the availability for sale of substantial amounts of our common stock, or the perception that these sales may occur, or the issuance of stock as consideration for a future acquisition, could adversely affect the trading price of our common stock and could impair our ability to raise capital through future sales of equity securities.

Our Second Amended and Restated Certificate of Incorporation authorizes us to issue 80,000,000 shares of common stock, of which an estimated 24,983,699 shares of common stock were outstanding as of March 12, 2020. This number includes shares issued in connection with our emergence from bankruptcy, almost all of which are freely transferable without restriction or further registration pursuant to Section 1145 of the Bankruptcy Code. We also have 2,481,657 and 500,000 shares of common stock authorized for issuance as equity awards under the Basic Energy Services, Inc. 2019 Long Term Incentive Plan and Non-Employee Director Incentive Plan, respectively. As of March 6, 2020, 235,276 shares are issuable pursuant to outstanding options and 578,593 shares are issuable pursuant to outstanding restricted stock and restricted stock unit awards.

A large percentage of our shares of common stock are held by a relatively small number of investors. We entered into a registration rights agreement, (the “Registration Rights Agreement”) with certain of those investors pursuant to which we filed a registration statement with the SEC to facilitate potential future sales of such shares by them. Sales of a substantial number of shares of our common stock in the public markets, or even the perception that these sales might occur, could impair our ability to raise capital through a future sale of, or pay for acquisitions using, our equity securities and may adversely affect the trading price of our common stock.

We may issue shares of our common stock or other securities from time to time as consideration for future acquisitions and investments. If any such acquisition or investment is significant, the number of shares of our common stock, or the number or aggregate principal amount, as the case may be, of other securities that we may issue may in turn be substantial. We may also grant registration rights covering those shares of our common stock or other securities in connection with any such acquisitions and investments.

We cannot predict the effect that future sales of our common stock will have on the price at which our common stock trades or the size of future issuances of our common stock or the effect, if any, that future issuances will have on the market price of our common stock. Sales of substantial amounts of our common stock, or the perception that such sales could occur, or the issuance of stock as consideration for a future acquisition may adversely affect the trading price of our common stock.

Following the completion of the Exchange Transaction the voting power of holders of our common stock was substantially diluted. Percentage ownership of holders of our common stock may also be significantly diluted.

Pursuant to the Exchange Agreement, as partial consideration for the Exchange Transaction, the Company issued to Ascribe 118,805 shares of newly issued Series A Preferred Stock of the Company, which constituted 83% of the equity interest in the Company. Each share of the newly issued Series A Preferred Stock entitles the holder to 1,000 votes (the vote number may be adjusted from time to time as provided in the Certificate of Designations) on all matters submitted to a vote of the holders of common stock, voting together as a single class. As a result, the voting rights of common stock holders have been substantially reduced.

Additionally, each share of Series A Preferred Stock may be converted into a number of shares of common stock of the Company equal to the product of (i) the number of shares of Series A Preferred Stock being so converted and (ii) the Conversion Multiple, which initially shall be 1,000 but may be adjusted from time to time as provided in the Certificate of Designations. As a result, the percentage ownership which your common stock holdings represent may be substantially diluted upon a conversion of Series A Preferred Stock into common stock, which may have a negative effect on the market price of the common stock.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 3. LEGAL PROCEEDINGS

From time to time, Basic is a party to litigation or other legal proceedings that Basic considers to be a part of the ordinary course of business. Basic is not currently involved in any legal proceedings that it considers probable or reasonably possible, individually or in the aggregate, to result in a material adverse effect on its financial condition, results of operations or liquidity. The information regarding litigation and environmental matters described in Note 9. Commitments and Contingencies, of the notes to our audited consolidated financial statements included in this Annual Report on Form 10-K is incorporated herein by reference.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Price for Registrant’s Common Equity

Market Information

Our common stock trades on the OTCQX(R) Best Market tier of the OTC Markets Group Inc. (“OTCQX”) under the symbol "BASX." Until December 2, 2019, our common stock traded on the New York Stock Exchange under the symbol "BAS". As of March 12, 2020, we had 24,983,699 shares of common stock outstanding held by approximately 129 record holders.

Dividend Policy

We have not declared or paid any cash dividends on our common stock, and we do not currently anticipate paying any cash dividends on our common stock in the foreseeable future. We currently intend to retain all future earnings to fund the development and growth of our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will depend on our results of operations, financial condition, capital requirements and other factors deemed relevant by our board.

Securities Authorized for Issuance under Equity Compensation Plans

The following table provides information regarding options or warrants and rights authorized for issuance under our equity compensation plans as of December 31, 2019:


Plan Category:	Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights (a) (2)	Weighted Average Exercise Price of Outstanding Options Warrants and Rights (b)(3)		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding Securities Reflected in Column (a)) (c)(4)
Equity compensation plans approved by security holders⁽¹⁾	1,191,810	$	39.23	774,341
Equity compensation plans not approved by security holders	—	—		—
Total	1,191,810	$	39.23	774,341

⁽¹⁾ Represent shares of common stock issuable under the Basic Energy Services, Inc. Long Term Incentive Plan (the “LTIP”), effective as of May 14, 2019.

⁽²⁾ Includes 306,506 shares of common stock that may be issued upon the vesting of stock options and 885,304 shares that may be issued upon vesting of restricted stock units (RSUs) and restricted stock awards (RSAs).

⁽³⁾ RSUs and RSAs do not have an exercise price; accordingly, RSUs and RSAs are excluded from the weighted average exercise price of outstanding awards.

⁽⁴⁾ Represents the number of shares of common stock remaining available for grant under the LTIP as of December 31, 2019. If any common stock underlying an unvested award is canceled, forfeited or is otherwise terminated without delivery of shares, then such shares will again be available for issuance under the LTIP.

Unregistered Sales of Equity Securities

None

Issuer Purchases of Equity Securities

The following table provides information relating to our repurchase of shares of common stock during the year ended December 31, 2019 (dollars in thousands, except average price paid per share):


	Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased	Average Price Paid Per Share ($)	Total Number of Shares Purchased as Part of Publicly Announced Program ⁽²⁾	Approximate Dollar Value of Shares that May Yet be Purchased Under the Program ($) ⁽²⁾

2019:
January 1 - January 31	—	—	—	—
February 1 - February 28 ⁽¹⁾	59,076	4.51	—	—
March 1 - March 31 ⁽¹⁾	14,060	4.59	—	—
April 1 - April 30	—	—	—	—
May 1 - May 31	—	—	—	—
June 1 - June 30	596,194	2.25	596,194	3,660
July 1 - July 31	1,188,624	1.94	1,784,818	1,354
August 1 - August 31	763,102	1.48	2,547,920	221
September 1 - September 30	—	—	—	—
October 1 - October 31	—	—	—	—
November 1 - November 30	—	—	—	—
December 1 - December 31	—	—	—	—
Total	2,621,056	1.88	2,547,920	221

⁽¹⁾“Total Number of Shares Purchased” were repurchased from various employees to provide such employees the cash amounts necessary to pay certain tax liabilities associated with the vesting of restricted shares and RSUs owned by them. The shares were repurchased on various dates based on the closing price per share on the date of repurchase.

⁽²⁾ On May 31, 2019, we announced that our Board of Directors has authorized the repurchase of up to $5 million of its outstanding shares of common stock from time to time in open market or private transactions, at the Company’s discretion. This authorization expires on June 4, 2020. The timing and actual number of shares repurchased will depend on a variety of factors including the stock price, corporate and regulatory requirements and other market and economic conditions. The stock repurchase program may be suspended or discontinued as determined by the Board of Directors.

ITEM 6. SELECTED FINANCIAL DATA

Not applicable.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Overview

We provide a wide range of wellsite services to oil and natural gas drilling and producing companies, including well servicing, water logistics and completion and remedial services. Our business is subject to fluctuations due to macroeconomic factors and seasonality, which may cause expenses and income to vary between reported periods. Results of 2019 and 2018 are presented based on our continuing operations. Our weighted average number of well servicing rigs decreased from 310 in the first quarter of 2018 to 306 as of December 31, 2019. Our weighted average number of fluid service trucks decreased from 960 in the first quarter of 2018 to 767 in the fourth quarter of 2019.

Our operating revenues from each of our segments, and their relative percentages of our total revenues, consisted of the following (dollars in millions):


	Year Ended December 31,
	2019						2018
Revenues:
Well Servicing	$	227.0	40	%	$	251.0	39	%
Water Logistics	199.8		35	%	231.3		35	%
Completion & Remedial Services	140.5		25	%	171.3		26	%
Revenues from continuing operations	$	567.3	100	%	$	653.6	100	%

Revenues from continuing operations	$	567.3	80	%	$	653.6	68	%
Revenues from discontinued operations	142.9		20	%	311.1		32	%
Total revenues	$	710.2	100	%	$	964.7	100	%

Our core businesses depend on our customers’ willingness to make expenditures to produce, develop and explore for oil and natural gas in the United States. Industry conditions are influenced by numerous factors, such as the supply of and demand for oil and natural gas, domestic and worldwide economic conditions, political instability in oil producing countries and merger and divestiture activity among oil and natural gas producers. The volatility of the oil and natural gas industry, and the consequent impact on exploration and production activity, has adversely impacted the level of drilling and workover activity by some of our customers, and in turn, the market for our services. In addition, the discovery rate of new oil and natural gas reserves in our market areas also may have an impact on our business, even in an environment of stronger oil and natural gas prices. For a more comprehensive discussion of our industry trends, see “General Industry Overview” included in Items 1 and 2, Business and Properties, of this Annual Report on Form 10-K.

We derive a majority of our revenues from services supporting production from existing oil and natural gas operations. Demand for these production-related services, including well servicing and water logistics, tends to remain relatively stable, even in moderate oil and natural gas price environments, as ongoing maintenance spending is required to sustain production. As oil and natural gas prices reach higher levels, demand for all of our services generally increases as our customers engage in more well servicing activities relating to existing wells to maintain or increase oil and natural gas production from those wells. Because our services are required to support drilling and workover activities, our revenues will vary based on changes in capital spending by our customers as oil and natural gas prices increase or decrease.

We will continue to evaluate opportunities to expand our business through selective acquisitions and internal growth initiatives. Our capital investment decisions are determined by an analysis of the projected return on capital employed of each of those alternatives, which is substantially driven by the cost to acquire existing assets from a third party, the capital required to build new equipment and the point in the oil and natural gas commodity price cycle. Based on these factors, we make capital investment decisions that we believe will support our long-term growth strategy.

We believe the most important performance measures for our business segments are as follows:

•Well Servicing — rig hours, rig utilization rate, revenue per rig hour, profits per rig hour and segment profits as a percent of revenues;

•Water Logistics — trucking hours, segment revenue, pipeline volumes and segment profits as a percent of revenues; and

•Completion & Remedial Services — segment profits as a percent of revenues.

Segment profits are computed as segment operating revenues less direct operating costs. These measurements provide important information to us about the activity and profitability of our lines of business. For a detailed analysis of these indicators for our company, see “Segment Overview” below.

Segment Overview

Well Servicing

In 2019, our Well Servicing segment represented 40% of our continuing revenues. Revenue in our Well Servicing segment is derived from maintenance, workover, completion and plugging and abandonment services, as well as rig manufacturing operations. We provide maintenance-related services as part of the normal, periodic upkeep of producing oil and natural gas wells. Maintenance-related services represent a relatively consistent component of our business. Workover and completion services generate more revenue per hour than maintenance work due to the use of auxiliary equipment, but demand for workover and completion services fluctuates more with the overall activity level in the industry.

We typically charge our well servicing rig customers for services on an hourly basis at rates that are determined by the type of service and equipment required, market conditions in the region in which the rig operates, the ancillary equipment provided on the rig and the necessary personnel. We measure the activity level of our well servicing rigs on a weekly basis by calculating a rig utilization rate based on a 55-hour work week per rig.

We manufacture workover rigs for internal purposes as well as to sell to outside companies. Our rig manufacturing operation also performs large-scale refurbishments and maintenance services to used workover rigs.

The following is an analysis of our well servicing segment for each of the quarters and years in the years ended December 31, 2019, and 2018. This table does not include revenues and profits associated with rig manufacturing operations:




Well Servicing	Weighted Average Number of Rigs	Rig Hours	Rig Utilization Rate	Revenue per Rig Hour		Profits per Rig Hour		Segment Profits %






2018
First Quarter	310	168,500	76%	$	329	$	60	18%
Second Quarter	310	181,600	82%	$	335	$	80	24%
Third Quarter	310	180,300	82%	$	339	$	71	21%
Fourth Quarter	310	159,600	72%	$	362	$	67	18%
Full Year	310	690,000	78%	$	341	$	70	20%
2019
First Quarter	310	165,000	74%	$	336	$	73	22%
Second Quarter	308	155,200	70%	$	353	$	78	22%
Third Quarter	307	149,000	68%	$	381	$	90	24%
Fourth Quarter	306	126,200	58%	$	369	$	53	14%
Full Year	308	595,400	68%	$	359	$	74	21%

We gauge activity levels and profitability in our well servicing rig operations based on rig hours, rig utilization rate, revenue per rig hour, profits per rig hour and segment profits as a percent of revenues.

Water Logistics

In 2019, the Water Logistics segment represented 35% of our continuing revenues. In 2019, Basic formed Agua Libre Midstream LLC, a wholly-owned subsidiary, to consolidate the network of disposal wells, pipeline, gathering systems, and fresh and brine water wells that comprise our midstream operations. In addition to our water midstream business, water logistics also include transportation and maintenance services. The Water Logistics segment has a base level of business consisting of transporting and disposing of saltwater produced as a by-product of the production of oil and natural gas. These services are necessary for our customers and have a stable demand but typically produce lower relative segment profits than other parts of our water logistics segment. Water logistics for completion and workover projects typically require fresh or brine water for making drilling mud, circulating fluids or fracturing fluids used during a job, and all of these fluids require storage tanks and hauling and disposal. Because we can provide a full complement of fluid sales, trucking, storage and disposal required on most

drilling and workover projects, the add-on services associated with drilling and workover activity enable us to generate higher segment profits.

The following is an analysis of our water logistics segment for each of the quarters and years in the years ended December 31, 2019, and 2018 (dollars in thousands):


Water Logistics	Pipeline Volumes (in bbls)	Trucking Volumes (in bbls)	Weighted Average Number of Fluid Service Trucks	Truck Hours	Revenue		Segment Profits








2018
First Quarter	1,551,000	6,414,800	960	479,600	$	56,509	28%
Second Quarter	2,064,000	6,912,900	903	486,800	$	59,679	26%
Third Quarter	2,526,000	6,898,200	870	448,200	$	59,539	28%
Fourth Quarter	3,221,000	6,659,000	837	438,500	$	55,556	29%
Full Year	9,362,000	26,884,900	891	1,853,100	$	231,283	28%
2019
First Quarter	3,050,000	6,620,000	818	424,100	$	55,601	33%
Second Quarter	3,174,000	6,778,000	814	403,200	$	51,031	30%
Third Quarter	3,807,000	6,956,000	795	382,500	$	48,451	28%
Fourth Quarter	4,132,000	6,785,000	767	360,300	$	44,733	25%
Full Year	14,163,000	27,139,000	799	1,570,100	$	199,816	29%

We gauge activity levels and profitability in our water logistics segment based on trucking hours, disposal volumes and segment profits as a percent of revenues.

Completion & Remedial Services

In 2019, our Completion & Remedial Services segment represented 25% of our continuing revenues. Revenues from our Completion & Remedial Services segment are derived from our rental and fishing tool operations, coiled tubing services and related services, snubbing and underbalanced drilling. In this segment, we derive our revenues on a project-by-project basis in a competitive bidding process. Our bids are based on the amount and type of equipment and personnel required, with the materials consumed billed separately. During periods of decreased spending by oil and gas companies, we may be required to discount our rates to remain competitive, which would cause lower segment profits. Our rental and fishing tool business operates 13 rental and fishing tool stores in selected markets as of December 31, 2019. Our snubbing services operate 32 units throughout our geographic footprint as of December 31, 2019.

The following is an analysis of our Completion & Remedial Services segment for each of the quarters and years in the years ended December 31, 2019, and 2018 (dollars in thousands):


Completion & Remedial Services	RAFT stores	Coiled Tubing HHP	Revenues		Segment Profits %












2018
First Quarter	16	24,500	$	44,952	40%
Second Quarter	14	25,500	$	41,474	36%
Third Quarter	14	26,000	$	44,358	36%
Fourth Quarter	13	26,000	$	40,516	32%
Full Year	13	26,000	$	171,300	36%
2019
First Quarter	13	25,250	$	35,605	30%
Second Quarter	13	25,250	$	38,426	29%
Third Quarter	13	25,300	$	38,273	33%
Fourth Quarter	13	25,300	$	28,164	27%
Full Year	13	25,300	$	140,468	30%

We gauge the performance of our completion and remedial services segment based on the segment’s total horsepower, operating revenues and segment profits as a percent of revenues.

Operating Cost Overview

Our operating costs are comprised primarily of labor costs, including workers’ compensation and health insurance, repairs and maintenance, fuel, and insurance. A majority of our employees are paid on an hourly basis. We also employ personnel to supervise our activities, sell our services and perform maintenance on our fleet. These costs are not directly tied to our level of business activity. Repair and maintenance is performed by our crews, company maintenance personnel and outside service providers. Insurance is generally a fixed cost regardless of utilization and can vary depending on the number of rigs, trucks and other equipment in our fleet, as well as employee payroll, and our safety record. Compensation for administrative personnel in local operating yards and our corporate office is accounted for as general and administrative expenses.

Recent Developments

On March 9, 2020, we entered into the Purchase Agreement with Ascribe, Seller and CJWS.

The Purchase Agreement

Pursuant to the Purchase Agreement, Seller received consideration in the aggregate amount of $93,700,000 comprised of (i) cash consideration equal to $59,350,000 (subject to customary reductions for indebtedness and transaction expenses, as well as post-closing working capital adjustments) and (i) the Senior Notes transferred to Seller by Ascribe (on behalf of the Company) as described above. In connection with the Transaction, pursuant to the Purchase Agreement, Ascribe has certain contingent obligations to the Seller to make a Make-Whole Payment on the par value of the Senior Notes as of the earlier of the first anniversary of the closing of the Stock Purchase, a bankruptcy of the Company or a change of control of the Company.

The Exchange Agreement

The Company has issued and outstanding $300 million principal amount of the 10.75% Senior Secured Notes due 2023, issued pursuant to that certain Indenture, dated as of October 2, 2018 (the “Base Indenture”) by and among the Company, the guarantors party thereto and Trustee, as supplemented by the First Supplemental Indenture. Under the Exchange Agreement, as partial consideration for the Exchange Transaction, the Company paid to Ascribe an amount in cash equal to, $1,466,793, representing the accrued (but unpaid) interest, from and including the most recent date to which interest has been paid pursuant to the terms of the Notes and the Indenture but excluding the date of the closing of the C&J Transaction, on the aggregate principal amount of the Senior Notes.

If Ascribe is required to pay the Make-Whole Payment to Seller pursuant to the Purchase Agreement, the Company will be required to reimburse to Ascribe the Make-Whole Reimbursement Amount (i) in cash (a) to the extent the Company has available cash (as determined by an independent committee of the Company’s board of directors) and (b) subject to satisfaction of certain “Payment Conditions” set forth in the Credit Agreement (as defined below) or (ii) if the Company is unable to pay the full Make-Whole Reimbursement Amount in cash pursuant to clause “(i)” of this paragraph, in additional Notes as permitted under the Indenture. In consideration of providing the Make-Whole Payment to Seller, the Company paid Ascribe $1 million in cash at the closing of the C&J Transaction.

Stockholders Agreement & Governance

directors, comprised of (i) three Class I Directors, (ii) two Class II Directors, and (iii) two Class III Directors (the “Class III Directors”). Additionally, effective as of the closing of the C&J Transaction, each of Messrs. Timothy H. Day and Samuel E. Langford resigned from the Board and (a) Lawrence First was appointed as a Class I Director, (b) Derek Jeong was appointed as a Class II Director and (c) Ross Solomon was appointed as a Class III Director. Pursuant to the terms of the Stockholders Agreement, following the closing of the C&J Transaction and until the Board Rights Termination Date (as defined below), Ascribe is entitled to designate for nomination for election to the board of directors all members of the board of directors, provided that such designations must be made in a manner to ensure that at all times the board of directors is comprised of at least two independent directors. In addition, the Stockholders Agreement provides that certain actions of the Company and its subsidiaries require approval of a special committee of the Board comprised solely of at least two independent directors.

The Senior Secured Promissory Note

Pursuant to the Exchange Agreement, the Company issued a Senior Secured Promissory Note on March 9, 2020 in favor of Ascribe in an aggregate principal amount equal to $15 million. The Senior Secured Promissory Note is secured by a lien upon certain of the Company’s existing and after-acquired property which are also secured by the Company’s existing senior secured notes. The proceeds of the Senior Secured Promissory Note were used to finance a portion of the purchase price consideration paid in connection with the Stock Purchase.

The Limited Consent and First Amendment to ABL Agreement

The Company is party to the Credit Agreement, with the guarantors party thereto, the financial institutions party thereto and Bank of America, as administrative agent. In connection with the C&J Transaction, on March 9, 2020, the Company entered into the ABL Amendment, pursuant to which, among other things, the Company reduced the Aggregate Commitments (as defined in the Credit Agreement) from $150 million to $120 million.

Results of Continuing Operations

The results of continuing operations between periods may not be comparable, primarily due to fluctuations in the oil and natural gas industry throughout 2019 and 2018.

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

Revenues - Revenues from continuing operations decreased by 13% to $567.3 million in 2019 from $653.6 million in 2018. This decrease was due to slowing demand for oilfield services by our customers as they curtailed drilling activities and capital spending in favor of preserving cash.

Well servicing revenues decreased by 10% to $227.0 million in 2019 compared to $251.0 million in 2018. Rig utilization decreased to 68% in 2019 from 78% during 2018, reflecting the decreased active U.S. well servicing rig count from 1,083 at the end of 2018 to 805 at year end 2019. Our weighted average number of well servicing rigs decreased to 308 in 2019 down from 310 during 2018. We experienced an increase of 5% in revenue per rig hour to $359 during 2019 from $341 during 2018, due to pricing improvements in our 24-hour rig work.

Water logistics revenue decreased by 14% to $199.8 million in 2019 compared to $231.3 million in 2018, due to decreases in the trucking line of business resulting from a strategic shift towards higher margin pipeline based disposals. Pipeline disposal volumes increased 51% to 14.2 million barrels in 2019 compared to 9.4 million barrels in 2018. Our weighted average number of fluid service trucks decreased to 799 in 2019 from 891 in 2018, as disposal water transitions to pipeline from trucked volumes.

Completion and remedial services revenue from continuing operations decreased by 18% to $140.5 million in 2019 as compared to $171.3 million in 2018. Revenues declined primarily due to pricing pressures coupled with decreased completion activity as commodity prices remained depressed throughout the year.

Direct Operating Expenses - Direct operating expenses from continuing operations, which primarily consist of labor costs, including workers’ compensation and health insurance, and maintenance and repair costs, decreased by 11% to $426.8 million in 2019 from $480.4 million in 2018, due to reduced activity and headcount.

Direct operating expenses for the well servicing segment decreased by 8% to $186.8 million in 2019 as compared to $203.8 million in 2018, due to reduced activity and headcount. Segment profits decreased slightly to 18% of revenues in 2019 from 19% of revenues in 2018.

Direct operating expenses for the water logistics segment decreased by 15% to $141.4 million in 2019 as compared to $166.9 million in 2018. Segment profits increased to 29% of revenues in 2019 from 28% of revenues in 2018, due to incremental margins from an increase in higher margin pipeline disposal revenue.

Direct operating expenses for the completion and remedial services segment continuing operations decreased by 10% to $98.7 million in 2019 as compared to $109.7 million in 2018, due to reduced activity levels

and headcount. Segment profits decreased to 30% of revenues in 2019 compared to 36% in 2018, due to pricing pressures and increased input costs.

General and Administrative Expenses - General and administrative expenses decreased $27.3 million or 19% to $118.5 million in 2019 from $145.7 million in 2018 primarily due to:

•$18.1 million reduction in stock-based compensation expense due to the departure of our Chief Executive Officer ("CEO") and lower stock prices in 2019 compared to 2018. Stock grants in 2018 and prior were valued higher due to higher stock prices and thus expensed at a higher rate in 2018;

•Non-recurring costs incurred in 2018 as follows:

•$6.0 million related to our Texas sales and use tax audit liability;

•$4.2 million of legal and professional fees related to due diligence on corporate development activities;

•$4.1 million of consulting fees related to the strategic realignment of the company; and

•$3.1 million of bad debt related to a single customer; offset by

•Non-recurring costs incurred in 2019 comprising of:

•$5.3 million of inventory write-downs;

•$2.2 million of legal and professional fees related to certain corporate initiatives; and

•$0.8 million of severance compensation related to our CEO's departure.

Depreciation and Amortization Expenses - Depreciation and amortization expense relating to continuing operations were $69.5 million in 2019, as compared to $78.2 million in 2018. The decrease in depreciation and amortization expense was due to decreased capital spending. During 2019, we invested $55.4 million for cash capital expenditures and $7.9 million for capital leases, compared to $68.7 million for cash capital expenditures and $20.2 million for capital leases in 2018.

Interest Expense - Interest expense decreased to $42.9 million in 2019 compared to $45.2 million in 2018. The decrease in interest expense in 2019 was primarily due to no drawings on our revolving line of credit and fewer capital leases during 2019.

Extinguishment of Debt - Extinguishment of debt expense in 2018 related to the pay-down of our Term Loan facility and revolving debt totaled $26.4 million. We did not incur any extinguishment of debt expense in 2019.

Income Tax Expense - Income tax expense was $21,000 in 2019 compared to $0.2 million in 2018. Our effective tax expense rate was approximately 0.02% in 2019, compared to an effective tax expense rate of 0.15% in 2018. The low effective tax rate is due to the valuation allowance against the Company's net deferred tax assets in 2018 and 2019.

Discontinued Operations

During the period ended December 31, 2019, based on the Company's evaluation of the demand for pressure pumping and contract drilling services, the Company's management decided to divest all of Basic's contract drilling rigs, and a majority of pressure pumping equipment and related ancillary equipment, with a carrying value of $91.8 million. The Company believes this major strategic shift away from completions and pumping services will allow the Company to strengthen the core businesses of well servicing and water logistics, by reinvesting in those segments. As a result of this strategic shift, the Company recorded a non-cash impairment charge of $32.6 million in 2019 to write down the value of the assets. While pumping and related assets have been transferred to Assets Held for Sale on our Consolidated Balance Sheet, some real estate and equipment has been sold in the fourth quarter of 2019, with additional transactions to occur in the first half of 2020. In addition, the Company's contract drilling assets were divested through auctions in the third quarter of 2019, and an impairment of $3.2 million was recorded related to these transactions.

For further discussion of financial results for discontinued operations, see Note 2, Discontinued operation of the notes to our consolidated financial statements included in this Annual Report on Form 10-K.

Liquidity and Capital Resources

Our primary sources of liquidity generally include cash on hand, cash flows from operations, utilization of capital leases and the ability to borrow under our $150 million Credit Facility (the “ABL Facility”). The ABL Facility was amended, on March 9, 2020, as part of the C&J Transaction to reduce aggregate commitments from $150 million to $120 million. As of December 31, 2019, we had no borrowings under the ABL Facility and approximately $327.1 million of indebtedness, net of discount and deferred financing costs, including $300 million of aggregate

principal amount due under the Senior Notes, and capital lease obligations in the aggregate amount of $35.9 million under the ABL Facility. Based on our Senior Note obligations, we expect to incur interest payments of approximately $16.1 million due April 2020. Including the $35.7 million of availability under the ABL Facility, we currently have $71.9 million in total liquidity. At December 31, 2019, we had unrestricted cash and cash equivalents of $36.2 million compared to $90.3 million as of December 31, 2018. On March 9, 2020, we issued a Senior Secured Promissory Note in favor of Ascribe in an aggregate principal amount equal to $15 million.

On October 2, 2018, the Company issued $300 million aggregate principal amount of 10.75% senior secured notes due 2023 and replaced the Prior ABL Facility by entering into a $150 million ABL Credit Agreement among the Company, as borrower, Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer, UBS Securities LLC, as syndication agent, PNC Bank National Association, as documentation agent and letter of credit issuer, and the other lenders from time to time party thereto. In connection with the C&J Transaction, on March 9, 2020, the Company entered into the ABL Amendment, pursuant to which, among other things, the Company reduced the Aggregate Commitments (as defined in the ABL Credit Agreement) from $150 million to $120 million. We have utilized, and expect to utilize in the future, bank and capital lease financing and sales of equity to obtain capital resources. When appropriate, and to the extent available to us, we will consider public or private debt and equity offerings and non-recourse transactions to meet our liquidity needs.

Our liquidity and ability to comply with debt covenants that may be required under the Senior Notes and the ABL Facility have been negatively impacted by the downturn in the energy markets, volatility in commodity prices and their effects on our customers, as well as general macroeconomic conditions. The indenture governing our Senior Notes and the ABL Facility, under certain circumstances, may require us to maintain certain financial ratios and to satisfy certain financial conditions. As of March 13, 2020, there were no existing events of default under, and we were in compliance with, all of our debt instruments.

The market outlook for our Company and the energy sector continues to be constrained due to the uncertainty of anticipated activity, including lower spending by many of our customers. Please see “Risk Factors - If oil and natural gas prices remain volatile, or if oil or natural gas prices remain low or decline further, the demand for our services could be adversely affected” for more detail. As a result of continued weak energy sector conditions and lower demand for our products and services, our operational results, working capital and cash flows have been negatively impacted. Based on our current operating and commodity price forecasts and capital structure, we believe that if certain financial ratios or covenants were to come into effect under our debt instruments, we may have difficulty complying with certain of such obligations. Certain covenants, such as consolidated fixed charge coverage ratio and cash dominion provisions in the ABL Facility spring into effect under certain triggers defined in the ABL Facility for so long as such applicable trigger period is in effect. Additionally, certain triggers in the ABL Facility increase certain financial and borrowing base reporting for so long as such applicable trigger period is in effect. Failure to comply, for example, with a “springing” consolidated fixed charge coverage ratio requirement under the ABL Facility would result in an event of default under the ABL Facility, which would result in a cross-default under the Senior Notes. If an event of default were to occur, our lenders could, in addition to other remedies such as charging default interest, accelerate the maturity of the outstanding indebtedness, making it immediately due and payable, and we may not have sufficient liquidity to repay those amounts. Management has plans to generate additional liquidity, including through our proposed strategic acquisitions and divestitures and reducing costs in our continuing business operations. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. This assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business.

Share Repurchase Program

On May 31, 2019, we announced that the Board authorized a share repurchase plan whereby we may repurchase up to $5 million of our outstanding shares of common stock beginning on June 4, 2019 for a period of twelve months. We are authorized to repurchase our common stock from time to time in open market purchases or in private transactions in accordance with applicable federal securities laws. The timing of repurchases and the exact number of shares to be purchased will be determined by our management, in its discretion, and will depend upon market conditions and other factors including the stock price, corporate and regulatory requirements and other market and economic conditions. The stock repurchase program may be suspended or discontinued as determined by the Board. During the year ended December 31, 2019, we repurchased approximately 2,547,920 shares of common stock at a weighted average purchase price of $1.88 per share. The total remaining share authorization as of December 31, 2019 was $0.2 million.

Cash Flow Summary

The Statement of Cash Flows for the periods presented includes cash flows from continuing and discontinued operations. Any ongoing involvement related to the divestiture of assets related to discontinued operations will primarily be recognized in the first quarter of 2020.

Net Cash Provided by Operating Activities

Cash flow provided by operating activities was $20.2 million for the year ended December 31, 2019, with $2.1 million provided by discontinued operations as compared to cash provided by operations of $74.3 million in 2018 with $37.7 million provided by discontinued operations. The $54.2 million decrease was primarily due to higher revenues in 2018.

Net Cash Used by Investing Activities

Capital expenditures are the main component of our investing activities. Capital expenditures in 2019 totaled $63.3 million, of which $55.4 million was cash and $7.9 million was leased. In 2018, capital expenditures totaled $88.9 million, of which $68.7 million was cash and $20.2 million was leased. Capital expenditures related to discontinued operations were $10.6 million and $25.6 million in 2019 and 2018, respectively.

In 2020, we have planned capital expenditures of approximately $42.6 million including capital leases of $14.2 million. We do not budget acquisitions in the normal course of business, and we regularly engage in discussions related to potential acquisitions related to the well services industry.

Debt Arrangements

Indenture

The Company’s Senior Notes were issued under and are governed by an indenture, dated as of October 2, 2018 (the “Indenture”), by and among the Company, the guarantors named therein (the “Guarantors”), and UMB Bank, N.A. as Trustee and Collateral Agent (the “Trustee”). The Senior Notes are jointly and severally, fully and unconditionally guaranteed (the “Guarantees”) on a senior secured basis by the Guarantors and are secured by first priority liens on substantially all of the Company’s and the Guarantors’ assets, other than accounts receivable, inventory and certain related assets.

The Indenture contains covenants that limit the ability of the Company and certain subsidiaries to:

•incur additional indebtedness or issue preferred stock;

•pay dividends or make other distributions to its stockholders;

•repurchase or redeem capital stock or subordinated indebtedness and certain refinancings thereof;

•make certain investments;

•incur liens;

•enter into certain types of transactions with affiliates;

•limit dividends or other payments by restricted subsidiaries to the Company; and

•sell assets or consolidate or merge with or into other companies.

These limitations are subject to a number of important qualifications and exceptions.

Upon an Event of Default (as defined in the Indenture), the Trustee or the holders of at least 25% in aggregate principal amount of the outstanding Senior Notes may declare the entire principal of, premium, if any, and accrued and unpaid interest, if any, on all the Senior Notes to be due and payable immediately.

At any time on or prior to October 15, 2020, the Company may redeem up to 35% of the aggregate principal amount of the Senior Notes at a redemption price equal to 110.75% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, with an amount of cash not greater than the net proceeds from certain equity offerings. At any time prior to October 15, 2020, the Company may redeem the Senior Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the Senior Notes plus a “make-whole” premium plus accrued and unpaid interest, if any, to the redemption date. The Company may also redeem all or a part of the Senior Notes at any time on or after October 15, 2020, at the redemption prices set forth in the Indenture, plus accrued and unpaid interest, if any, to the redemption date.

either S&P or Moody’s within 90 days, a “Change of Control” as defined in our Senior Notes will be deemed to have occurred. If the Company experiences such a Change of Control, the Company may be required to offer to purchase the Senior Notes at a purchase price equal to 101% of the principal amount, plus accrued and unpaid interest, if any, to the purchase date.

The Senior Notes and the Guarantees rank equally in right of payment with all of the Company’s and the Guarantors’ existing and future unsubordinated indebtedness, effectively senior to all of the Company’s and the Guarantors’ existing and future indebtedness to the extent of the value of the collateral securing the Senior Notes but junior to other indebtedness that is secured by liens on assets other than collateral for the Senior Notes to the extent of the value of such assets, and senior to all of the Company’s and the Guarantors’ future subordinated indebtedness.

Pursuant to a collateral rights agreement, the Senior Notes and Guarantees are secured by first priority liens, subject to limited exceptions, on the collateral securing the Senior Notes, consisting of substantially all of the property and assets now owned or hereafter acquired by the Company and the Guarantors, except for certain excluded property described in the Indenture.

ABL Facility

On October 2, 2018, the Company terminated the Prior ABL Facility and Amended and Restated Term Loan Agreement and entered into an ABL Credit Agreement (the “ABL Credit Agreement”) among the Company, as borrower (in such capacity, the “Borrower”), Bank of America, N.A., as administrative agent (the “Administrative Agent”), swing line lender and letter of credit issuer, UBS Securities LLC, as syndication agent, PNC Bank National Association, as documentation agent and letter of credit issuer, and the other lenders from time to time party thereto (collectively, the “ABL Lenders”). Pursuant to the ABL Credit Agreement, the ABL Lenders have extended to the Borrower a revolving credit facility in the maximum aggregate principal amount of $150 million, subject to borrowing base capacity (the “ABL Facility”). The ABL Facility includes a sublimit for letters of credit of up to $50 million in the aggregate, and for borrowings on same-day notice under swingline loans subject to a sublimit of the lesser of (a) $15 million and (b) the aggregate commitments of the ABL Lenders. The ABL Facility also provides capacity for base rate protective advances up to $10 million at the discretion of the Administrative Agent and provisions relating to over advances. The ABL Facility contains no restricted cash requirements. The ABL Facility was amended, on March 9, 2020, as part of the C&J Transaction to reduce aggregate commitments from $150 million to $120 million.

Borrowings under the ABL Facility bear interest at a rate per annum equal to an applicable rate, plus, at Borrower’s option, either (a) a base rate or (b) a LIBO rate. The applicable rate is fixed from the closing date to April 1, 2019. After April 1, 2019, the applicable rate is determined by reference to the average daily availability as a percentage of the borrowing base during the fiscal quarter immediately preceding such applicable quarter. The applicable rate has remained unchanged since inception of the ABL Facility.

Principal amounts outstanding under the ABL Facility will be due and payable in full on the maturity date, which is five years from the closing of the facility; provided that if the Senior Notes have not been redeemed by July 3, 2023, then the maturity date shall be July 3, 2023.

Substantially all of the domestic subsidiaries of the Company guarantee the borrowings under the ABL Facility, and Borrower guarantees the payment and performance by each specified loan party of its obligations under its guaranty with respect to swap obligations. All obligations under the ABL Facility and the related guarantees are secured by a perfected first-priority security interest in substantially all accounts receivable, inventory, and certain other assets, not including equity interests. As of December 31, 2019, Basic had no borrowings and $34.2 million of letters of credit outstanding under the ABL Facility.

Prior ABL Facility

On September 29, 2017, Basic entered into a credit facility (the “Prior ABL Facility”) pursuant to (i) a Receivables Transfer Agreement (the “Transfer Agreement”) entered into by and among Basic Energy Services, L.P. (“BES LP”), as the initial originator and Basic Energy Receivables, LLC (the “SPE”), as the transferee and (ii) the Credit Agreement.

amount of the purchase price of the receivable not paid in cash. BES LP was responsible for the servicing, administration and collection of the accounts receivable, with all collections going into lockbox accounts. The Company provided a customary guaranty of performance to the administrative agent with respect to certain obligations of BES LP and any successor servicer under the Prior ABL Facility. In connection with entering into the Prior ABL Facility, on September 29, 2017, the Company amended the Amended and Restated Term Loan Agreement to permit, among other things, (i) the acquisition of the Transferred Receivables by the SPE pursuant to the Transfer Agreement, free and clear of the liens under the Amended and Restated Term Loan Agreement and (ii) the transactions contemplated under each of the Transfer Agreement and Credit Agreement. The Company consolidated the SPE, which the Company determined to be a variable interest entity (“VIE”), and all intercompany activity was eliminated upon consolidation. In concluding the SPE was a VIE, the Company determined it is the primary beneficiary of the SPE, as all activities of SPE are for the benefit of the Company. The accounts receivable held at the SPE were used solely to settle the debt obligations of the SPE.

Loans under our Prior ABL Facility bore interest at a fluctuating rate equal to (a) the Alternate Base Rate plus 2.25% with respect to ABR Loans or (b) the Adjusted LIBO rate plus 3.25% with respect to Eurodollar Loans (each as defined in the Credit Agreement). A commitment fee equal to 0.375% per annum was payable on the unused commitments under the Credit Agreement. The loans made pursuant to the Credit Agreement had a maturity date of September 29, 2021.

In connection with the closing of its Senior Notes offering, the Company repaid the balances outstanding under the Prior ABL Facility in its entirety and terminated the Prior ABL Facility.

Amended and Restated Term Loan Agreement

On the Effective Date, the Company entered into an Amended and Restated Term Loan Credit Agreement (the “Amended and Restated Term Loan Agreement”) with a syndicate of lenders and U.S. Bank National Association, as administrative agent for the lenders. On October 2, 2018, in connection with the closing of its Senior Note offering, the Company repaid its outstanding debt (including accrued interest) under the Amended and Restated Term Loan Agreement and terminated the Amended and Restated Term Loan Agreement. The Amended and Restated Term Loan Agreement repayment was made prior to the maturity date defined in the Amended and Restated Term Loan Agreement, and the Company incurred repayment penalties of approximately $17.6 million associated with the repayment.

Other Debt

Basic has a variety of other capital leases and notes payable outstanding, which are customary in Basic’s business.

Preferred Stock

At December 31, 2019 and December 31, 2018, we had 5,000,000 shares of $0.01 par value preferred stock authorized, of which none was designated, issued or outstanding. On March 9, 2020, the Company designated 118,805 shares of Series A Preferred stock of the Company, par value $0.01 per share.

Ratings Services’ Credit Ratings

Our issuer credit rating was lowered to CCC+ from B–. On August 19, 2019, Moody’s downgraded our credit rating on our senior secured notes to Caa2 from B-3 and our speculative grade liquidity rating to SGL-3 from SGL-2, both with a stable outlook. On January 31, 2020, S&P downgraded our senior secured notes to CCC+ from B-, with a negative outlook. On March 10, 2020, following the C&J Transaction, both agencies affirmed their current ratings. While we expect to continue to have access to credit markets, our non-investment grade status may limit our ability to refinance our existing debt, could cause us to refinance or issue debt with less favorable and more restrictive terms and conditions, and could increase certain fees and interest of our borrowings. Our inability to access the capital markets may increase the need for higher levels of cash on hand, which could decrease our ability to repay debt balances, negatively affect our cash flow and impact our access to the inventory and services needed to operate our business.

Other Matters

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Net Operating Losses

As of December 31, 2019, we had approximately $900.7 million of federal net operating loss carryforwards. Based on the weight of all available evidence including the future reversal of existing U.S. taxable temporary differences as of December 31, 2019, we believe that it is more likely than not that the benefit from certain federal and state net operating loss carryforwards and other deductible temporary differences will not be realized. In recognition of this risk, we have provided a full valuation allowance on our loss carryforwards as a result of the Company being in a cumulative three-year pre-tax book loss position and absence of other objectively verifiable positive evidence.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with United States Generally Accepted Accounting Principles ("GAAP") requires management to make estimates and assumptions. These estimates and assumptions affect the amounts reported in our Consolidated Financial Statements and notes. We base our estimates on historical experience, current trends and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates, and estimates are subject to change due to modifications in the underlying conditions or assumptions. Below are expanded discussions of our more significant accounting policies, estimates and judgments, i.e., those that reflect more significant estimates and assumptions used in the preparation of our financial statements. A complete summary of these policies is included in Note 3. Summary of Significant Accounting Policies of the notes to our consolidated financial statements.

Impairments - We perform a review of our assets for impairment when, in management’s judgment, events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recovered over its remaining service life. Impairment is indicated when the sum of the estimated future cash flows, on an undiscounted basis, is less than the asset’s carrying amount. When impairment is identified and fair value is less than carrying value, an impairment charge is recorded to income based on an estimate of future cash flows on a discounted basis.

Litigation and Self-Insured Risk Reserves - We estimate our reserves related to litigation and self-insured risk based on the facts and circumstances specific to the litigation and self-insured risk claims and our past experience with similar claims. The actual outcome of litigation and insured claims could differ significantly from estimated amounts. We are self-insured up to retention limits with regard to workers’ compensation, general liability claims, and medical and dental coverage of our employees. We generally do not maintain physical property damage coverage on our rig fleet, with the exception of certain rigs, newly manufactured rigs and pumping services equipment. We have deductibles per occurrence for workers’ compensation, auto & general liability claims, and medical and dental coverage of $2 million, $1 million, and $0.4 million, respectively. We maintain accruals in our consolidated balance sheets related to self-insurance retentions by using third-party actuarial data and claims history.

Recent Accounting Pronouncements

See Part II, Item 8, “Financial Statements and Supplementary Data, Note 3. Summary of Significant Accounting Policies,” to the Consolidated Financial Statements for a description of the recent accounting pronouncements.

Impact of Inflation on Operations

Inflation in the United States has been relatively low in recent years and did not have a material impact on our results of operations for the years ended December 31, 2019 and 2018. Although the impact of inflation has been insignificant in recent years, it is still a factor in the U.S. economy, and we tend to experience inflationary pressure on the cost of our equipment, materials and supplies as increasing oil and natural gas prices also increase activity in our areas of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Basic Energy Services, Inc.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Management’s Report on Internal Control Over Financial Reporting			46
Reports of Independent Registered Public Accounting Firm			47
Consolidated Balance Sheets as of December 31, 201 9 and 201 8			48
Consolidated Statements of Operations for the years ended December 31, 201 9 and 201 8			49
Consolidated Statements of Stockholders' Equity for the years ended December 31, 201 9 and 201 8			50
Consolidated Statements of Cash Flows for the years ended December 31, 201 9 and 201 8			51
Notes to Consolidated Financial Statements			52

MANAGEMENT’S REPORT ON

INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of Basic Energy Services, Inc. (“Basic” or the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting for the Company. As defined by the Securities and Exchange Commission (Rule 13a-15(f) under the Exchange Act of 1934, as amended), internal control over financial reporting is a process designed by, or under the supervision of Basic’s principal executive and principal financial officers and effected by its Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements in accordance with U.S. generally accepted accounting principles.

The Company’s internal control over financial reporting is supported by written policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the Company’s transactions and dispositions of the Company’s assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorization of the Company’s management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In connection with the preparation of the Company’s annual consolidated financial statements, management has undertaken an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO Framework). Management’s assessment included an evaluation of the design of the Company’s internal control over financial reporting and testing of the operational effectiveness of those controls.

Based on this assessment, management has concluded that as of December 31, 2019, the Company’s internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.


/s/ Keith L. Schilling						/s/ David S. Schorlemer
Keith L. Schilling						David S. Schorlemer
Chief Executive Officer						Chief Financial Officer

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Basic Energy Services, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Basic Energy Services, Inc. and subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

Change in Accounting Principle

As discussed in Note 6 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of ASU No. 2016‑02, Topic 842 – Leases.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

KPMG LLP

We have served as the Company’s auditor since 1992.

Dallas, Texas

March 13, 2020

Basic Energy Services, Inc.

Consolidated Balance Sheets

(in thousands)


	December 31,
	2019		2018
ASSETS
Current assets:
Cash and cash equivalents	$	36,217	$	90,300
Trade accounts receivable, net of allowance of $2,208 and $1,838, respectively	99,626		144,767

Income tax receivable	—		1,574
Inventories, net	20,262		29,951
Prepaid expenses	6,407		8,990
Assets held for sale	55,149		18,106
Other current assets	2,727		1,521

Total current assets	220,388		295,209
Property and equipment, net	297,113		309,170
Operating lease right of use assets	14,540		—
Deferred debt costs, net of amortization	2,198		2,747
Other intangible assets, net of amortization	2,603		2,984
Assets held for future sale	—		139,631
Other assets	13,632		12,036
Total assets	$	550,474	$	761,777
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	58,022	$	98,323
Accrued expenses	48,116		44,955
Current portion of long-term debt	18,738		19,582
Operating lease right-of-use liabilities, current portion	4,906		—
Accrued short-term insurance reserves	8,848		10,871
Liabilities associated with assets held for sale	5,248		—
Other current liabilities	4,306		3,123
Total current liabilities	148,184		176,854
Long-term debt, net of discounts and deferred financing costs of $8,795 and $10,690, at December 31, 2019 and 2018, respectively	308,365		319,175
Operating lease right-of-use liabilities, long-term portion	9,634		—
Asset retirement obligations	9,044		2,587
Accrued long-term insurance reserves	16,582		16,280
Other long-term liabilities	17,542		16,470
Liabilities associated with assets held for future sale	—		10,983
Total liabilities	509,351		542,349
Stockholders' equity:
Preferred stock, $0.01 par value: 5,000,000 shares authorized; zero outstanding at December 31, 2019 and 2018	—		—
Common stock, $0.01 par value: 80,000,000 shares authorized 27,912,059 and 26,990,034 shares issued and 24,904,485 and 26,747,712 shares outstanding at December 31, 2019 and 2018, respectively	279		270
Additional paid-in capital	472,594		464,264
Retained deficit	(423,169)		(241,271)
Treasury stock, at cost 3,007,574 and 242,322 shares at December 31, 2019 and 2018, respectively	(8,581)		(3,835)
Total stockholders' equity	41,123		219,428
Total liabilities and stockholder's equity	$	550,474	$	761,777

See accompanying notes to consolidated financial statements.

Basic Energy Services, Inc.

Consolidated Statements of Operations

(Dollars in thousands, except per share amounts)


	December 31,
	2019		2018
Revenues:
Well Servicing	$	226,966	$	250,982
Water Logistics	199,816		231,283
Completion & Remedial Services	140,468		171,300
Total revenues	567,250		653,565
Expenses:
Well Servicing	186,782		203,785
Water Logistics	141,379		166,907
Completion & Remedial Services	98,654		109,713
General and administrative, including stock-based compensation of $9,156 and $27,254 in 2019 and 2018, respectively	118,460		145,725
Depreciation and amortization	69,489		78,173

Loss (gain) on disposal of assets	2,135		(4,918)
Total expenses	616,899		699,385
Operating loss	(49,649)		(45,820)
Other income (expense):
Loss on extinguishment of debt	—		(26,429)
Interest expense	(42,887)		(45,161)
Interest income	509		364
Other income	647		537
Loss from continuing operations before income taxes	(91,380)		(116,509)
Income tax expense	(21)		(227)
Loss from continuing operations	(91,401)		(116,736)
Loss from discontinued operations	(90,497)		(27,861)

Net loss	$	(181,898)	$	(144,597)


Net loss from continuing operations per share, basic and diluted	$	(3.50)	$	(4.41)
Net loss from discontinued operations per share, basic and diluted	$	(3.46)	$	(1.05)
Net loss per share of common stock, basic and diluted	$	(6.96)	$	(5.46)

See accompanying notes to consolidated financial statements.

Basic Energy Services, Inc.

Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)


	Common Stock					Additional	Treasury						Total
	Issued	Common		Paid-In		Treasury	Treasury		Retained		Stockholders'
	Shares	Stock		Capital		Shares	Stock		Deficit		Equity
















December 31, 2017	26,371,572	$	264	$	439,517	152,443	$	(4,454)	$	(96,674)	$	338,653
Issuances of restricted stock	618,462	6		(3)		(70,147)	—		—		3
Amortization of share based compensation	—	—		27,254		—	—		—		27,254
Purchase of treasury stock	—	—		(2,504)		160,026	619		—		(1,885)

Net loss	—	—		—		—	—		(144,597)		(144,597)
Balance - December 31, 2018	26,990,034	$	270	$	464,264	242,322	$	(3,835)	$	(241,271)	$	219,428
Issuances of restricted stock	922,025	9		(9)		73,136	(331)		—		(331)
Amortization of share based compensation	—	—		8,714		—	—		—		8,714
Purchase of treasury stock	—	—		(375)		2,692,116	(4,415)		—		(4,790)

Net loss	—	—		—		—	—		(181,898)		(181,898)
Balance - December 31, 2019	27,912,059	$	279	$	472,594	3,007,574	$	(8,581)	$	(423,169)	$	41,123

See accompanying notes to consolidated financial statements.

Basic Energy Services, Inc.

Consolidated Statements of Cash Flows

(in thousands)


	2019		2018
Cash flows from operating activities:
Net loss	$	(181,898)	$	(144,597)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization ^(a)	114,657		126,417
Asset impairment^(a)	35,801		—
Inventory and other write-downs ^(a)	10,607		—
Accretion on asset retirement obligation	1,051		212
Change in allowance for doubtful accounts	370		315
Amortization of deferred financing costs	2,338		1,072
Amortization of debt discounts	1,054		4,009
Debt extinguishment costs	—		26,429
Non-cash compensation	9,156		27,254
Loss (gain) on disposal of assets ^(a)	4,013		(2,598)
Deferred income taxes	—		(78)

Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	44,771		3,384
Inventories	6,529		(46)
Prepaid expenses and other current assets	6,242		5,248
Other assets	(333)		532
Accounts payable	(37,495)		18,267
Income tax receivable	1,574		305
Other liabilities	615		4,361
Accrued expenses	1,135		3,853
Net cash provided by operating activities	20,187		74,339
Cash flows from investing activities:
Purchase of property and equipment ^(a)	(55,353)		(68,709)
Proceeds from sale of assets ^(a)	17,297		17,785
Payments for other long-term assets	(1,260)		—

Net cash used in investing activities	(39,316)		(50,924)
Cash flows from financing activities:
Proceeds from debt	—		332,500

Repayments of debt	(29,364)		(318,929)
Debt extinguishment costs	—		(17,607)

Change in treasury stock including restricted stock issuances	(5,121)		(1,882)


Deferred loan costs and other financing activities	(469)		(13,420)
Net cash used in financing activities	(34,954)		(19,338)
Net (decrease) increase in cash and equivalents	(54,083)		4,077
Cash and cash equivalents - beginning of year	90,300		86,223
Cash and cash equivalents - end of year	$	36,217	$	90,300

Supplemental cash flow information:
Capital leases and notes issued for equipment	$	7,941	$	20,197
Change in accrued property and equipment	(2,806)		(462)
Income taxes paid	—		—
Change in asset retirement obligations	6,907		(132)
Change in right-of-use assets	14,541		—
Cash paid for interest	39,248		34,396
(a) See reconciling cash flow items from discontinued operations in Note 2: Discontinued Operations

See accompanying notes to consolidated financial statements.

BASIC ENERGY SERVICES, INC.

Notes to Consolidated Financial Statements

December 31, 2019 and 2018

1. Basis of Presentation and Nature of Operations

Basic Energy Services, Inc. (“Basic” or the “Company”) provides a wide range of wellsite services to oil and natural gas drilling and producing companies, including well servicing, water logistics and completion and remedial services. These services are primarily provided by Basic’s fleet of equipment. Basic’s operations are concentrated in major United States onshore oil and natural gas producing regions located in Texas, New Mexico, Oklahoma, Kansas, Arkansas, Louisiana, Wyoming, North Dakota, Colorado, Utah, Montana, and California. Basic’s reportable business segments are Well Servicing, Water Logistics, and Completion & Remedial Services. These segments are based on management’s resource allocation and performance assessment in making decisions regarding the Company.

2. Discontinued Operations

On December 12, 2019, based on the Company's evaluation of the demand for pressure pumping and contract drilling services, the Company's management decided to divest all of Basic's contract drilling rigs, and a majority of pressure pumping equipment and related ancillary equipment, with a net book value of $91.8 million. The Company believes this major strategic shift away from completions and pumping services will allow the Company to strengthen the core businesses of well servicing and water logistics, by reinvesting in those segments. As a result of this strategic shift, the Company recorded a non-cash impairment charge of $32.6 million in 2019 to write down the value of the assets. While pumping and related assets have been transferred to Assets Held for Sale on our Consolidated Balance Sheet, some real estate and equipment has been sold in the fourth quarter of 2019, with additional transactions to occur in the first half of 2020. In addition, the Company's contract drilling assets were divested through auctions in the third quarter of 2019, and an impairment of $3.2 million was recorded related to these transactions.

Assets and liabilities related to the divested operations have been reclassified in the Consolidated Balance Sheet for the years ended December 31, 2019, and 2018 are detailed in the table below (in thousands):


	December 31, 2019		December 31, 2018


Assets-held-for-sale
Inventories	$	2,069	$	6,498
Prepaid Expenses	—		8,489
Right of use assets	1,659		—
Property, plant and equipment, net	50,496		—
Total assets-held-for-sale discontinued operations	$	54,224	$	14,987
Assets-held-for-sale-future-use
Property, plant and equipment, net	$	—	$	139,631
Liabilities related to Assets-held-for-sale
Right of use liabilities	1,659		—
Capital leases	3,589		10,983
Total Liabilities related to Assets-held-for-sale discontinued operations	$	5,248	$	10,983

The operating results of the divested pressure pumping operations and contract drilling operations, which have historically been included in the Completions & Remedial Services and Other Services segments, have been reclassified as discontinued operations in the Consolidated Statement of Operations for the years ended December 31, 2019, and 2018, as detailed in the table below:


Consolidated Statement of Operations
(Dollars in thousands, except per share amounts)

	December 31, 2019										December 31, 2018

	Continuing Operations		Discontinued Operations		Total		Continuing Operations		Discontinued Operations		Total
Revenues:
Well Servicing	$	226,966	$	—	$	226,966	$	250,982	$	9	$	250,991
Water Logistics	199,816		—		199,816		231,283		—		231,283
Completion & Remedial Services	140,468		134,474		274,942		171,300		298,156		469,456
Other Services	—		8,411		8,411		—		12,990		12,990
Total revenues	567,250		142,885		710,135		653,565		311,155		964,720
Expenses:
Well Servicing	186,782		(92)		186,690		203,785		(200)		203,585
Water Logistics	141,379		—		141,379		166,907		19		166,926
Completion & Remedial Services	98,654		127,950		226,604		109,713		256,062		365,775
Other Services	—		6,920		6,920		—		10,130		10,130
General and administrative	118,460		15,208		133,668		145,725		21,790		167,515
Depreciation and amortization	69,489		45,168		114,657		78,173		48,244		126,417
Asset impairment	—		35,801		35,801		—		—		—
Loss (gain) on disposal of assets	2,135		1,878		4,013		(4,918)		2,320		(2,598)
Total expenses	616,899		232,833		849,732		699,385		338,365		1,037,750
Operating loss	(49,649)		(89,948)		(139,597)		(45,820)		(27,210)		(73,030)
Other income (expense):
Loss on extinguishment of debt	—		—		—		(26,429)		—		(26,429)
Interest expense	(42,887)		(583)		(43,470)		(45,161)		(692)		(45,853)
Interest income	509		—		509		364		—		364
Other income	647		34		681		537		41		578
Loss before income taxes	(91,380)		(90,497)		(181,877)		(116,509)		(27,861)		(144,370)
Income tax expense	(21)		—		(21)		(227)		—		(227)
Loss from operations	$	(91,401)	$	(90,497)	$	(181,898)	$	(116,736)	$	(27,861)	$	(144,597)

Net loss per share of common stock, basic and diluted	$	(3.50)	$	(3.46)	$	(6.96)	$	(4.41)	$	(1.05)	$	(5.46)

Interest expense in discontinued operations related to interest expense on capital lease assets that operated in the discontinued Completions & Remedial Services and Other Services segments.

Applicable Consolidated Statements of Cash Flow information related to the divested operations for the years ended December 31, 2019 and 2018 are detailed in the table below (in thousands):


	December 31, 2019		December 31, 2018
Cash Flows from Discontinued Operations
Net cash provided (used) by operating activities	$	2,120	$	37,691
Net cash provided (used) in investing activities	$	133	$	(23,074)


Reconciling items for cash flows:
	December 31, 2019
	Continuing operations		Discontinued operations		Cash flows
Operating activities :


Inventory and other write-downs	$	5,266	$	5,341	$	10,607
Loss on disposal of assets	$	2,135	$	1,878	$	4,013

Investing activities:
Purchase of Property plant and equipment	$	(44,794)	$	(10,559)	$	(55,353)
Proceeds from sales of assets	$	6,605	$	10,692	$	17,297


Reconciling items for cash flows:
	December 31, 2018
	Continuing operations		Discontinued operations		Cash flows
Operating activities :



(Gain) Loss on disposal of assets	$	(4,918)	$	2,320	$	(2,598)

Investing activities:
Purchase of Property plant and equipment	$	(43,063)	$	(25,646)	$	(68,709)
Proceeds from sales of assets	$	15,213	$	2,572	$	17,785

3. Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Basic, for which we hold a majority voting interest. All intercompany transactions and balances have been eliminated.

Other Reclassifications

Certain reclassifications have been made to prior period amounts to conform to the current period presentation. A majority of the reclassifications were related to the discontinued operations. These reclassifications do not impact net income (loss) and do not reflect a material change to the information previously presented in our consolidated financial statements.

Estimates, Risks and Uncertainties

Preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosures of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Management uses historical and other pertinent information to determine these estimates. Actual results could differ from those estimates. Areas where critical accounting estimates are made by management include litigation and self-insured risk reserves.

Litigation and Self-Insured Risk Reserves

Basic estimates its reserves related to litigation and self-insured risks based on the facts and circumstances specific to the litigation and self-insured claims and its past experience with similar claims. Basic maintains accruals in the consolidated balance sheets to cover self-insurance retentions. Please see Note 9. Commitments and Contingencies for further discussion.

Revenue Recognition

Basic accounts for revenues under Accounting Standards Codification (ASC) Topic - 606 - Revenue from Contracts with Customers, the core principle of which is that a company should recognize revenue to match the delivery of goods or services to customers to the consideration the company expects to be entitled in exchange for transferring goods or services to a customer. The new standard also requires significantly expanded disclosures regarding the qualitative and quantitative information of revenue and cash flows arising from contracts with customers. We adopted the standard effective January 1, 2018, using the modified retrospective method. Other than additional required disclosures, adoption of the new standard did not have a significant impact on our consolidated financial statements.

Our revenues are generated by services, which are consumed as provided by our customers on their sites. As a decentralized organization, contracts for our services are negotiated on a regional level and are on a per job basis, with jobs being completed in a short period of time, usually one day or up to a week. Revenue is recognized as performance obligations have been completed on a daily basis either as Accounts Receivable or Work-in-Process ("WIP"), when all of the proper approvals are obtained. A small percentage of our jobs may require performance obligations which extend over a longer period of time and are not invoiced until all performances obligations in the contract are complete, such as, drilling or plugging a well, fishing services, and pad site preparation jobs. Because these jobs are performed on the customer's job site, and we are contractually entitled to bill for our services performed to date, revenues for these service lines are recognized on a daily basis as services are performed and recorded as Contract Assets rather than WIP or Accounts Receivable. Contract Assets are typically invoiced within 30 to 60 days of recognizing revenue. Basic does not have any long-term service contracts; nor do we have revenue expected to be recognized in any future year related to remaining performance obligations or contracts with variable consideration related to undelivered performance obligations.

Inventories

For rental and fishing tools, inventories consisting mainly of grapples, controls and drill bits are stated at lower of cost or net realizable value. Other inventories, consisting mainly of manufacturing raw materials, rig components, repair parts, drilling and completion materials and gravel, are held for use in the operations of Basic and are stated at lower of cost or net realizable value, with cost being determined on the first-in, first-out (“FIFO”) method.

Accounts Receivable

Basic estimates its allowance for losses on accounts receivable based on past collections and expectations for future collections. Basic regularly reviews accounts for collectability. After all collection efforts are exhausted, if the balance is still determined to be uncollectable, the balance is written off. Expense related to the write off of uncollected accounts is recorded in general and administrative expense.

Concentrations of Credit Risk

Financial instruments, which potentially subject Basic to concentration of credit risk, consist primarily of temporary cash investments and trade receivables. Basic restricts investment of temporary cash investments to financial institutions with high credit standing. Basic’s customer base consists primarily of multi-national and independent oil and natural gas producers. It performs ongoing credit evaluations of its customers but generally does not require collateral on its trade receivables. Credit risk is considered by management to be limited due to the large number of customers comprising its customer base. Basic maintains an allowance for potential credit losses on its trade receivables. For the twelve months ended December 31, 2019, one customer represented 12% of consolidated revenue.

Leases

Basic determines if an arrangement is a lease at inception of the arrangement. To the extent that we determine an arrangement represents a lease, we classify that lease as an operating lease or a finance lease. We capitalize operating leases on our consolidated balance sheets through a right-of-use (“ROU”) asset and a corresponding lease liability. ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease.

Operating leases are included in operating lease ROU assets, current operating lease liabilities, and long-term operating lease liabilities in our consolidated balance sheets. Operating lease ROU assets and liabilities are recognized at the commencement date of an arrangement based on the present value of lease payments over the lease term. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. Basic adopted this standard on January 1, 2019.

Property and Equipment

Property and equipment are stated at cost or at estimated fair value at acquisition date if acquired in a business combination or remeasured as a result of fresh start accounting. Expenditures for repairs and maintenance are charged to expense as incurred and additions and improvements that significantly extend the lives of the assets are capitalized. Upon sale or other retirement of depreciable property, the cost and accumulated depreciation and amortization are removed from the related accounts and any gain or loss is reflected in operations. All property and equipment are depreciated or amortized (to the extent of estimated salvage values) on the straight-line method and the estimated useful lives of the assets are as follows:


Asset Type:			Useful Life
Buildings and improvements			20-30 years
Well service units and equipment			3-15 years
Fluid services equipment			5-10 years
Brine and fresh water stations			15 years
Fracturing/test tanks			10 years

Disposal facilities			10-15 years
Vehicles			3-7 years
Rental equipment			2-15 years

Software and computers			3 years

The components of a well servicing rig generally require replacement or refurbishment during the well servicing rig’s life and are depreciated over their estimated useful lives, which ranges from 3 to 15 years. The costs of the original components of a purchased or acquired well servicing rig are not maintained separately from the base rig.

Impairments

We perform a review of our asset groups for impairment when, in management’s judgment, events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recovered over its remaining service life. Impairment is indicated when the sum of the estimated future cash flows, on an undiscounted basis, is less than the asset groups carrying amount. When impairment is identified and fair value is less than carrying value, an impairment charge is recorded to income based on an estimated fair value generally determined based on an estimate of future cash flows on a discounted basis. See Note 4. Property and Equipment for disclosures related to our tangible and intangible property impairments in 2019 and 2018.

Intangible Assets

Basic’s intangible assets subject to amortization were as follows (in thousands):



	December 31,
	2019		2018


Trade names	$	3,230	$	3,410
Other intangible assets	48		48
Sub-total	3,278		3,458
Less accumulated amortization	675		474
Intangible assets subject to amortization, net	$	2,603	$	2,984

Amortization expense for each of the years ended December 31, 2019 and 2018 was approximately $0.2 million. Basic evaluates intangible assets for impairment annually. In 2019, the Company wrote off $0.2 million of net trade names related to the discontinued pumping services line of business.

Amortization expense for the next five succeeding years is expected to be as follows (in thousands):


	Amortization
	Expense
2020	$	225
2021	225
2022	215
2023	215
2024	215
Thereafter	1,508
Total	$	2,603

Developed technology are amortized over a 5-year life. Trade names are amortized over a 15-year life.

Debt Issuance Costs

Basic capitalizes certain third-party fees directly related to the issuance of debt and amortizes these costs over the life of the debt using the effective interest method. Debt issuance costs related to our ABL Facility are presented net of amortization as a non-current asset. Debt issuance costs related to our Senior Secured Notes and Term Loan are presented net of amortization as an offset to the liability. Amortized debt issuance costs are included in interest expense and totaled $2.3 million in 2019, and $1.1 million in 2018.

Stock-Based Compensation

Basic has historically compensated our directors, executives and employees using a combination of performance and time-based stock option, restricted share, and restricted share unit awards. Basic accounts for share-based payment awards under Accounting Codification Standard 718 - Compensation - Stock Compensation (ASC 718), which requires that the value of the awards is established at the date of the grant and is expensed over the vesting period of the grant. The method of determining the fair value of share-based payments depends on the type of award. Share-based awards that vest over a certain service period with no market conditions are valued at the closing market price on the grant date. Share-based awards that are dependent upon certain market performance and service conditions being met are valued using a Monte Carlo simulation model with model inputs that are determined on the date of the grant. Option grants are valued using the Black-Scholes-Merton model using model inputs that are determined on the date of the grant. Once the per-share fair value on the grant date is established, the aggregate expense of the grant is recognized on a straight-line basis over the vesting period of the grant.

Asset Retirement Obligations

Basic is required to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets and capitalize an equal amount as a cost of the asset depreciating it over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation is adjusted at the end of each quarter to reflect the passage of time, changes in the estimated future cash flows underlying the obligation, acquisition or construction of assets, and settlements of obligations. Basic has asset retirement obligations related to our saltwater disposal facilities, brine and freshwater wells.

Environmental

Basic is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require Basic to remove or mitigate the adverse environmental effects of disposal or release of petroleum, chemical and other substances at various sites. Environmental expenditures are expensed or capitalized depending on the future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a non-capital nature are recorded when environmental assessment and/or remediation is probable and the costs can be reasonably estimated.

Income Taxes

The provision for income taxes is determined using the asset and liability method of accounting for income taxes based on the authoritative accounting guidance. Deferred tax assets and liabilities are recorded based upon differences between the tax basis of assets and liabilities and their carrying values for financial reporting purposes, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. We record net deferred tax assets to the extent we believe these assets will more likely than not be

realized. In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. In the event we were to determine that we would be able to realize our deferred income tax assets in the future in excess of net recorded amount, we would make an adjustment to the valuation allowance which would reduce the provision for income taxes.

Recent Accounting Pronouncements

In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The new standard was adopted effective January 1, 2019. See Note 6. Leases for further discussion.

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, "Financial Instruments–Credit Losses," and subsequent amendment to the initial guidance, ASU 2018-19 (collectively, Topic 326). ASU 2016-13 amends current measurement techniques used to estimate credit losses for financial assets. The amendments in ASU 2016-13 are effective for financial statements issued for annual periods beginning after December 15, 2019, and interim periods within those annual periods. Basic adopted this standard on January 1, 2020, and the adoption did not have a material impact on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, "Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract." ASU 2018-15 requires implementation costs incurred by customers in cloud computing arrangements to be deferred over the noncancellable term of the cloud computing arrangements plus any optional renewal periods (1) that are reasonably certain to be exercised by the customer or (2) for which exercise of the renewal option is controlled by the cloud service provider. The effective date of this pronouncement is for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, and early adoption is permitted. The standard can be adopted either using the prospective or retrospective transition approach. Basic adopted this standard on September 30, 2019, and the adoption did not have a material impact on our consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” ASU 2019-12 intends to simplify various aspects related to accounting for income taxes and removes certain exceptions to the general principles in the standard. Additionally, the ASU clarifies and amends existing guidance to improve consistent application of its requirements. The amendments of the ASU are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. Basic is currently evaluating the impact of this pronouncement on its consolidated financial statements.

4. Property and Equipment

The following table summarizes the components of property and equipment for the years ended December 31, 2019, and 2018. Prior year amounts are adjusted for the discontinued pumping services and contract drilling operations (in thousands):



	December 31,
Property and Equipment:	2019		2018
Land	$	15,682	$	14,601
Buildings and improvements	30,902		30,108
Well service units and equipment	130,318		122,236
Disposal facilities	87,763		63,229
Fluid services equipment	79,024		78,501
Rental equipment	60,886		48,319
Pumping equipment	47,083		49,265
Light vehicles	26,630		23,063
Fracturing/test tanks	6,153		6,001
Brine and fresh water stations	4,340		3,295
Other	3,948		3,984
Software	896		857



Sub-total	493,625		443,459
Less accumulated depreciation and amortization	(196,512)		(134,289)
Property and equipment, net	$	297,113	$	309,170

Basic is obligated under various capital leases for certain vehicles and equipment that expire at various dates during the next five years. The table below summarizes the gross amount of property and equipment and related accumulated amortization recorded under capital leases and included above (in thousands):



	December 31,
Property and Equipment:	2019		2018
Fluid services equipment	$	34,499	$	35,034
Light vehicles	19,563		15,631
Pumping equipment	16,576		16,920


Rental equipment	1,130		—


Sub-total	71,768		67,585
Less accumulated amortization	(27,727)		(16,634)
Property and equipment, net	$	44,041	$	50,951

During the period ended December 31, 2019, based on the Company's evaluation of the demand for pressure pumping and contract drilling services, the Company's management decided to divest all of Basic's contract drilling rigs, a majority of pressure pumping equipment and related ancillary equipment, with a net book value of $91.8 million. The Company determined that the carrying value of these assets may not be fully recoverable upon liquidation. The fair value of assets was determined after considering offers to purchase assets in an orderly transaction, third-party estimates, and management's estimates based on comparable sales. As a result of the Company's evaluation of the fair value of assets, an impairment of $35.8 million was recognized within discontinued operations on the consolidated statement of operations during the year ended December 31, 2019, with the remaining net book value transferred to assets held for sale. Basic's estimate of expected cash flows which may result from the sale of equipment may differ from actual cash received due to excess capacity in the industry.

5. Asset Retirement Obligations

The Company has the obligation to plug and remediate its saltwater disposal wellsites when the assets are to be retired. This asset retirement obligation ("ARO") includes plugging inactive assets, removal of surface equipment, and remediation of soil contamination. The Company records a liability for the fair value of ARO that we can reasonably estimate, on a discounted basis, in the period in which the asset is acquired. The fair value of the

liability is calculated using discounted cash flow techniques and based on internal estimates and assumptions related to (i) future retirement costs, (ii) expected remaining lives of the assets, (iii) future inflation rates, and (iv) credit adjusted risk-free interest rates. Significant increases or decreases in these assumptions could result in a significant change to the fair value measurement.

During 2019, the Company increased its estimated ARO liability by $7.2 million. The additional operational and accounting information provided by the creation of our water midstream entity allowed management to determine which wellsites were candidates for further capital investment, and which were candidates for plugging and abandonment (“P&A” or plug & abandon). The first nine months of plugging and abandonment activity in 2019 provided additional information to revise our initial P&A estimates made when each disposal well was an extension of a trucking yard. As an extension of a trucking yard, a well may be plugged, but not abandoned since the trucking yard would still be operational. As a stand-alone water midstream entity, if ALM were to plug a well, it would likely also remediate and abandon the wellsite at the same time. The data gathered from the creation of the entity allowed us to make the upward revision of our estimate in the third quarter of 2019.

The following table presents activity in our ARO (in thousands):



	2019		2018
Balance as of January 1, 2019	$	2,587	$	2,507
Additions	281		16
Revision in estimate	7,205		—
Disposals	(124)		(148)
Expenditures	(671)		—
Accretion of discount	1,051		212
Balance as of December 31, 2019	$	10,329	$	2,587

The following table outlines our contractual obligations as of December 31, 2019 (in thousands):


	Retirement obligation
2020	$	1,285
2021	172
2022	146
2023	341
Thereafter	8,385
Total asset retirement obligations	$	10,329

6. Leases

Basic adopted ASU No. 2016-02, Topic 842 - Leases, effective January 1, 2019. This ASU requires lessees to recognize an operating lease right-of-use ("ROU") asset and liability on the balance sheet for all operating leases with an initial lease term greater than twelve months.

ASU 2018-11 Leases – Targeted Improvements, allows for a practical expedient wherein all periods previously reported under ASC 840 will continue to be reported under ASC 840, and periods beginning January 1, 2019 and after are reported under ASC 842. Basic elected to adopt this practical expedient along with the package of practical expedients, which allows Basic to combine lease and non-lease costs, and not to assess whether existing or expired land easements that were not previously accounted for as leases under Topic 840 are or contain a lease under this Topic.

Under this transition option, Basic will continue to apply the legacy guidance in ASC 840, including its disclosure requirements, in the comparative periods presented and will make only annual disclosures for the comparative periods because ASC 840 does not require interim disclosures. Prior period amounts have not been adjusted and continue to be reflected in accordance with Basic’s historical accounting. The adoption of this standard resulted in the recording of ROU assets and lease liabilities of approximately of $20.8 million as of January 1, 2019, with no related impact on Basic’s Consolidated Statement of Shareholders' Equity or Consolidated Statement of Operations.

As a lessee, Basic leases its corporate office headquarters in Fort Worth, Texas, and conducts its business operations through various regional offices located throughout the United States. These operating locations typically

include regional offices, storage and maintenance yards, disposal facilities and employee housing sufficient to support its operations in the area. Basic leases most of these properties under either non-cancelable term leases many of which contain renewal options that can extend the lease term from one to five years and some of which contain escalation clauses, or month-to-month operating leases. Options to renew these leases are generally not considered reasonably certain to be exercised. Therefore, the periods covered by such optional periods are not included in the determination of the term of the lease. Basic also leases supplemental equipment, typically under cancellable short-term or contracts which are less than 30 days. Due to the nature of the Company's business, any option to renew these short-term leases is generally not considered reasonably certain to be exercised. Therefore, the periods covered by such optional periods are not included in the determination of the term of the lease, and the lease payments during these periods are similarly excluded from the calculation of operating lease asset and lease liability balances.

Operating lease expense consists of rent expense related to leases that were included in ROU assets under Topic 842. Basic recognizes operating lease expense on a straight-line basis, except for certain variable expenses that are recognized when the variability is resolved, typically during the period in which they are paid. Variable operating lease payments typically include charges for property taxes and insurance, and some leases contain variable payments related to non-lease components, including common area maintenance and usage of facilities or office equipment (for example, copiers), which totaled approximately $1.1 million during the twelve months ended December 31, 2019. Prepaid rent totaled $0.1 million at December 31, 2019.

The following table summarizes the components of the Company's lease expense recognized for the twelve months ended December 31, 2019, excluding variable lease and prepaid rent costs (in thousands):


	December 31, 2019
Operating lease expense:
Short-term operating lease	$	5,691
Long-term operating lease	8,681
Total operating lease expense	$	14,372
Finance lease expense:
Amortization of right-of-use assets	$	19,171
Interest on lease liabilities	5,005
Total finance lease expense	$	24,176

Supplemental information related to leases was as follows:


						December 31, 2019
Operating leases
Weighted average remaining lease term						3.1 years
Weighted average discount rate						14.8%

Finance leases
Weighted average remaining lease term						2.1 years
Weighted average discount rate						8.2%

Supplemental cash flow information related to leases was as follows for the year ended December 31, 2019 (in thousands):


	Year Ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases	$	14,372
Operating cash outflows from finance leases	5,005
Financing cash outflows from finance leases	29,364
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	2,477
Finance leases	7,941

Supplemental balance sheet information related to leases was as follows as of December 31, 2019, and December 31, 2018 (in thousands):


	December 31, 2019		December 31, 2018
Right-of-Use Assets under Operating Leases
Operating lease right-of-use assets	$	14,540	$	20,819
Operating lease right-of-use liabilities, current portion	4,906		5,649
Operating lease right-of-use liabilities, long-term portion	9,634		15,170
Total operating lease liabilities	$	14,540	$	20,819

Right-of-Use Assets under Finance Leases
Property and equipment, at cost	$	71,768	$	67,585
Less accumulated depreciation	(27,727)		(16,634)
Property and equipment, net	$	44,041	$	50,951

Current portion of finance leases	$	18,738	$	20,061
Long-term finance leases	17,160		29,865
Total finance lease liabilities	$	35,898	$	49,926

Future annual minimum operating lease payments were as follows (in thousands):




	December 31,
	2019

2020	$	6,618
2021	5,227
2022	4,393
2023	942
2024	721
Thereafter	325
Total lease payments	$	18,226
Impact of discounting	(3,686)
Discounted value of operating lease obligation	$	14,540

7. Long-Term Debt

Long-term debt consisted of the following (in thousands):



	December 31,
	2019		2018

10.75% Senior Notes due 2023	$	300,000	$	300,000


Capital leases and other notes	35,898		49,926
Unamortized discount and deferred debt costs	(8,795)		(11,169)
Total long-term debt	327,103		338,757
Less current portion	18,738		19,582
Total non-current portion of long-term debt	$	308,365	$	319,175

Debt Discounts

The following discounts on debt represent the unamortized discount to fair value of prior Amended and Restated Term Loan Agreement and the short-term and long-term portions of the fair value discount of capital leases (in thousands):


	December 31,
	2019		2018

Unamortized discount on Senior Notes	$	2,156	$	2,731
Unamortized discount on Capital Leases - short-term	—		479

Unamortized deferred debt issuance costs	6,639		7,959
Total	$	8,795	$	11,169

Senior Secured Notes

On October 2, 2018, the Company issued $300 million aggregate principal amount of 10.75% senior secured notes due 2023 (the “Senior Notes”) in an offering exempt from registration under the Securities Act. The Senior Notes were issued at a price of 99.042% of par to yield 11.0%. The Senior Notes are secured by a first-priority lien on substantially all of the assets of the Company and the subsidiary guarantors other than accounts receivable, inventory and certain related assets. Net proceeds from the offering of approximately $290.0 million were used to repay the Company’s existing indebtedness under the Amended and Restated Term Loan Agreement, to repay the Company’s outstanding borrowings under its previous credit facility (the "Prior ABL Facility"), and for general corporate purposes.

Indenture

The Indenture contains covenants that limit the ability of the Company and certain subsidiaries to:

•incur additional indebtedness or issue preferred stock;

•pay dividends or make other distributions to its stockholders;

•repurchase or redeem capital stock or subordinated indebtedness and certain refinancings thereof;

•make certain investments;

•incur liens;

•enter into certain types of transactions with affiliates;

•limit dividends or other payments by restricted subsidiaries to the Company; and

•sell assets or consolidate or merge with or into other companies.

These limitations are subject to a number of important qualifications and exceptions.

The Company may redeem all, but not less than all, of the Senior Notes in connection with a company sale transaction, at a redemption price of 105.375% of principal for a company sale that occurs on or after April 15, 2019 and on or before October 15, 2019, or 108.063% of principal amount for a company sale that occurs after October 15, 2019 and before October 15, 2020, in each case plus accrued and unpaid interest, if any, to the redemption date. If the transactions contemplated by the Exchange Agreement are followed by a downgrade in the Company's rating by either S&P Global Ratings or Moody’s Investors Service within 90 days, a “Change of Control” as defined in our Senior Notes will be deemed to have occurred. If the Company experiences such a Change of Control, the Company may be required to offer to purchase the Senior Notes at a purchase price equal to 101% of the principal amount, plus accrued and unpaid interest, if any, to the purchase date.

ABL Facility

On October 2, 2018, the Company terminated the Prior ABL Facility and Amended and Restated Term Loan Agreement and entered into an ABL Credit Agreement (the “ABL Credit Agreement”) among the Company, as borrower (in such capacity, the “Borrower”), Bank of America, N.A., as administrative agent (the “Administrative Agent”), swing line lender and letter of credit issuer, UBS Securities LLC, as syndication agent, PNC Bank National Association, as documentation agent and letter of credit issuer, and the other lenders from time to time party thereto (collectively, the “ABL Lenders”). Pursuant to the ABL Credit Agreement, the ABL Lenders have extended to the Borrower a revolving credit facility in the maximum aggregate principal amount of $150 million, subject to borrowing base capacity (the “ABL Facility”). The ABL Facility includes a sublimit for letters of credit of up to $50 million in the aggregate, and for borrowings on same-day notice under swingline loans subject to a sublimit of the lesser of (a) $15 million and (b) the aggregate commitments of the ABL Lenders. The ABL Facility also provides capacity for base rate protective advances up to $10 million at the discretion of the Administrative Agent and provisions relating to overadvances. The ABL Facility contains no restricted cash requirements.

guaranty with respect to swap obligations. All obligations under the ABL Facility and the related guarantees are secured by a perfected first-priority security interest in substantially all accounts receivable, inventory, and certain other assets, not including equity interests. As of December 31, 2019, Basic had no borrowings and $34.2 million of letters of credit outstanding under the ABL Facility.

Prior ABL Facility

On September 29, 2017, Basic entered into a credit facility (the "Prior ABL Facility") pursuant to (i) a Receivables Transfer Agreement (the “Transfer Agreement”) entered into by and among Basic Energy Services, L.P. (“BES LP”), as the initial originator and Basic Energy Receivables, LLC (the “SPE”), as the transferee and (ii) the Credit Agreement.

Under the Transfer Agreement, BES LP was required to sell or contribute, on an ongoing basis, its accounts receivable and related security and interests in the proceeds thereof (the “Transferred Receivables”) to the SPE. The SPE financed a portion of its purchase of the accounts receivable through borrowings, on a revolving basis, of up to $100 million (with the ability to request an increase in the size of the Prior ABL Facility by $50 million) under the Credit Agreement, and such borrowings were secured by the accounts receivable. The SPE financed its purchase of the remaining portion of the accounts receivable by issuing subordinated promissory notes to BES LP and/or by contributing the remaining portion of the accounts receivables in exchange for equity in the SPE in the amount of the purchase price of the receivable not paid in cash. BES LP was responsible for the servicing, administration and collection of the accounts receivable, with all collections going into lockbox accounts. The Company provided a customary guaranty of performance to the administrative agent with respect to certain obligations of BES LP and any successor servicer under the Prior ABL Facility. In connection with entering into the Prior ABL Facility, on September 29, 2017, the Company amended the Amended and Restated Term Loan Agreement to permit, among other things, (i) the acquisition of the Transferred Receivables by the SPE pursuant to the Transfer Agreement, free and clear of the liens under the Amended and Restated Term Loan Agreement and (ii) the transactions contemplated under each of the Transfer Agreement and Credit Agreement. The Company consolidated the SPE, which the Company determined to be a variable interest entity ("VIE"), and all intercompany activity was eliminated upon consolidation. In concluding the SPE was a VIE, the Company determined it is the primary beneficiary of the SPE, as all activities of SPE are for the benefit of the Company. The accounts receivable held at the SPE are used solely to settle the debt obligations of the SPE.

In connection with the closing of its Senior Notes offering, the Company repaid the balances outstanding under the Prior ABL Facility in its entirety and terminated the Prior ABL Facility.

Amended and Restated Term Loan Agreement

On December 23, 2016, the Company entered into an Amended and Restated Term Loan Credit Agreement (the “Amended and Restated Term Loan Agreement”) with a syndicate of lenders and U.S. Bank National Association, as administrative agent for the lenders. On October 2, 2018, in connection with the closing of its Senior Note offering, the Company repaid its outstanding debt (including accrued interest) under the Amended and Restated Term Loan Agreement and terminated the Amended and Restated Term Loan Agreement. The Amended and Restated Term Loan Agreement repayment was made prior to the maturity date defined in the Amended and Restated Term Loan Agreement, and the Company incurred repayment penalties of approximately $17.6 million associated with the repayment.

Other Debt

Basic has a variety of other capital leases outstanding, which are generally customary in Basic’s business.

As of December 31, 2019, the aggregate maturities of debt, including capital leases, for the next five years and thereafter are as follows (in thousands):


Period:	Debt		Capital Leases
2020	$	—	$	18,738
2021	—		11,485
2022	—		4,835
2023	300,000		785
Thereafter	—		55
Total	$	300,000	$	35,898

Basic’s interest expense consisted of the following (in thousands):



	Year ended December 31,
Interest expense:	2019		2018
Cash payments for interest	$	39,248	$	34,396
Commitment and other fees paid	48		2,441

Amortization of discounts	1,054		3,424
Amortization of deferred debt costs	2,338		1,050
Change in accrued interest	86		3,688

Other	113		162
Interest expense - continuing operations	$	42,887	$	45,161

8. Fair Value Measurements

Fair value is the price that would be received to sell an asset or the amount paid to transfer a liability in an orderly transaction between market participants (an exit price) at the measurement date. Fair value is a market based measurement considered from the perspective of a market participant. The Company uses market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation. There is a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The Company classifies fair value balances based on the observability of those inputs. The three levels of the fair value hierarchy are as follows:

Level 1 — Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 — Inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable. These inputs are either directly observable in the marketplace or indirectly observable through corroboration with market data for substantially the full contractual term of the asset or liability being measured.

Level 3 — Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and other current liabilities approximate fair value due to the short maturities of these instruments. The carrying amount of our Credit Facility in Long-term debt also approximates fair value due to its variable-rate characteristics.


		December 31, 2019						December 31, 2018
	Hierarchy	Carrying		Fair		Carrying		Fair
	Level	Amount		Value		Amount		Value
10.75 % Senior Notes due 2023	1	$	297,844	$	213,246	$	297,269	$	257,806

Basic did not have any assets or liabilities that were measured at fair value on a recurring basis at December 31, 2018, and 2019.

9. Commitments and Contingencies

Environmental

Basic is subject to various federal, state and local environmental laws and regulations that establish standards and requirements for protection of the environment. Basic cannot predict the future impact of such standards and requirements which are subject to change and can have retroactive effectiveness. Basic continues to monitor the status of these laws and regulations.

Currently, Basic has not been fined, cited or notified of any environmental violations that would have a material adverse effect upon its financial position, liquidity or capital resources. However, management does recognize that by the very nature of its business, material costs could be incurred in the near term to maintain compliance. The amount of such future expenditures is not determinable due to several factors, including the unknown magnitude of possible regulation or liabilities, the unknown timing and extent of the corrective actions which may be required, the determination of Basic’s liability in proportion to other responsible parties and the extent to which such expenditures are recoverable from insurance or indemnification.

Litigation

From time to time, Basic is a party to litigation, or other legal proceedings that Basic considers to be a part of the ordinary course of business. Basic is not currently involved in any legal proceedings that it considers probable or reasonably possible, individually or in the aggregate, to result in a material adverse effect on its financial condition, results of operations or liquidity.

Sales and Use Tax Audit

In 2018, the Texas State Comptroller’s office issued a preliminary report on the sales and use tax audit for the period from 2010 through 2013. Basic appealed the preliminary report through the redetermination process. Based on our analysis, the potential liability associated with this audit ranges from $6.0 million to $24.0 million. This range could potentially change in future periods as the appeals and redetermination process progresses. Basic recorded an accrual of $6.0 million in the second quarter of 2018. After making monthly payments of $100,000, a net estimated liability of $4.2 million, and an additional amount of $1.9 million of related interest are included in accrued liabilities for the twelve months ended December 31, 2019.

On August 15, 2019, the Company was notified by the Oklahoma Tax Commission (the "OTC") that the tax court had issued findings, conclusions, and recommendations in an on-going tax case related to tax years 2006 through 2008. Based on the ruling and the advice of our Oklahoma tax counsel, the Company decided to negotiate a settlement with the OTC. The Company's analysis is that the potential liability associated with the settlement may range from $2.3 million to $3.5 million. The Company recorded $2.3 million of income tax and interest payable, which are included as accrued expenses on our consolidated balance sheets, and the related expense during the year ended December 31, 2019.

Employment Agreements

Pursuant to the Employment Agreement with Keith Schilling, the President and Chief Executive Officer of the Company, effective through December 31, 2021, and set to automatically renew for subsequent one-year periods unless notice of termination is properly given by the Company or Mr. Schilling, Mr. Schilling is entitled to a base salary of $650,000 per year. Mr. Schilling will also receive an annual performance bonus, with a target bonus equal to 90% of his base salary, if certain performance criteria are met. Under the Employment Agreement, Mr. Schilling is also eligible from time to time to receive awards of long-term equity incentive compensation under the Company’s equity compensation plans. In addition to his one-time signing bonus of $150,000, he will receive one-time payments to compensate him for the loss of equity issued from his previous employment in the following amounts: (i) $50,000 on May 15, 2020, (ii) $100,000 on May 15, 2021, and (iii) $100,000 on May 15, 2022, in each case conditioned on his continued employment through the applicable payment date.

If Mr. Schilling’s employment is terminated for certain reasons, he would also be entitled to a lump sum severance payment equal to 1.5 times the sum of his annual base salary plus his current annual incentive target bonus for the full year in which the termination of employment occurred. Additionally, if Mr. Schilling’s employment is terminated for certain reasons within the six months preceding or the twelve months following a change of control of the Company, he would be entitled to a lump sum severance payment equal to two times the sum of his annual base salary plus the higher of (i) his current annual incentive target bonus for the full year in which the termination of employment occurred or (ii) the highest annual incentive bonus received by him for any of the last three completed fiscal years. In the event that within the six months preceding or the twelve months following a change of control of the Company, Mr. Schilling’s Employment Agreement is not renewed by the Company and a new employment

agreement has not been entered into, Mr. Schilling will be entitled to the same severance benefits described above, subject to certain conditions.

Basic also has entered into employment agreements with various other executive officers. Under these agreements, if the officer’s employment is terminated for certain reasons, he would be entitled to a lump sum severance payment equal to either 0.75 times to 1.5 times the sum of his annual base salary plus his current annual incentive target bonus for the full year in which the termination occurred. If employment is terminated for certain reasons within the six months preceding or the twelve months following the change of control of the Company, he would be entitled to a lump sum severance payment equal to either 1.0 or 2.0 times the sum of his annual base salary plus the higher of (i) his current incentive target bonus for the full year in which the termination of employment occurred or (ii) the highest annual incentive bonus received by him for any of the last three fiscal years.

Self-Insured Risk Accruals

Basic is self-insured up to retention limits as it relates to workers’ compensation, general liability claims, and medical and dental coverage of its employees. Basic generally maintains no physical property damage coverage on its rig fleet, with the exception of certain of its 24-hour workover rigs, newly manufactured rigs and pumping services equipment. Basic has deductibles per occurrence for workers’ compensation, general liability claims, and medical and dental coverage of $2.0 million, $1.0 million and $0.4 million, respectively. Basic has a $1.0 million deductible per occurrence for automobile liability. Basic maintains accruals in the accompanying consolidated balance sheets related to self-insurance retentions by using third-party data and claims history.

10. Accrued Expenses

Accrued expenses included in current liabilities on our Consolidated Balance Sheet are as follows (in thousands):


	December 31,
	2019		2018
Employee compensation	$	17,527	$	20,680
Retained losses on insurance obligations	9,801		6,566
Accrued interest	8,997		10,068
Property tax payable	4,672		1,617
Federal and state tax payable	2,375		—
Short-term sales tax payable	2,114		2,336
Professional fees	1,260		1,638



Other	1,370		2,050
Total	$	48,116	$	44,955

11. Stockholders' Equity

Common Stock

Basic had 80,000,000 shares of Basic’s common stock, par value $0.01 per share authorized, 27,912,059 shares issued and 24,904,485 shares outstanding at December 31, 2019.

Treasury Stock

Basic acquired treasury shares through net share settlements for payment of payroll taxes upon the vesting of restricted stock unit awards, forfeitures of restricted share awards, and through the publicly announced repurchase program. Basic issued and repurchased a net total of 2,692,116 and 160,026 common shares for the years ended December 31, 2019 and 2018 respectively.

Preferred Stock

At December 31, 2019, Basic had 5,000,000 shares of preferred stock, par value $0.01 per share, authorized, of which none was designated, issued or outstanding.

12. Incentive Plan

Management Incentive Plan

On May 14, 2019, the stockholders of the Company approved the Basic Energy Services, Inc. 2019 Long Term Incentive Plan (the “LTIP”) to succeed the Basic Energy Services, Inc. Management Incentive Plan (the “MIP”). The LTIP became effective on May 14, 2019, and replaced the MIP. A total of 2,481,657 shares of the Company’s common stock are reserved for issuance pursuant to the LTIP. No further awards will be granted under the MIP.

During the years ended December 31, 2019 and 2018, compensation expense related to share-based arrangements under the MIP and the LTIP, including restricted stock, restricted stock units and stock option awards, was approximately $8.7 million and $27.3 million respectively. For compensation expense recognized during the year ended December 31, 2019 and 2018, Basic did not recognize a tax benefit.

At December 31, 2019, there was $3.1 million unrecognized compensation related to non-vested share-based compensation arrangements granted under the MIP and the LTIP. That cost is expected to be recognized over a weighted average period of 1.85 years. Expenses described below are for employee awards granted under the MIP or the LTIP, as applicable.

Stock Option Awards

Total expense related to stock options was approximately $1.9 million in 2019 and $4.2 million in 2018. Future expense for all options is expected to be approximately $0.1 million in the first quarter of 2020.

Options granted under the MIP expire 10 years from the date they are granted, and generally vest over a period of three years.

The following table reflects the summary of stock options outstanding at December 31, 2019:







	Number of Options Granted	Weighted Average Exercise Price ($)	Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (000's)
Non-statutory stock options:
Outstanding, beginning of period	595,736	39.23
Options granted	—	—
Options forfeited	(77,702)	39.30
Options exercised	—	—
Options expired	(211,528)	39.25
Outstanding, end of period	306,506	39.23	7.08	—
Exercisable, end of period	256,867	38.71	7.07	—
Vested or expected to vest, end of period	49,639	41.90	7.17	—

Restricted Stock Unit Awards

Time-based

A summary of the status of Basic’s non-vested RSU grants at December 31, 2019 and changes during the year ended December 31, 2019 is presented in the following table:




	Number of Restricted Stock Units	Weighted Average Grant Date Fair Value Per Unit
Non-vested at beginning of period	191,302	$	16.58
Granted during period	653,160	2.53
Vested during period	(73,976)	16.17
Forfeited during period	(197,420)	5.43
Non-vested at end of period	573,066	$	4.46

Valuation of time vesting restricted stock units for all periods presented is equal to the quoted market price for the shares on the date of the grant. The total fair value of time-vesting restricted stock units vested in fiscal 2019 and 2018 was $0.3 million and $1.4 million, respectively and is measured as the quoted market price of the Company’s common stock on the vesting date for the number of shares vested.

Performance-based

A summary of the status of Basic’s non-vested performance-based grants at December 31, 2019 and changes during the year ended December 31, 2019 is presented in the following table:




	Number of Performance Stock Units	Weighted Average Grant Date Fair Value Per Unit
Non-vested at beginning of period	682,985	$	27.27
Granted during period	—	—
Vested during period	(218,541)	36.33
Forfeited during period	(152,206)	28.13
Non-vested at end of period	312,238	$	20.52

During fiscal 2018, the Company granted performance-based restricted stock units covering 284,625 shares of common stock having a fair value at the date of grant of $3.3 million, determined using a Monte Carlo simulation model. The performance-based restricted stock units vest subject to attainment of performance criteria established by the Compensation Committee and continuous employment through the vesting date. The 284,625 units may vest in a number of shares from zero to 150% of the award, based on the total shareholder return of Basic’s common stock compared to total shareholder return of a group of peer companies (“TSR”) established by the Compensation Committee for the period from January 1, 2018 to December 31, 2019. The grant will then vest in two equal tranches.

The total fair value of performance-based restricted stock units vested in 2019 and 2018 was $1.0 million and $5.5 million, respectively and is measured as the quoted market price of the Company’s common stock on the vesting date for the number of shares vested.

Restricted Stock Awards

On May 15, 2019, the Board made grants of time-based restricted stock awards representing an aggregate 120,000 shares of common stock of the Company to non-employee members of the Board. These grants are subject to vesting fully on the first anniversary of the grant date and are subject to accelerated vesting under certain circumstances.

In the second quarter of 2019, the Board also made grants of time-based restricted stock awards representing an aggregate 533,160 shares of common stock of the Company to certain members of management. These grants are subject to vesting over a three-year period and are subject to accelerated vesting under certain circumstances.

On May 21, 2018, the Board approved grants of restricted stock awards to non-employee members of the Board. The number of restricted shares granted was 48,400. These grants are subject to vesting over a period of ten months and are subject to accelerated vesting under certain circumstances.

The total fair value of restricted stock awards vested during the twelve months ended December 31, 2019, and 2018 was $33,000 and $77,000, respectively, and was measured as the quoted market price of the Company’s common stock on the vesting date for the number of shares vested.

Phantom Stock Awards

On March 21, 2019, the Compensation Committee of the Board approved grants of phantom restricted stock awards to certain key employees. Phantom shares are recorded as a liability at their current market value and are included in other current liabilities. The aggregate number of phantom shares issued on March 22, 2019, was 370,350. These grants remain subject to vesting annually in one-third increments over a three-year period, with the first portion vesting on March 22, 2020, and are subject to accelerated vesting in certain circumstances. Total expense related to phantom stock granted to key employees for the years ended December 31, 2019 and 2018, was approximately $0.1 million and $0.7 million, respectively.

On May 15, 2019, the Compensation Committee of the Board made grants of phantom restricted stock to certain members of management. The aggregate number of phantom shares issued on May 15, 2019 to certain members of management was 524,160. These grants remain subject to vesting annually in one-third increments over a three-year period, with the first portion vesting on May 15, 2020, and are subject to accelerated vesting in certain circumstances. Total expense related to this grant for the year ended December 31, 2019, was approximately $0.1 million.

On May 15, 2019, the Compensation Committee of the Board made grants of phantom restricted stock to non-employee members of the Board. The number of phantom shares issued on May 15, 2019 to non-employee members of the Board was 54,000. These grants remain subject to vesting fully on the first anniversary of the grant date, and are subject to accelerated vesting in certain circumstances. Total expense related to this grant for the year ended December 31, 2019, was approximately $31,000.

In the second quarter of 2019, the Compensation Committee of the Board approved grants of phantom performance-based restricted stock to certain members of management. The performance-based phantom stock awards are tied to Basic’s achievement of total stockholder return (“TSR”) relative to the TSR of a peer group of energy services companies over the performance period. The number of phantom shares to be issued will range from 0% to 150% of the 1,069,320 target number of phantom shares. Any phantom shares earned at the end of the performance period will then remain subject to vesting in one-half increments on May 15, 2021, and 2022 (subject to accelerated vesting in certain circumstances). Phantom shares are recorded as a liability at fair value calculated using a Monte Carlo valuation and are included in other current liabilities. Total expense related to performance-based phantom stock for the year ended December 31, 2019, was approximately $0.2 million.

On February 8, 2018, the Compensation Committee approved grants of phantom restricted stock awards to certain key employees. Phantom shares are recorded as a liability at their current market value and are included in other current liabilities. The number of phantom shares issued on February 8, 2018 was 82,350. These grants remain subject to vesting annually in one-third increments over a three-year period, the first portion vested on March 15, 2019, and are subject to accelerated vesting in certain circumstances.

Warrant Agreement

On December 23, 2016, the Company entered into a warrant agreement (the “Warrant Agreement”) with American Stock Transfer & Trust Company, LLC, as warrant agent. The Company issued warrants (the “Warrants,” and holders thereof “Warrantholders”), which in the aggregate, are exercisable to purchase up to approximately 2,066,627 shares of common stock. As of December 31, 2019 there were 2,066,576 warrants outstanding, exercisable until December 23, 2023, to purchase at an initial exercise price of $55.25 per share, subject to adjustment as provided in the Warrant Agreement. At issuance, the warrants were recorded at fair value, which was determined using the Black-Scholes option pricing model. The warrants are equity classified and, at issuance, were recorded as an increase to additional paid-in capital in the amount of $8.4 million. All unexercised Warrants will expire, and the rights of the Warrantholder to purchase common stock will terminate on December 23, 2023.

13. Net Loss Per Share

Basic loss per common share are determined by dividing net loss applicable to common stock by the weighted average number of common shares actually outstanding during the year. Diluted loss per common share is based on the increased number of shares that would be outstanding assuming conversion of dilutive outstanding securities using the “as if converted” method. The following table sets forth the computation of basic and diluted loss per share (in thousands, except share data):



	Year ended December 31,
	2019		2018
Numerator (both basic and diluted):
Loss from continuing operations	$	(91,401)	$	(116,736)
Loss from discontinued operations, net of tax	(90,497)		(27,861)
Net loss available to common stockholders	$	(181,898)	$	(144,597)
Denominator:
Denominator for basic and diluted earnings per share	26,141,414		26,467,417


Basic and diluted loss per common share from continuing operations:	$	(3.50)	$	(4.41)
Basic and diluted loss per common share from discontinued operations:	(3.46)		(1.05)
Basic and diluted loss per common share available to stockholders:	$	(6.96)	$	(5.46)

The Company has issued potentially dilutive instruments such as unvested restricted stock and common stock options. However, the Company did not include these instruments in its calculation of diluted loss per share during the periods presented, because to include them would be anti-dilutive.

The following shows potentially dilutive instruments:


	Year ended December 31,
	2019	2018
Warrants	2,066,576	2,066,576
Unvested restricted stock units	373,754	29,806
Stock options	306,506	595,736
Total	2,746,836	2,692,118

14. Business Segment Information

Basic’s reportable business segments are Well Servicing, Water Logistics, and Completion & Remedial Services. These segments have been selected based on changes in management’s resource allocation and performance assessment in making decisions regarding the Company. Prior to December 2019, the Company operated an Other Services segment, which was comprised of contract drilling services and manufacturing and rig servicing. Contract drilling was discontinued as a service in the third quarter of 2019, and manufacturing rig servicing was realigned with Well Servicing. Our Pumping Services Division, which was included in the Completion & Remedial Services segment was discontinued in the fourth quarter of 2019. The following is a description of our business segments included in continuing operations:

Well Servicing: This segment encompasses a full range of services performed with a mobile well servicing rig, including the installation and removal of downhole equipment and elimination of obstructions in the well bore to facilitate the flow of oil and natural gas. These services are performed to establish, maintain and improve production throughout the productive life of an oil and natural gas well and to plug and abandon a well at the end of its productive life. Basic’s well servicing equipment and capabilities also facilitate most other services performed on a well. This segment also includes the manufacture and servicing of mobile well servicing rigs.

Water Logistics: This segment utilizes a fleet of trucks and related assets, including specialized tank trucks, storage tanks, water wells, disposal facilities water treatment and related equipment. Basic employs these assets to provide, transport, store and dispose of a variety of fluids. These services are required in most workover, completion and remedial projects as well as part of daily producing well operations. Also included in this segment are our construction services which provide services for the construction and maintenance of oil and natural gas production infrastructures.

Completion & Remedial Services: This segment utilizes coiled tubing services, air compressor packages specially configured for underbalanced drilling operations, an array of specialized rental equipment and fishing tools, thru-tubing and snubbing units.

Basic’s management evaluates the performance of its operating segments based on operating revenues and segment profits. Corporate expenses include general corporate expenses associated with managing all reportable operating segments. Corporate assets consist principally of working capital and debt financing costs.

The following table sets forth certain financial information with respect to Basic’s reportable segments (in thousands):




	Well Servicing		Water Logistics		Completion & Remedial Services		Corporate and Other		Continuing Operations Total		Discontinued Operations
Year ended December 31, 2019
Operating revenues	$	226,966	$	199,816	$	140,468	$	—	$	567,250	$	142,885
Direct operating costs	(186,782)		(141,379)		(98,654)		—		(426,815)		(134,778)
Segment profits	40,184		58,437		41,814		—		140,435		8,107
Depreciation and amortization	18,766		26,143		19,964		4,616		69,489		45,168
Capital expenditures	14,525		26,209		7,033		654		48,421		12,067
Identifiable assets	$	78,686	$	118,960	$	42,560	$	256,044	$	496,250	$	54,224

Year ended December 31, 2018
Operating revenues	$	250,982	$	231,283	$	171,300	$	—	$	653,565	$	311,154
Direct operating costs	(203,785)		(166,907)		(109,713)		—		(480,405)		(266,011)
Segment profits	47,197		64,376		61,587		—		173,160		45,143
Depreciation and amortization	18,470		25,250		27,903		6,550		78,173		48,244
Capital expenditures	22,212		24,737		10,128		1,396		58,473		29,970
Identifiable assets	$	89,813	$	98,717	$	125,123	$	293,506	$	607,159	$	154,618

The following table reconciles the segment profits reported above to the operating income as reported in the consolidated statements of operations (in thousands):



	Year ended December 31,
	2019		2018
Segment profits	$	140,435	$	173,160
General and administrative expenses	(118,460)		(145,725)
Depreciation and amortization	(69,489)		(78,173)
Gain (Loss) on disposal of assets	(2,135)		4,918


Operating loss	$	(49,649)	$	(45,820)

15. Revenues

As of December 31, 2019, accounts receivable related to products and services were $99.6 million. At December 31, 2019, the Company had $1.0 million of contract assets and $0.9 million of contract liabilities on our consolidated balance sheet. At December 31, 2018, the Company had $1.1 million of contract assets and $0.9 million contract liabilities recorded on our consolidated balance sheet.

Basic does not have any long-term service contracts; nor do we have revenue expected to be recognized in any future year related to remaining performance obligations or contracts with variable consideration related to undelivered performance obligations.

The following table summarizes our disaggregated revenues by geographical markets and major service lines for the years ended December 31, 2019, and 2018 (in thousands):


	Well Servicing		Water Logistics		Completion & Remedial Services		Discontinued Operations		Total
Twelve Months Ended December 31, 2019
Primary Geographical Markets
Permian Basin	$	115,803	$	106,306	$	62,919	$	23,697	$	308,725
ArkLaTex & Mid-Continent	49,122		43,915		14,466		108,396		215,899
Rocky Mountain	24,069		22,310		69,526		3,507		119,412
Texas Gulf Coast	28,308		38,068		—		7,285		73,661
West Coast	21,727		—		—		—		21,727
Corporate (Intercompany)	(12,063)		(10,783)		(6,443)		—		(29,289)
Total	$	226,966	$	199,816	$	140,468	$	142,885	$	710,135

Major Service Lines
Well Servicing	$	187,693	—		—		—		$	187,693
Plugging	26,050		—		—		—		26,050
Transport/Vacuum	—		122,008		—		—		122,008
Production and Disposal Facilities	—		20,519		—		—		20,519
Hot Oiler	—		20,709		—		—		20,709
RAFT	—		—		73,978		—		73,978
Coiled Tubing	—		—		54,428		—		54,428
Snubbing	—		—		3,709		—		3,709
Taylor Industries - Manufacturing (Intercompany)	3,931		—		—		—		3,931
Discontinued Operations	—		—		—		142,885		142,885
Other	9,292		36,580		8,353		—		54,225
Total	$	226,966	$	199,816	$	140,468	$	142,885	$	710,135


	Well Servicing		Water Logistics		Completion & Remedial Services		Discontinued Operations		Total
Twelve Months Ended December 31, 2018
Primary Geographical Markets
Permian Basin	$	118,631	$	125,528	$	77,419	$	72,832	$	394,410
Texas Gulf Coast	28,313		35,074		1,030		13,660		78,077
ArkLaTex & Mid-Continent	52,511		44,492		26,641		208,353		331,997
West Coast	30,342		—		—		—		30,342
Rocky Mountain	27,067		31,908		84,291		16,310		159,576
Eastern USA	5,560		—		3,609		—		9,169
Corporate (Intercompany)	(11,442)		(5,719)		(21,690)		—		(38,851)
Total	$	250,982	$	231,283	$	171,300	$	311,155	$	964,720

Major Service Lines
Well Servicing	$	208,307	$	—	$	—	$	—	$	208,307
Plugging	25,165		—		—		—		25,165
Transport/Vacuum	—		142,222		—		—		142,222
Production and Disposal Facilities	—		24,204		—		—		24,204
Hot Oiler	—		20,613		—		—		20,613
RAFT	—		—		88,527		—		88,527
Coiled Tubing	—		—		68,935		—		68,935
Snubbing	—		—		10,972		—		10,972
Taylor Industries - Manufacturing (Intercompany)	7,660		—		—		—		7,660
Discontinued Operations	—		—		—		311,155		311,155
Other	9,850		44,244		2,866		—		56,960
Total	$	250,982	$	231,283	$	171,300	$	311,155	$	964,720

16. Income Taxes

On December 22, 2017, the Tax Reform Act was signed into law. The legislation significantly changes U.S. tax law by, among other things, lowering the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018.

Income tax expense consists of the following (in thousands):



	Year ended December 31,
	2019		2018
Current:
Federal	$	(1,900)	$	—
State	1,921		305
Total	$	21	$	305
Deferred:
Federal	$	—	$	(74)
State	—		(4)
Total	—		(78)
Total income tax expense	$	21	$	227

Basic paid no federal income taxes during the years 2019 and 2018. Basic received a federal income tax refund of $2.8 million as of the year ended December 31, 2019 as a result of a tax year 2017 election to monetize the remaining alternative minimum tax credit carryforward in lieu of accelerated tax depreciation, and as a result of amending our 2007 federal tax return under section 172(f) of the Internal Revenue Code of 186, which allowed us to carry-back and recover workers' compensation expenses in the years we had "NOL" for 10 years.

Reconciliation between the amount determined by applying the U.S. Federal corporate rate of 21% to income before income taxes (benefit) for the years ended December 31, 2019 and 2018 is as follows (in thousands):



	Year ended December 31,
	2019		2018
Income tax benefit at federal statutory rate	$	(19,190)	$	(30,318)
Meals and entertainment	674		707
State taxes, net of federal benefit	580		(2,250)
Changes in Valuation Allowance	15,824		28,167

Equity Compensation Shortfall	2,601		2,644
Tax Basis Adjustments	—		41

Change in Estimates & Other	(468)		1,236
Total	$	21	$	227

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows (in thousands):



	Year ended December 31,
	2019		2018
Deferred tax assets:
Operating loss carryforward	$	205,367	$	178,657
Goodwill and intangibles	19,350		23,088
Interest Expense Limitation	16,721		10,722
Accrued liabilities	11,139		11,804
Operating Lease - Lease Liability	3,299		—
Deferred compensation	2,889		4,028
Asset retirement obligation	2,344		589
Inventory	972		265
Deferred Debt Costs	902		1,680
Receivables allowance	500		418
Valuation Allowances	(210,808)		(174,497)
Total deferred tax assets	$	52,675	$	56,754
Deferred tax liabilities:
Property and equipment	$	(48,980)	$	(55,901)
Operating Lease - ROU Asset	(3,299)		—
Prepaid expenses	(396)		(853)
Total deferred tax liabilities	$	(52,675)	$	(56,754)
Net deferred tax liability	$	—	$	—

IRC Sections 382 and 383 provide an annual limitation with respect to the ability of a corporation to utilize its tax attributes against future U.S. taxable income in the event of a change in ownership. We believe Basic's emergence from Chapter 11 bankruptcy proceedings is considered a change in ownership for purposes of IRC Section 382. The limitation under the IRC is based on the value of the corporation as of the emergence date. The ownership changes, and resulting annual limitation, is not expected to result in the expiration of any net operating losses generated prior to the emergence date.

Basic provides a valuation allowance when it is more likely than not that some portion of the deferred tax assets will not be realized. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. Based on this evaluation, as of December 31, 2019, a valuation allowance of approximately $210.8 million has been recorded on the net deferred tax assets for all federal and state tax jurisdictions in order to measure only the portion of the deferred tax asset that more likely than not will be realized. As of December 31, 2018, a valuation allowance of $174.5 million was recorded against the net deferred tax assets not expected to be realized.

Interest is recorded in interest expense and penalties are recorded in income tax expense. Basic had no interest or penalties related to an uncertain tax positions during 2019. Basic files federal income tax returns and state income tax returns in Texas and other state tax jurisdictions.

As of December 31, 2019, Basic had approximately $900.7 million of net operating loss carryforwards ("NOL"), for federal income tax purposes, which begin to expire in 2032 and $341.4 million of net operating loss carryforwards for state income tax purposes which begin to expire in 2020.

On March 9, 2020, the C&J Transaction resulted in an ownership change under section 382 of the Internal Revenue Code, and will limit the Company’s usage of certain of its net operating losses and interest expense disallowance carryforwards in the future.

17. Quarterly Financial Data (Unaudited)

The following table summarizes results for each of the four quarters in the years ended December 31, 2019, and 2018 (in thousands, except earnings per share data):




	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Year
Year ended December 31, 2019:
Total revenues	$	153,190	$	147,975	$	144,163	$	121,922	$	567,250
Segment profits	42,067		38,915		35,584		23,869		140,435
Net loss on continuing operations	(14,786)		(19,315)		(24,778)		(32,522)		(91,401)
Net loss on discontinued operations	$	(12,690)	$	(8,462)	$	(14,100)	$	(55,245)	$	(90,497)
Loss per share of common stock (a):
Continuing operations, basic and diluted	$	(0.55)	$	(0.71)	$	(0.97)	$	(1.30)	$	(3.50)
Discontinued operations, basic and diluted	$	(0.47)	$	(0.31)	$	(0.55)	$	(2.22)	$	(3.46)
Weighted average common shares outstanding:
Basic	26,850		27,204		25,606		24,924		26,141
Diluted	26,850		27,204		25,606		24,924		26,141
Year ended December 31, 2018:
Total revenues	$	158,997	$	165,558	$	171,144	$	157,866	$	653,565
Segment profits	42,948		45,245		44,716		40,251		173,160
Net loss on continuing operations	(23,650)		(30,990)		(20,354)		(41,742)		(116,736)
Net loss on discontinued operations	$	(6,881)	$	(9,064)	$	(6,981)	$	(4,935)	$	(27,861)
Loss per share of common stock (a):
Continuing operations, basic and diluted	$	(0.89)	$	(1.18)	$	(0.77)	$	(1.57)	$	(4.41)
Discontinued operations, basic and diluted	$	(0.26)	$	(0.34)	$	(0.26)	$	(0.19)	$	(1.05)
Weighted average common shares outstanding:
Basic	26,336		26,444		26,510		26,570		26,467
Diluted	26,336		26,444		26,510		26,570		26,467

(a) The sum of individual quarterly net loss per share may not agree to the total for the year due to each period's computation being based on the weighted average number of common shares outstanding during such period.

18. Subsequent Events

On March 9, 2020, the Company entered into a Purchase Agreement (the “Purchase Agreement”) with Ascribe Investments III LLC, a Delaware limited liability company (“Ascribe”), NexTier Holding Co., a Delaware corporation (“Seller”) and C&J Well Services, Inc., a Delaware corporation, and wholly owned subsidiary of Seller (“CJWS”).

Pursuant to the Purchase Agreement, among other things, (i) Seller transferred and delivered to the Company and the Company purchased and acquired from Seller, all of the issued and outstanding shares of capital stock of CJWS held by Seller (the “Stock Purchase”), such that CJWS became a wholly-owned subsidiary of the Company; (ii) as a portion of the consideration for the Stock Purchase, Ascribe, on behalf of the Company, conveyed to Seller certain 10.75% senior secured notes due October 2023 issued by the Company to Ascribe in an aggregate amount equal to $34.4 million (the “Ascribe Senior Notes”); (iii) Ascribe entered into an Exchange Agreement, dated March 9, 2020, with the Company (the “Exchange Agreement”) pursuant to which, among other things, Ascribe exchanged the Ascribe Senior Notes for (a) 118,805 shares of newly issued common stock equivalent preferred stock, designated as “Series A Participating Preferred Stock,” par value $0.01 per share, of the Company (the “Series A Preferred Stock”) and (b) an amount in cash approximately equal to $1.5 million (the “Exchange Transaction” and, together with the Stock Purchase and the other transactions contemplated by the Purchase Agreement, the “C&J Transaction”), and (iv) the Company agreed to hire Jack Renshaw as a Senior Vice President, Western Region, upon consummation of the C&J Transaction.

The Purchase Agreement

Pursuant to the Purchase Agreement, Seller received consideration in the aggregate amount of $93.7 million comprised of (a) cash consideration equal to $59.4 million (subject to customary reductions for indebtedness and transaction expenses, as well as post-closing working capital adjustments) and (b) the Ascribe Senior Notes transferred to Seller by Ascribe (on behalf of the Company) as described above. In connection with the Transaction, pursuant to the Purchase Agreement, Ascribe has certain contingent obligations to the Seller to make Seller whole on the par value of the Ascribe Senior Notes as of the earlier of the first anniversary of the closing of the Stock Purchase, a bankruptcy of the Company or a change of control of the Company (the “Make-Whole Payment”).

The Exchange Agreement

Pursuant to the Exchange Agreement, as partial consideration for the Exchange Transaction, the Company issued to Ascribe 118,805 shares of newly issued Series A Preferred Stock of the Company, which constitutes 85.06% of the equity interest in the Company. Upon consummation of the Exchange Transaction, the Company’s public shareholders owned approximately 14.94% of the equity interests in the Company.

The Company has issued and outstanding $300 million principal amount of the 10.75% Senior Secured Notes due 2023 (the “Notes”), issued pursuant to that certain Indenture, dated as of October 2, 2018 (the “Base Indenture”) by and among the Company, the guarantors party thereto and UMB Bank, National Association, as trustee and collateral agent (the “Trustee”), as supplemented by the First Supplemental Indenture, dated as of August 22, 2019, by and among the Company, the guarantors party thereto and the Trustee (the “First Supplemental Indenture” and, together with the Base Indenture, the “Indenture”). Under the Exchange Agreement, as partial consideration for the Exchange Transaction, the Company paid to Ascribe an amount in cash equal to, $1.5 million, representing the accrued (but unpaid) interest, from and including the most recent date to which interest has been paid pursuant to the terms of the Notes and the Indenture but excluding the date of the closing of the C&J Transaction, on the aggregate principal amount of the Ascribe Senior Notes.

If Ascribe is required to pay the Make-Whole Payment to Seller pursuant to the Purchase Agreement, the Company will be required to reimburse to Ascribe the amount of such Make-Whole Payment (such amount, the “Make-Whole Reimbursement Amount”) either (i) in cash (a) to the extent the Company has available cash (as determined by an independent committee of the Company’s board of directors) and (b) subject to satisfaction of certain “Payment Conditions” set forth in the Credit Agreement (as defined below) or (ii) if the Company is unable to pay the full Make-Whole Reimbursement Amount in cash pursuant to clause “(i)” of this paragraph, in additional Notes as permitted under the Indenture. In consideration of providing the Make-Whole Payment to Seller, the Company paid Ascribe $1 million in cash at the closing of the C&J Transaction.

Stockholders Agreement & Governance

In connection with the Exchange Agreement, the Company and Ascribe entered into a Stockholders Agreement. As contemplated by the Stockholders Agreement, simultaneously with the closing of the transactions contemplated by the Exchange Agreement, the board of directors was reconstituted from six directors to seven directors, comprised of (i) three Class I directors with terms to expire in 2020 (the “Class I Directors”), (ii) two Class II directors with terms to expire in 2021 (the “Class II Directors”) and (iii) two Class III directors with terms to expire in 2022 (the “Class III Directors”). Additionally, effective as of the closing of the C&J Transaction, each of Messrs. Timothy H. Day and Samuel E. Langford resigned from the Board and (a) Lawrence First was appointed as a Class I Director, (c) Derek Jeong was appointed as a Class II Director and (b) Ross Solomon was appointed as a Class III Director. Pursuant to the terms of the Stockholders Agreement, following the closing of the C&J Transaction and until the Board Rights Termination Date (as defined below), Ascribe is entitled to designate for nomination for election to the board of directors all members of the board of directors, provided that such designations must be made in a manner to ensure that at all times the board of directors is comprised of at least two independent directors. The subsidiaries require approval of a special committee of the board of directors comprised solely of at least two independent directors. The “Board Rights Termination Date” means the earlier to occur of (A) the date on which Ascribe Affiliated Entities (as defined below), collectively, no longer beneficially own 25% of the fully-diluted common equity of the Company (including the Series A Preferred Stock) and (B) the date on which Ascribe and its affiliates, collectively, no longer constitute the largest holder of fully-diluted common equity of the Company (including the Series A Preferred Stock). The “Ascribe Affiliated Entities” will be comprised of (x) Ascribe and each investment fund which Ascribe or its affiliates controls or for which Ascribe or its affiliates act as a manager or investment advisor and (y) each other person (including portfolio companies) in which person(s) described in clause (x) of this sentence holds a majority of the outstanding equity or voting securities.

The Senior Secured Promissory Note

Pursuant to the Exchange Agreement, the Company issued a Senior Secured Promissory Note on March 9, 2020 in favor of Ascribe in an aggregate principal amount equal to $15 million (the “Senior Secured Promissory Note”). The Senior Secured Promissory Note is secured by a lien upon certain of the Company’s existing and after-acquired property which are also secured by the Company’s existing senior secured notes. The proceeds of the Senior Secured Promissory Note were used to finance a portion of the purchase price consideration paid in connection with the Stock Purchase.

The Limited Consent and First Amendment to ABL Agreement

The Company is party to that certain ABL Credit Agreement, dated October 2, 2018 (as amended, restated, amended and restated, supplemented or modified from time to time, the “Credit Agreement”), with the guarantors party thereto, the financial institutions party thereto and Bank of America, N.A., a national banking association (“Bank of America”), as administrative agent. In connection with the C&J Transaction, on March 9, 2020, the Company entered into that certain Limited Consent and First Amendment to ABL Credit Agreement by and among the Company, as borrower, the guarantors party thereto, the financial institutions party thereto and Bank of America, as administrative agent (the “ABL Amendment”), pursuant to which, among other things, the Company reduced the Aggregate Commitments (as defined in the Credit Agreement) from $150 million to $120 million.

Net Operating Losses

The C&J Transaction resulted in an ownership change under section 382 of the Internal Revenue Code and will limit the Company’s usage of certain of its net operating losses, realized built in losses if applicable and interest expense disallowance carryforwards in the future.

Economic Developments

On March 9, 2020, as a result of multiple significant factors impacting supply and demand in the global oil and natural gas markets, including a global outbreak of corona virus, the announced price reductions and possible production increases by members of Organization of the Petroleum Exporting Countries and other oil exporting nations, the posted price for West Texas Intermediate oil declined sharply and may continue to decline. Oil and natural gas commodity prices are expected to continue to be volatile. We cannot predict the duration or effects of this sudden decrease, but if the prices of oil and natural gas continues to decline or remain depressed for a lengthy period, our business, financial condition, results of operations, cash flows, and prospects may be materially and adversely affected.

As a result of continued weak energy sector conditions and lower demand for our products and services, our operational results, working capital and cash flows have been negatively impacted. Based on our current operating and commodity price forecasts and capital structure, we believe that if certain financial ratios or covenants were to come into effect under our debt instruments, we may have difficulty complying with certain of such obligations. Certain covenants, such as consolidated fixed charge coverage ratio and cash dominion provisions in the ABL Facility spring into effect under certain triggers defined in the ABL Facility for so long as such applicable trigger period is in effect. Additionally, certain triggers in the ABL Facility increase certain financial and borrowing base reporting for so long as such applicable trigger period is in effect. Failure to comply, for example, with a “springing” consolidated fixed charge coverage ratio requirement under the ABL Facility would result in an event of default under the ABL Facility, which would result in a cross-default under the Senior Notes. If an event of default were to occur, our lenders could, in addition to other remedies such as charging default interest, accelerate the maturity of the outstanding indebtedness, making it immediately due and payable, and we may not have sufficient liquidity to repay those amounts. Management has plans to generate additional liquidity, including through our proposed strategic acquisitions and divestitures and reducing costs in our continuing business operations. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. This assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Based on their evaluation as of the end of the fiscal year ended December 31, 2019, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are effective to ensure, at a reasonable assurance level, that information required to be disclosed in reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and effective to ensure that information required to be disclosed in such reports is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the most recent fiscal quarter, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We may make changes in our internal control procedures from time to time in the future.

Design and Evaluation of Internal Control over Financial Reporting

Management’s Report on Internal Control over Financial Reporting are set forth in Part II, Item 8 of this report and are incorporated herein by reference.

ITEM 9B. OTHER INFORMATION

None.

PART III

Pursuant to paragraph 3 of General Instruction G to Form 10-K, the information required by Item 10, to the extent not set forth in Part I, Items 1 and 2 above, and Items 11 through 14 of Part III of this Report is incorporated by reference from our proxy statement for our 2020 annual meeting of stockholders, which is to be filed pursuant to Regulation 14A within 120 days after the end of our fiscal year ended December 31, 2019.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) Financial Statements, Schedules and Exhibits

(1) Financial Statements — Basic Energy Services, Inc. and Subsidiaries:

The Financial Statements listed in the Index to Consolidated Financial Statements are filed as part of this report on Form 10-K (see Part II, Item 8, Financial Statements and Supplementary Data).

(2) Financial Statement Schedules

All consolidated financial statement schedules have been omitted because they are not required, are not applicable, or the required information has been included elsewhere within this Form 10-K.

(3) Exhibits

The information required by this Section (a)(3) of Item 15 is set forth on the exhibit index following this page.

ITEM 16. FORM 10-K SUMMARY

Not applicable.


Exhibit No.			Description
2.1*			First Amended Joint Prepackaged Chapter 11 Plan of Basic Energy Services, Inc. and its affiliated Debtors, dated December 7, 2016 (Incorporated by reference to Exhibit 2.1 to Form 8-K (SEC File No. 001-32693) filed on December 12, 2016)
2.2*			Findings of Fact, Conclusions of Law, and Order Approving the Debtors’ Joint Prepackaged Chapter 11 Plan of Basic Energy Services, Inc. and its Affiliated Debtors, dated December 9, 2016 (Incorporated by reference to Exhibit 99.1 to Form 8-K (SEC File No. 001-32693) filed December 12, 2016)
2.3‡			Purchase Agreement, dated as of March 9, 2020, by and among the Company, Ascribe III Investments LLC, Basic Energy Services, Inc., NexTier Holding Co. and C&J Well Services, Inc.
3.1*			Second Amended and Restated Certificate of Incorporation of Basic Energy Services, Inc. (Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form 8-A12B (SEC File No. 001 -32693 ), filed on December 23 , 20 16 )
3.2*			Certificate of Designations (Incorporated by reference to Exhibit 3.1 to Form 8-K (SEC File No. 001-32693) filed on March 11, 2020)
3.3*			Second Amended and Restated Bylaws of Basic Energy Services, Inc. (Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form 8-A12B (SEC File No. 001-32693) filed on December 23, 2016)
4.1*			Specimen Stock Certificate representing Common Stock of the Company (Incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form 8-A12B (SEC File No. 001-32693), filed on December 23, 2016)
4.2*			Warrant Agreement between Basic, as issuer, and American Stock Transfer & Trust Company, LLC, as warrant agent, dated as of December 23, 2016. (Incorporated by reference to Exhibit 4.1 to Form 8-A12G (SEC File No. 001-32693) filed on December 23, 2016)
4.3*			Registration Rights Agreement, dated as of December 23, 2016, between Basic and certain stockholders (Incorporated by reference to Exhibit 10.1 of the Company’s Registration Statement on Form 8-A12B (SEC File No. 001-32693) filed on December 23, 2016)
4.4*			Indenture, dated as of October 2, 2018, by and among Basic Energy Services, Inc., the subsidiary guarantors party thereto and UMB Bank, N.A., as trustee and collateral agent (Incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K (SEC File No. 001-32693) filed on October 9, 2018)
4.5*			Form of 10.75% Senior Secured Note due 2023 (included as Exhibit A in Exhibit 4.4)
4.6*			First Supplemental Indenture, dated as of August 22, 2019, by and among Agua Libre Midstream LLC, Agua Libre Holdco LLC, Agua Libre Asset Co LLC, Basic Energy Services, Inc., the subsidiary guarantors party thereto and UMB Bank, N.A., as trustee and collateral agent (Incorporated by reference to Exhibit 4.6 to the Company’s Quarterly Report on Form 10-Q (SEC File No. 001-32693) filed on November 1, 2019)
4.7			Description of Securities
10.1* †			Basic Energy Services, Inc. Management Incentive Plan, effective as of December 23, 2016 (Incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-8 (SEC File No. 333-215319) filed on December 23, 2016)
10.2* †			Basic Energy Services, Inc. Non-Employee Director Incentive Plan (Incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-8 (SEC File No. 333-218224), filed on May 25, 2017).
10.3* †			First Amendment to the Basic Energy Services, Inc. Non-Employee Director Incentive Plan (Incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form S-8 (SEC File No. 333-231519) filed on May 15, 2019)
10.4* †			Basic Energy Services, Inc. 2019 Long Term Incentive Plan (Incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-8 (SEC File No. 333-231521) filed on May 15, 2019)
10.5* †			Form of Time-Based Restricted Stock Unit Award Agreement (Incorporated by reference to Exhibit 10.9 of the Company’s Current Report on Form 8-K (SEC File No. 001-32693), filed on December 27, 2016)
10.6* †			Form of Time-Based Stock Option Award Agreement (Incorporated by reference to Exhibit 10.10 of the Company’s Current Report on Form 8-K (SEC File No. 001-32693), filed on December 27, 2016)
10.7* †			Form of Performance-Based Restricted Stock Unit Award Agreement (Incorporated by reference to Exhibit 10.1 to Form 8-K (SEC File No. 001-32693), filed on February 28, 2017)
10.8* †			Form of Performance-Based Stock Unit Award Agreement (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (SEC File No. 001-32693) filed on February 14, 2018)


10.9* †			Form of Key Employee Retention Bonus agreement (Incorporated by reference to Exhibit 10.5 of the Company’s Quarterly Report on Form 10-Q (SEC File No. 001-32693), filed on July 29, 2016)
10.10* †			Form of Key Employee Incentive Bonus agreement (Incorporated by reference to Exhibit 10.6 of the Company’s Quarterly Report on Form 10-Q (SEC File No. 001-32693), filed on July 29, 2016)
10.11* †			Form of Performance-Based Stock Option Award Agreement (Incorporated by reference to Exhibit 10.2 to Form 8-K (SEC File No. 001-32693) filed on February 28, 2017)
10.12* †			Form of Phantom Share Award Agreement (Incorporated by reference to Exhibit 10.3 to Form 8-K (SEC File No. 001-32693) filed on February 28, 2017)
10.13* †			Form of Non-Employee Director Stock Award Agreement and Notice (Incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q (SEC File No. 001-32693), filed on July 31, 2017)
10.14* †			Form of Restricted Stock Award Agreement (LTIP) (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (SEC File No. 001-32693) filed on May 16, 2019)
10.15* †			Form of Performance-Based Phantom Share Award Agreement (LTIP) (Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K (SEC File No. 001-32693) filed on May 16, 2019)
10.16* †			Form of Time-Based Phantom Share Award Agreement (LTIP) (Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K (SEC File No. 001-32693) filed on May 16, 2019)
10.17* †			Form of Non-Employee Director Time-Based Restricted Stock Unit Award Agreement (Incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K (SEC File No. 001-32693) filed on May 16, 2019)
10.18* †			Amended and Restated Employment Agreement of James F. Newman, effective as of November 24, 2008 (Incorporated by reference to Exhibit 10.27 of the Company’s Annual Report on Form 10-K (SEC File No. 001-32693) filed on March 1, 2010)
10.19* †			Amendment to Amended and Restated Employment Agreement of James F. Newman, effective as of November 1, 2013. (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (SEC File No. 001-32693), filed on December 2, 2013)
10.20* †			Employment Agreement of Douglas B. Rogers, effective as of March 16, 2009. (Incorporated by reference to Exhibit 10.28 of the Company’s Annual Report on Form 10-K (SEC File No. 001-32693), filed on March 1, 2010)
10.21* †			Form of Amendment to Employment Agreement, dated as of October 24, 2016 (Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K (SEC File No. 001-32693), filed on October 25, 2016)
10.22* †			Employment Agreement of William T. Dame, effective as of November 1, 2013 (Incorporated by reference to Exhibit 10.44 of the Company’s Amendment No. 1 to Annual Report on Form 10-K (SEC File No. 001-32693), filed on April 6, 2017)
10.23* †			Employment Agreement of Eric Lannen, effective as of August 1, 2015 (Incorporated by reference to Exhibit 10.45 of the Company’s Amendment No. 1 to Annual Report on Form 10-K (SEC File No. 001-32693), filed on April 6, 2017)
10.24* †			Employment Agreement of David Schorlemer, effective as of August 27, 2018 (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K/A (SEC File No. 001-32693) filed on August 31, 2018)
10.25* †			Amended and Restated Employment Agreement of Brett Taylor, dated December 12, 2018 (Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K (SEC File No. 001-32693) filed on December 13, 2018)
10.26* †			Offer Letter of David Schorlemer, dated August 12, 2018 (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K/A (SEC File No. 001-32693) filed on August 31, 2018)
10.27* †			Form of Amendment to Employment Agreement by and between the Company and each executive officer other than Mr. Taylor and each dated December 12, 2018 (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (SEC File No. 001-32693) filed on December 13, 2018)
10.28* †			Amended and Restated Employment Agreement of T.M. “Roe” Patterson, made and entered into on May 1, 2013 and effective as of January 1, 2014 (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (SEC File No. 001-32693) filed on May 7, 2013)
10.29* †			Amendment to Amended and Restated Employment Agreement, dated as of October 24, 2016, by and between T.M. “Roe” Patterson and Basic (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (SEC File No. 001-32693) filed on October 25, 2016)
10.30* †			Separation and Release Agreement, dated September 13, 2019, by and between the Company and T.M. Patterson (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (SEC File No. 001-32693) filed on September 13, 2019)


10.31* †			Amendment to Separation and Release Agreement dated October 25, 2019, by and between the Company and T.M. Patterson (Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (SEC File No. 001-32693) filed on November 1, 2019)
10.32* †			Offer Letter to Keith Schilling, dated December 16, 2019 (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (SEC File No. 001-32693) filed on December 19, 2019)
10.33* †			Employment Agreement of Keith Schilling, dated December 19, 2019 (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (SEC File No. 001-32693) filed on December 19, 2019)
10.34*†			Employment Agreement of Jack Renshaw, dated March 9, 2020 (Incorporated by reference to Exhibit 10.5 to Form 8-K (SEC File No. 001-32693) filed on March 11, 2020)
10.35*			Form of Indemnification Agreement (Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K (SEC File No. 001-32693) filed on May 17, 2017)
10.36*			ABL Credit Agreement, dated as of October 2, 2018, among Basic Energy Services, Inc., as borrower, Bank of America, N.A., as administrative agent, swing line lender and L/C issuer, UBS Securities LLC, as syndication agent, PNC Bank National Association, as documentation agent and an L/C issuer, and the other lenders from time to time party thereto (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (SEC File No. 001-32693) filed on October 9, 2018)
10.37*			Limited Consent and First Amendment to ABL Credit Agreement, dated as of March 9, 2020, among Basic Energy Services, Inc., as borrower, certain subsidiaries of borrower, and Bank of America, N.A., as administrative agent, swing line lender and L/C issuer, (Incorporated by reference to Exhibit 10.3 to Form 8-K (SEC File No. 001-32693) filed on March 11, 2020)
10.38*			Security Agreement, dated as of October 2, 2018, among Basic Energy Services, Inc., as Borrower, the other Debtors party thereto, and UMB Bank, N.A., as administrative agent (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (SEC File No. 001-32693) filed on October 9, 2018)
10.39*			Supplement No. 1 to Security Agreement, dated as of August 22, 2019, by and among Basic Energy Services, Inc., as Borrower, the other Debtors party thereto, and UMB Bank, N.A., as collateral agent (Incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q (SEC File No. 001-32693) filed on November 1, 2019)
10.40*			Security Agreement, dated as of October 2, 2018, among Basic Energy Services, Inc., as Borrower, the other Debtors party thereto, and Bank of America, N.A., as administrative agent (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (SEC File No. 001-32693) filed on October 9, 2018)
10.41*			Supplement No. 1 to Security Agreement, dated as of August 22, 2019, by and among Basic Energy Services, Inc., as Borrower, the other Debtors party thereto, and Bank of America, N.A., as administrative agent (Incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q (SEC File No. 001-32693) filed on November 1, 2019
10.42*			Exchange Agreement, dated as of March 9, 2020, by and between Basic Energy Services, Inc. and Ascribe III Investments LLC (Incorporated by reference to Exhibit 10.1 to Form 8-K (SEC File No. 001-32693) filed on March 11, 2020)
10.43*			Stockholders Agreement, dated as of March 9, 2020, by and between Basic Energy Services, Inc. and Ascribe III Investments LLC (Incorporated by reference to Exhibit 10.2 to Form 8-K (SEC File No. 001-32693) filed on March 11, 2020)
10.44*			Senior Secured Promissory Note, dated March 9, 2020, issued by Basic Energy Services, Inc. in favor of Ascribe III Investments LLC (Incorporated by reference to Exhibit 10.4 to Form 8-K (SEC File No. 001-32693) filed on March 11, 2020)
21.1			Subsidiaries of the Company
23.1			Consent of KPMG LLP
31.1			Certification by Chief Executive Officer required by Rule 13a-14(a) and 15d-14(a) under the Exchange Act
31.2			Certification by Chief Financial Officer required by Rule 13a-14(a) and 15d-14(a) under the Exchange Act
32.1			Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2			Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS			XBRL Instance Document
101.SCH			XBRL Taxonomy Extension Schema Document


101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB			XBRL Taxonomy Extension Label Linkbase Document
101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF			XBRL Taxonomy Extension Definition Linkbase Document

*			Incorporated by reference
†			Management contract or compensatory plan or arrangement
‡			The exhibits and schedules to this Exhibit have been omitted in accordance with Regulation S-K Item 601(b)(2). The Company agrees to furnish supplementally a copy of any omitted exhibit or schedule to the SEC upon its request.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


BASIC ENERGY SERVICES, INC.

By:			/s/ Keith L. Schilling
			Name: Keith L. Schilling
			Title: President, Chief Executive Officer and Director

Date: March 13, 2020

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature

Title

Date

/s/ Keith L. Schilling

President, Chief Executive Officer and

March 13, 2020

Keith L. Schilling

Director (Principal Executive Officer)

/s/ David S. Schorlemer

Senior Vice President,

March 13, 2020

David S. Schorlemer

Chief Financial Officer,

Treasurer and Secretary

(Principal Financial Officer and

Principal Accounting Officer)

/s/ Julio Quintana

Chairman of the Board

March 13, 2020

Julio Quintana

/s/ Lawrence First

Director

March 13, 2020

Lawrence First

/s/ John Jackson

Director

March 13, 2020

John Jackson

/s/ Derek Jeong

Director

March 13, 2020

Derek Jeong

/s/ James D. Kern

Director

March 13, 2020

James D. Kern

/s/ Ross Solomon

Director

March 13, 2020

Ross Solomon

Exhibit 2.3

PURCHASE AGREEMENT

BY AND AMONG

ASCRIBE III INVESTMENTS LLC,

BASIC ENERGY SERVICES, INC.,

NEXTIER HOLDING CO.

AND

C&J WELL SERVICES, INC.

Dated as of March 9, 2020

TABLE OF CONTENTS

Page

Article I DEFINITIONS

Section 1.1

Definitions

Section 1.2

Other Definitions

Section 1.3

Construction

Article II PURCHASE AND SALE

Section 2.1

Purchase and Sale of the Units

Section 2.2

Purchase Price

Section 2.3

Payment of Purchase Price and Other Amounts at Closing

Section 2.4

Closing Date Statements

Section 2.5

Adjustment to Purchase Price

Article III REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Section 3.1

Organization

Section 3.2

Authorization

Section 3.3

Capitalization

Section 3.4

Company Subsidiaries

Section 3.5

Consents and Approvals; No Violations

Section 3.6

Financial Statements

Section 3.7

No Undisclosed Liabilities

Section 3.8

Absence of Certain Changes

Section 3.9

Real Property and Personal Property

Section 3.10

Intellectual Property

Section 3.11

Litigation

Section 3.12

Company Contracts

Section 3.13

Tax Returns; Taxes

Section 3.14

Environmental, Health & Safety Matters

Section 3.15

Licenses and Permits

Section 3.16

Employee Benefit Plans

Section 3.17

Labor Relationships

Section 3.18

Certain Fees

Section 3.19

Insurance Policies

Section 3.20

Compliance with Applicable Law

Section 3.21

Major Customers and Suppliers.

Section 3.22

No Other Representations or Warranties

Article IV REPRESENTATIONS AND WARRANTIES OF SELLER

Section 4.1

Organization

Section 4.2

Authorization

Section 4.3

Share Ownership

Section 4.4

Consents and Approvals; No Violations

Section 4.5

Litigation

Section 4.6

Material Non-Public Information

Section 4.7

No Other Representations or Warranties

Article V REPRESENTATIONS AND WARRANTIES OF BUYER

Section 5.1

Organization

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Section 5.2	Authorization	30
Section 5.3	Consents and Approvals; No Violations	31
Section 5.4	Litigation	31
Section 5.5	No Other Representations or Warranties	31
Section 5.6	Purchase for Investment.	31
Section 5.7	Certain Fees	32
Article VI REPRESENTATIONS AND WARRANTIES OF ASCRIBE			32
Section 6.1	Organization	32
Section 6.2	Authorization	32
Section 6.3	Consents and Approvals; No Violations	32
Section 6.4	Ascribe Funds	32
Article VII COVENANTS			33
Section 7.1	Senior Notes	33
Section 7.2	Tax Matters	34
Section 7.3	Employees; Employee Benefits	36
Section 7.4	Confidentiality	37
Section 7.5	Noncompetition.	37
Section 7.6	R&W Policy	38
Section 7.7	Access to Excluded Facilities.	38
Section 7.8	Access to Information; Confidentiality	39
Section 7.9	Interest Reimbursement	39
Section 7.10	Reimbursement of Certain Payments	40
Article VIII CLOSING			40
Section 8.1	Closing	40
Section 8.2	Deliveries by Seller	40
Section 8.3	Deliveries by Buyer	41
Section 8.4	Deliveries by Ascribe	41
Article IX INDEMNIFICATION			41
Section 9.1	Survival.	41
Section 9.2	Indemnification Obligations of Seller	42
Section 9.3	Indemnification Obligations of Buyer	43
Section 9.4	Indemnification Obligations of Ascribe and Seller.	44
Section 9.5	Indemnification Procedure	44
Section 9.6	Liability Limits	45
Section 9.7	Knowledge Not Affected	46
Section 9.8	Election of Claims	47
Section 9.9	Exclusive Remedies	47
Article X MISCELLANEOUS			47
Section 10.1	Fees and Expenses	47
Section 10.2	Notices	47
Section 10.3	Severability	49
Section 10.4	Binding Effect; Assignment	49
Section 10.5	No Third-Party Beneficiaries	49
Section 10.6	Headings	49
Section 10.7	Consent to Jurisdiction	49
Section 10.8	Waiver of Jury Trial	50
Section 10.9	Entire Agreement	50

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Section 10.10

Governing Law

Section 10.11

Specific Performance

Section 10.12

Counterparts

Section 10.13

Amendment; Modification

Section 10.14

Schedules

Section 10.15

Time of Essence

Section 10.16

Limitation of Liability.

Section 10.17

Privilege; Counsel

Exhibits

Exhibit 1.1(a)

Escrow Agreement

Exhibit 1.1(b)

Exchange Agreement

Exhibit 1.1(c)

Transition Services Agreement

Exhibit 1.1(d)

Working Capital Guidelines

Exhibit 7.6

R&W Policy Binder

Exhibit 8.2(c)

Employment Agreement

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PURCHASE AGREEMENT

This PURCHASE AGREEMENT (this “Agreement”), dated March 9, 2020, is made and entered into by and among Basic Energy Services, Inc., a Delaware corporation (“Buyer”); Ascribe III Investments LLC, a Delaware limited liability company (“Ascribe”); NexTier Holding Co., a Delaware corporation (“Seller”); and C&J Well Services, Inc., a Delaware corporation (the “Company”). Buyer, Ascribe, Seller and the Company are sometimes individually referred to in this Agreement as a “Party” and collectively as the “Parties.”

WITNESSETH:

WHEREAS, the Company is engaged in the business of providing oil and gas field services, specializing in workover rig services and fluids management associated with the servicing of oil and gas wells;

WHEREAS, Seller is the sole and exclusive, record and beneficial owner of all of the issued and outstanding shares of capital stock of the Company (the “Shares”);

WHEREAS, on the terms and subject to the conditions set forth in this Agreement, Buyer desires to purchase from Seller, and Seller desires to sell to Buyer, all of the Shares for the consideration described herein; and

NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants, agreements and conditions set forth in this Agreement, and intending to be legally bound hereby, each Party hereby agrees as follows:

Article I

DEFINITIONS

Section 1.1 Definitions. The following terms, as used in this Agreement, shall have the following respective meanings:

“Action” means any action, mediation, suit, litigation, arbitration, claim, proceeding, investigation, audit, examination, review, inquiry or subpoena of any nature (civil, criminal, administrative, regulatory or otherwise, whether at law or equity), by or before or otherwise involving any arbitrator or Governmental Entity.

“Acceleration Event” means the Bankruptcy of Buyer or a Change in Control, provided that Seller is the holder of the Senior Notes at the time of such event.

“Adjustment Escrow Amount” means $2,000,000.

“Adjustment Escrow Fund” means the Adjustment Escrow Amount, as adjusted from time to time pursuant to the terms of the Escrow Agreement.

“Affiliate” means, in relation to any Person, any other Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first Person, and “control” (including the terms “controlled

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by” and “under common control with”), with respect to the relationship between or among two or more Persons, means the possession, directly or indirectly, of the power to direct or cause the direction of the affairs or management of a Person, whether through the ownership of voting securities, by contract or otherwise; provided, however, that Ascribe shall not be deemed an Affiliate of Buyer for purposes of this Agreement.

“Ascribe Funds” means, collectively, Ascribe Opportunities Fund III, L.P. and Ascribe Opportunities Fund III(B), L.P.

“Ascribe Guarantees” means the Guarantees, dated the date hereof, by the Ascribe Funds with respect to the obligations of Ascribe hereunder.

“Ascribe Indemnified Parties” means Ascribe and its Affiliates, and each of their respective successors and assigns.

“Audit” means any audit, assessment, claim, examination or other inquiry relating to Taxes by any Tax Authority or any judicial or administrative proceeding relating to Taxes.

“Bankruptcy” shall mean the institution of any proceedings under federal or state laws for relief of debtors, including filing of a voluntary or involuntary petition in bankruptcy or the obtaining of an order for relief, or the assignment of the Person’s property for the benefit of creditors, or the appointment of a receiver, trustee or a conservator of any substantial portion of the Person’s assets or the seizure by a sheriff, receiver, trustee or conservator of any substantial portion of the Person’s assets.

“Business” means the well servicing business as conducted by Buyer, including workover rigs, fluids management and fishing and rental services tied to workover applications, but excluding hydraulic fracturing, wireline, pumpdown, cementing and coil tubing services.

“Business Day” means any day except Saturday, Sunday or any days on which banks are generally not open for business in New York, New York.

“Business Employee” means each Person who is employed by a Group Company, including those employees on medical leave, family leave, military leave or personal leave under any policy of the Group Company or any of its Affiliates.

“Business Service Provider” means each individual who is not employed by a Group Company but who provides services to the Group Company, including any directors, independent consultants and/or contractors engaged by the Group Company.

“Buyer Indemnified Parties” means Buyer and its Affiliates, and each of their respective successors and assigns.

“Cap Amount” means Four Hundred Sixty Eight Thousand Five Hundred Dollars ($468,500).

“Cash” means, without duplication, the sum of the fair market value (expressed in United States dollars) of all cash and cash equivalents (including foreign cash, checks received but not yet cleared, deposits, marketable securities and short term investments)

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of the Group Companies as of the opening of business on the Closing Date, determined in accordance with GAAP, which shall be calculated net of any checks outstanding and any monetary obligations arising from cash/book overdrafts.

“Cash Purchase Price” means an amount equal to (a) Fifty-Nine Million Three Hundred Fifty Thousand Dollars ($59,350,000) plus (b) the Estimated Working Capital Surplus, if any, and minus (c) the Estimated Working Capital Deficit, if any.

“Change in Control” shall mean the occurrence, after the date of this Agreement and after giving effect to the transactions contemplated by this Agreement, the Exchange Agreement and the other transaction agreements entered into in connection with the foregoing, of one or more of the following events:

(a) any sale, lease, transfer, conveyance or other disposition (in one transaction or a series of related transactions) of all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries taken as a whole to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act, unless immediately following such sale, lease, transfer, conveyance or other disposition in compliance with the Indenture such properties or assets are owned, directly or indirectly, by Buyer or a wholly-owned Restricted Subsidiary of Buyer, in each case which occurrence is followed by a Rating Decline within 90 days thereafter;

(b) the approval by the holders of Capital Stock of Buyer of any plan or proposal for the liquidation or dissolution of Buyer; or

(c) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) becomes the Beneficial Owner, directly or indirectly, of more than 50% of the voting power of the Voting Stock of Buyer, which occurrence is followed by a Rating Decline within 90 days thereafter.

For the purposes of this definition, capitalized terms used in this definition but not defined in this Agreement have the meanings set forth in the Indenture.

“Closing Payment” means an amount equal to (a) the Cash Purchase Price, minus (b) the sum of (i) the Adjustment Escrow Amount, (ii) the Company Indebtedness, if any, and (iii) the aggregate amount of the Seller Transaction Expenses.

“Code” means the United States Internal Revenue Code of 1986, as amended.

“Company ERISA Affiliate” means any entity that is a member of (a) a controlled group of corporations (as defined in Section 414(b) of the Code), (b) a group of trades or businesses under common control (as defined in Section 414(c) of the Code) or (c) an affiliated service group (as defined under Section 414(m) of the Code or the regulations under Section 414(o) of the Code), any of which includes or included any of the Group Companies.

“Company Indebtedness” means the aggregate amount of any Indebtedness of the Group Companies outstanding as of immediately prior to the Closing.

“Company Intellectual Property” means Company Owned Intellectual Property and Company Licensed Intellectual Property.

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“Company Licensed Intellectual Property” means any Intellectual Property that is licensed to the Group Companies by another Person and is material to the conduct of the Business.

“Company Owned Intellectual Property” means any Intellectual Property that is owned by the Group Companies and is material to the conduct of the Business.

“Confidentiality Agreement” means that certain confidentiality agreement by and between the C&J Energy Services, Inc. and Buyer dated September 5, 2019.

“Contract” means any legally enforceable agreement to which a Group Company is a party and is bound.

“Court Judgment” means that certain judgment entered by the United States District Court for the District of North Dakota in Case Number 1:19-cr-079, dated August 28, 2019, concerning alleged violations by the Company of the federal Occupational Safety and Health Act.

“Employee Benefit Plan” means each “employee benefit plan” (as defined in Section 3(3) of ERISA), as well as each other benefit, retirement, employment, consulting, compensation, profit sharing, commission, bonus, stock or other equity, equity-based, option, incentive compensation, restricted stock, stock appreciation right or similar right, phantom equity, profits interests, change in control, retention, severance, deferred compensation, vacation, paid time off, welfare, medical, dental, vision, flexible benefit, cafeteria, dependent care, and fringe-benefit agreement, plan, policy, arrangement and program, whether or not reduced to writing, that (i) provides benefits or compensation to any current or former Business Employee or Business Service Provider with respect to his or her employment or service with a Group Company or any of its Affiliates, (ii) is adopted, maintained, sponsored, contributed to, or required to be contributed to by any Group Company, or (iii) with respect to which a Group Company is a party, participates in, or has or could reasonably be expected to have any Liability with respect thereto, whether actual or contingent, or direct or indirect. Notwithstanding anything herein to the contrary, the term Employee Benefit Plan shall not include (x) the qualified defined contribution retirement plan or any “welfare plan” (as defined in Section 3(1) of ERISA) of Seller or (y) equity, equity-based, option, incentive compensation, restricted stock, stock appreciation or similar right, phantom equity or profits interests of Seller, in each case, with respect to which the Group Companies will have no Liability following the Closing.

“Environmental, Health & Safety Laws” means all federal, state and local Laws relating to protection of the human health and safety, or the environment, including surface or ground water, drinking water supply, soil, surface or subsurface strata or medium, or ambient air, pollution control and Hazardous Substances, including, the federal Occupational Safety and Health Act and any rules and regulations promulgated pursuant thereto.

“Environmental Permits” means all Licenses applicable to the Business issued pursuant to Environmental, Health & Safety Laws.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

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“Escrow Agent” means JP Morgan Chase Bank, National Association.

“Escrow Agreement” means the Escrow Agreement, dated as of the Closing Date, among Buyer, Seller and the Escrow Agent, attached hereto as Exhibit 1.1(a).

“Estimated Working Capital Deficit” means the amount, if any, by which the Target Net Working Capital exceeds the Estimated Working Capital, as set forth on the Closing Date Financial Certificate.

“Estimated Working Capital Surplus” means the amount, if any, by which the Estimated Working Capital, as set forth on the Closing Date Financial Certificate, exceeds the Target Net Working Capital.

“Exchange Agreement” means the Exchange Agreement between Ascribe and Buyer in the form of Exhibit 1.1(b).

“Fraud” means an act, committed by a Party hereto, with intent to deceive another Party hereto, or to induce such other Party to enter into this Agreement and requires: (i) a false representation contained in Article III, Article IV or Article V of this Agreement, as applicable; (ii) with actual knowledge (as opposed to imputed or constructive knowledge) that such representation is false or the Person making such representation believes it is false; (iii) with an intention to induce the other Person to whom such representation is made to enter into this Agreement or otherwise act or refrain from acting in reliance upon it; (iv) causing that other Person, in reliance upon such false representation to enter into this Agreement or otherwise take or refrain from taking action; and (v) causing such other Person to suffer damage by reason of such reliance.

“Fundamental Representations” means collectively the representations and warranties set forth in Section 3.1 (Organization), Section 3.2 (Authorization), Section 3.3 (Capitalization), Section 3.4 (Company Subsidiaries), Section 3.13 (Tax Returns; Taxes), Section 3.18 (Certain Fees), Section 4.2 (Authorization) and Section 4.3 (Share Ownership), Section 5.1 (Organization), Section 5.2 (Authorization), Section 6.1 (Organization), and Section 6.2 (Authorization).

“GAAP” means generally accepted accounting principles in the United States, as applied consistently.

“Governmental Entity” means any federal, state, foreign, or local government, any political subdivision thereof or any court, administrative or regulatory agency, department, instrumentality, body or commission or other governmental authority or agency.

“Group Companies” means, collectively, the Company and each of its Subsidiaries and “Group Company” shall refer to each of the Company and its Subsidiaries.

“Hazardous Substance” means any waste, pollutant, contaminant, hazardous substance, toxic or corrosive substance, hazardous waste, special waste, industrial substance, by-product, process-intermediate product or waste, petroleum or petroleum-derived substance or waste, chemical liquids or solids, liquid or gaseous products, or any

-5-

constituent of any such substance or waste, the use, handling or disposal of which by the Group Companies are governed by or subject to applicable Law.

“Indebtedness” means all (a) all indebtedness or obligations (including the principal amount thereof and, if applicable, the accrued amount thereof and the amount of accrued and unpaid interest thereon), whether long-term or short-term, for borrowed money or for the deferred purchase price or conditional sale of property or services (including reimbursement and all other obligations whether or not represented by surety bonds, letters of credit, bankers’ acceptances, bank guarantees, or similar facilities or instruments) whether owed to banks, to financial institutions, to Governmental Entities, on equipment leases or otherwise, (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) amounts drawn under outstanding letters of credit, (d) capitalized lease obligations (but excluding operating lease obligations), (e) guaranties and obligations secured by a Lien (other than Permitted Liens) (but excluding operating lease obligations), (f) amounts due under any future derivative, swap, collar, put, call, forward purchase or sale transaction, fixed price contract or other agreement that is intended to benefit from, relate to or reduce or eliminate the risk of fluctuations in interest rates, currencies basis risk or the price of commodities, (g) all customer deposits, (h) the aggregate amount of deferred compensation obligations and the employer’s portion of any employment, payroll or social security taxes with respect thereto and (i) with respect to each of the foregoing existing as of the Closing, (A) interest accrued thereon and (B) prepayment or similar premiums, penalties and expenses with respect thereto, but, in the case of clause “(B),” only if and to the extent such indebtedness is repaid in full as of the Closing Date or in connection with the Closing.

“Indemnified Party” means a Buyer Indemnified Party, Seller Indemnified Party or Ascribe Indemnified Party.

“Indenture” means the Indenture dated as of October 2, 2018, between Buyer and UMB Bank, N.A., as Trustee and Collateral Agent, relating to the 10.75% Senior Secured Notes due 2023, as the same may be amended from time to time.

“Intellectual Property” means all of the following in any jurisdiction throughout the world: (a) trademarks, service marks, trade dress, corporate names, trade names, and Internet domain names, registrations and applications therefor and any goodwill associated with each of the foregoing; (b) patents and patent applications; (c) copyrights and copyrightable works and registrations and applications therefor; and (d) trade secrets, confidential information and know how.

“IRS” means the Internal Revenue Service.

“Knowledge” means, with respect to the Company or Seller, all facts actually known by Sterling Renshaw, Dawn Clagg, Austin Berliner, Wade Percival, Abhishek Naik and Les Teague, after due inquiry in connection with the negotiation and execution of this Agreement.

“Law” means any statutes, rules, codes, regulations, ordinances or orders of, or issued by, Governmental Entities.

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“Legal Dispute” means any action, suit or proceeding between or among the Parties arising in connection with any disagreement, dispute, controversy or claim arising out of or relating to this Agreement or any related document.

“Liability” means, with respect to any Person, any liability or debt of such Person of any kind, character, description or nature whatsoever, whether known or unknown and whether or not the same is required to be accrued on the financial statements of such Person.

“Licenses” means all licenses, permits (including environmental, construction and operation permits) and certificates issued by any Governmental Entity.

“Liens” means mortgages, liens, pledges, security interests, charges, claims, restrictions and encumbrances.

“Losses” means any claims, Liabilities, obligations, damages, losses, costs, expenses, penalties, fines or judgments (at equity or at law, including statutory and common) whenever arising or incurred (including reasonable attorneys’ fees and expenses, any payments made with respect to deductible or retention amounts with respect to insurance coverage, and out of pocket costs of investigating, pursuing and defending any claim hereunder).

“Material Adverse Effect” means any state of facts, change, event, effect or occurrence (when taken together with all other states of fact, changes, events, effects or occurrences) that is, or is reasonably likely to be, individually or in the aggregate, materially adverse to the financial condition, results of operations, properties, assets or Liabilities of the Group Companies taken as a whole; provided, that, a “Material Adverse Effect” shall not include any state of facts, change, event, effect or occurrence arising out of or attributable to (a) a downturn in general economic, business or regulatory conditions, (b) the industries and markets in which the Group Companies operate, (c) the United States or world economies or securities or financial markets, (d) earthquakes, hostilities, acts of war or terrorism, (e) the failure of the Group Companies to meet any projections (it being understood that the facts or occurrences giving rise to or contributing to such failure may be deemed to constitute, or be taken into account in determining, whether a Material Adverse Effect has occurred or is reasonably likely to occur) or (f) any change in applicable Laws or GAAP; provided, that the exceptions provided in clauses “(a),” “(b),” “(c)” and “(d)” shall only apply so long as and to the extent that the state of facts, change, event, effect or occurrence does not affect the Group Companies in a materially disproportionate manner when compared to the effect of such state of facts, change, event, effect or occurrence on other Persons in the industry in which the Group Companies operate.

“Net Working Capital” means (a) the current assets of the Group Companies (excluding Cash but including inventory, accounts receivable, prepaid expenses and other current assets), minus (b) the current liabilities of the Group Companies (excluding income Taxes payable, but including accounts payable, payroll payable, and accrued liabilities), in each case, determined as of immediately prior to the Closing and calculated in accordance with Section 2.5 and the Working Capital Guidelines.

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“Net Working Capital Deficit” means the amount by which the Estimated Working Capital is greater than the Net Working Capital.

“Net Working Capital Surplus” means the amount by which the Net Working Capital is greater than the Estimated Working Capital.

“NLRB” means the United States National Labor Relations Board.

“Ordinary Course” means the ordinary course of business of the Group Companies, consistent with past practice.

“Par Value” means the outstanding principal and accrued interest of the Senior Notes as of any applicable date.

“Permitted Liens” means (a) Liens for (i) Taxes not yet due and payable or (ii) Taxes that are being contested in good faith by appropriate proceedings and for which adequate reserves have been established on the Financial Statements in accordance with GAAP, (b) statutory Liens of landlords with respect to Leased Real Property, (c) Liens of carriers, warehousemen, mechanics, materialmen, and repairmen incurred in the Ordinary Course and not yet delinquent, (d) in the case of Company Real Property, in addition to clauses “(a),” “(b)” and “(c),” zoning, building, or other restrictions, variances, covenants, rights of way, encumbrances, easements and other minor irregularities in title, none of which, individually or in the aggregate, interfere in any material respect with the present ownership of, use of or occupancy of the affected parcel by the Group Companies, (e) in the case of Intellectual Property, third party license agreements entered into in the Ordinary Course and (f) liens incurred in connection with capital lease obligations of the Group Companies.

“Person” means any individual, partnership, joint venture, corporation, trust, limited liability company, unincorporated organization or other entity or any Governmental Entity.

“Plea Agreement” means that certain Plea Agreement entered into between the United States of America and the Company concerning Case Number 1:19-cr-079 filed in the United States District Court for the District of North Dakota concerning alleged violations by the Company of the federal Occupational Safety and Health Act.

“Post-Closing Tax Period” means any Tax Period beginning after the Closing Date and that portion of any Straddle Period beginning after the Closing Date.

“Pre-Closing Tax Period” means any Tax Period ending on or before the Closing Date and that portion of any Straddle Period ending at the close of business on the Closing Date.

“Release” means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, dumping or disposing into the environment.

“Release and Termination Agreement” means evidence of Lien terminations and guaranty releases, in form and substance reasonably satisfactory to Buyer, to allow for the payoff, discharge and termination in full on or prior to the Closing Date of all obligations of the Group Companies in respect of Company Indebtedness of the type

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referred to in clauses “(a) and (b)” of the definition of Indebtedness and any related Liens granted by the relevant member of the Group Companies (other than Permitted Liens).

“R&W Policy” means a stand-alone representation and warranty insurance policy purchased by Buyer in connection with the transactions contemplated by this Agreement.

“Seller Indemnified Parties” means Seller and its Affiliates, and each of their respective successors and assigns.

“Schedules” means the Schedules referenced herein and delivered by Seller to Buyer in accordance with the express terms of this Agreement.

“Seller Litigation” means all claims or litigation of the Group Companies with respect to the matters listed on Schedule 9.2(g) to the extent, but only to the extent, such claims or litigation are based upon any facts occurring on or prior to the date hereof, and, for clarity, specifically excluding any and all other claims and litigation matters set forth on Schedule 3.11.

“Seller Transaction Expenses” means (a) all legal, accounting, financial advisory and other advisory, transaction or consulting fees and expenses incurred by the Group Companies or Seller, (b)(i) any change of control, severance, retention, bonus, equity appreciation, phantom equity or similar payments due and payable by the Group Companies, (ii) other accelerations or increases in rights or benefits of the Group Companies’ employees under any plan, agreement or arrangement of the Group Companies and (iii) accrued but unpaid severance amounts, early termination, early retirement, retiree medical and / or other retirement obligations in respect of termination of service of any employee of the Group Companies whose retirement or termination occurred prior to the Closing, which such obligations, in this clause “(b),” arise or accrue either on or before the Closing Date (including, without limitation, obligations payable following the Closing Date) in connection with the consummation of the transactions contemplated by this Agreement, including, in all cases, all Taxes that are payable by the Group Companies in connection with or as a result of the payment of such obligations, (c) any social security, Medicare, unemployment or other employment, withholding or payroll Tax or similar amount owed by the Group Companies or Seller with respect to any of the transactions contemplated by this Agreement, (d) 50% of the premium of the R&W Policy, (e) 50% of the fees associated with the Escrow Agreement and (f) all third-party expenses related to Seller or the Group Companies that arise, or are triggered or become due or payable, as direct or indirect result of the consummation (whether alone or in combination with any other event or circumstance) of any of the transactions contemplated by this Agreement, in each case, whether in clause “(a)” through clause “(f),” solely to the extent not paid prior to the Closing.

“Senior Notes” means those certain 10.75% senior secured notes due October 2023, with a $300 million aggregate principal amount, issued by Buyer to Ascribe in an aggregate amount equal to Thirty-Four Million Three Hundred Fifty Thousand Dollars ($34,350,000). As used in this Agreement, the term “Senior Notes” refers only to those notes held by Seller and shall not refer to notes held by any other Person, it being understood that the rights of Seller set forth in Section 7.1 shall not be assignable and shall terminate, as to any note or portion thereof or interest therein, in the event of the sale, transfer or other disposition of such note or portion thereof or interest therein

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pursuant to Section 7.1, other than the right of Seller to receive the proceeds of such sale, transfer or other disposition and a Make-Whole Payment, if any, upon consummation of such sale, transfer or other disposition by Seller.

“Subsidiary or Subsidiaries” means any Person of which any other specified Person owns, directly or indirectly through a Subsidiary, a nominee arrangement or otherwise, at least a majority of the outstanding capital stock (or other units of beneficial interest) entitled to vote generally or otherwise have the power to elect a majority of the board of directors or similar governing body or the legal power to direct the business or policies of such Person.

“Target Net Working Capital” means $21,259,963.

“Tax” or “Taxes” means (a) any and all federal, state, local and foreign taxes, including taxes based upon or measured by gross receipts, income, profits, gain, sales, use and occupation, and value added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, alternative minimum, estimated, stamp, excise and property taxes, in each case, whether imposed directly or through withholding, and whether disputed or not; (b) all interest, penalties and additions imposed with respect to such amounts or such interest, penalties, or additions; (c) any Liability for amounts described under clauses “(a)” or “(b)” under applicable Law as a transferee, successor or as a result of being a member of a past or current affiliated, consolidated, unitary or similar group (including under Treasury Regulations Section 1.1502-6) for any period or otherwise through operation of Law and (d) any Liability for the payment of amounts described in clauses “(a),” “(b)” or “(c)” as a result of any Tax sharing, Tax indemnity or Tax allocation agreement or any other express or implied agreement. Grammatical variations of the term “Tax,” such as “Taxable” or “Taxing,” shall have correlative meanings.

“Tax Authority” means the IRS and any other domestic or foreign Governmental Entity responsible for the administration and/or collection of any Taxes.

“Tax Law” means any Law (whether domestic or foreign) relating to Taxes.

“Tax Period” means any period prescribed by any Tax Authority for which a Tax Return is required to be filed and/or for which a Tax is required to be paid.

“Tax Return” means any return, report or statement filed or required to be filed with respect to the determination, assessment, or collection of any Tax or the administration of any Tax Laws (including any elections, declarations, schedules or attachments thereto, and any amendment or supplement thereof), including any information return, estimate, claim for refund, amended return or declaration of estimated Tax.

“Transaction Deductions” means the sum of all items of loss or deduction for U.S. federal income tax purposes resulting from or attributable to (a) the payment of legal, financial advisory, accounting and other fees and expenses of the Group Companies (but not of Buyer) in connection with the transactions contemplated hereby, including the Seller Transaction Expenses and (b) any other payment contemplated by this Agreement that is in the nature of compensation for U.S. federal income tax purposes.

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“Transition Services Agreement” means the Transition Services Agreement among Seller or one of more of its Affiliates, the Company, and Buyer, substantially in the form attached hereto as Exhibit 1.1(c).

“Transfer” means any direct or indirect voluntary or involuntary transfer, sale, assignment, pledge or other disposition or encumbrance.

“Transfer Taxes” means all sales (including bulk sales), use, transfer, recording, value added, ad valorem, privilege, documentary, gross receipts, registration, conveyance, excise, license, stamp or similar Taxes and fees arising out of, in connection with or attributable to the transactions effectuated pursuant to this Agreement.

“Treasury Regulations” means the income Tax regulations promulgated under the Code.

“WARN” means the Worker Adjustment and Retraining Notification Act of 1988, as amended, and any similar state or local Law.

“Working Capital Guidelines” means the guidelines set forth in Exhibit 1.1(d) hereto.

Section 1.2 Other Definitions. Each of the following terms is defined in the Section set forth opposite such term:


Term			Section

Accounting Firm			2.5(d)
Agreement			Preamble
Ascribe			Preamble
Base Purchase Price			2.2(a)
Buyer			Preamble
Buyer Controlled Claims			9.5(a)
Buyer Losses			9.2
Closing			8.1
Closing Date			8.1
Closing Date Financial Certificate			2.4
Company			Preamble
Company Contracts			3.12(a)
Company Real Property			3.9(a)
Confidential Information			7.8(b)
Continuation Period			7.3(a)
Continuing Employee			7.3(a)
Data Room			1.3(c)
Deductible Amount			9.6(a)
Employment Agreement			8.2(c)
Environmental Threshold Amount			9.6(c)
Estimated Working Capital			2.4
Excluded Facilities			7.7(a)
Final Working Capital Statement			2.5(e)

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Financial Statements			3.6(a)
Holding Period			7.1(b)
ICE			3.17(h)
Indemnifying Party			9.5(a)
Lease			3.9(b)
Leased Real Property			3.9(a)
Major Customers			3.21(a)
Major Suppliers			3.21(b)
Make-Whole Payment			7.1(c)
New Plans			7.3(b)
New Welfare Plans			7.3(b)
Notice of Disagreement			2.5(c)
Old Plans			7.3(b)
Owned Real Property			3.9(a)
Parties			Preamble
Party			Preamble
Per Diem Taxes			7.2(b)
Preliminary Working Capital Statement			2.5(b)
Purchase Price			2.2
Purchase Price Adjustment			2.5(a)
Redemption Date			7.1(b)
Sale Price			7.1(c)
Securities Act			5.6(a)
Seller			Preamble
Seller Losses			9.3
Senior Notes Transfer			2.3(b)
Shares			Recitals
Straddle Period			7.2(b)
Terminated Employee			7.3(a)
Third Party Claim			9.5(a)
Transfer Tax Returns			7.2(c)

Section 1.3 Construction.

(a) Unless the context of this Agreement otherwise clearly requires, (i) references to the plural include the singular, and references to the singular include the plural, (ii) references to one gender include the other genders, (iii) the words “include,” “includes” and “including ” do not limit the preceding terms or words and shall be deemed to be followed by the words “without limitation,” (iv) the terms “hereof,” “herein,” “hereunder,” “hereto” and similar terms in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement, (v) the terms “day” and “days” mean and refer to calendar day(s) unless references are to “Business Days,” (vi) the terms “year” and “years” mean and refer to calendar year(s) and (vii) references to dollars or $ refer to United States dollars.

(b) Unless otherwise set forth in this Agreement, references in this Agreement to (i) any document, instrument or agreement (including this Agreement) (A) includes and incorporates all exhibits, schedules and other attachments thereto, (B) includes all documents,

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instruments or agreements issued or executed in replacement thereof and (C) means such document, instrument or agreement, or replacement or predecessor thereto, as amended, modified or supplemented from time to time in accordance with its terms and in effect at any given time and (ii) a particular Law means such Law, as amended, modified, supplemented or succeeded from time to time and in effect on the date hereof. All Article, Section, Exhibit and Schedule references herein are to Articles, Sections, Exhibits and Schedules of this Agreement, unless otherwise specified.

(c) Whenever this Agreement indicates that the Group Companies or Seller have “made available” or “delivered” any document to Buyer, such statement will mean that such document was made available for viewing in the Donnelley Financial Solutions virtual data room (the “Data Room”) on or before March 6, 2020 and not removed on or prior to the date hereof.

(d) This Agreement shall not be construed as if prepared by one of the Parties, but rather according to its fair meaning as a whole, as if all Parties had prepared it.

Article II

PURCHASE AND SALE

Section 2.1 Purchase and Sale of the Units. Pursuant to the terms and conditions of this Agreement, at the Closing, Seller will sell, transfer and deliver to Buyer, free and clear of all Liens, and Buyer will purchase and acquire from Seller, all of the Shares.

Section 2.2 Purchase Price. Subject to Section 2.5, the aggregate purchase price for the Shares (the “Purchase Price”) shall be an amount equal to the sum of the following, payable in accordance with Section 2.3:

(a) Ninety-Three Million Seven Hundred Thousand Dollars ($93,700,000) (the “Base Purchase Price”);

(b) plus the Estimated Working Capital Surplus, if any; and

Section 2.3 Payment of Purchase Price and Other Amounts at Closing.

(a) At the Closing, Buyer shall:

(i) pay to Seller (i) the Closing Payment as well as (ii) any Cash amounts held by the Group Companies immediately prior to the Closing, by wire transfer of immediately available funds to the bank account or accounts designated to Buyer not less than two Business Days prior to the Closing Date;

(ii) on behalf of the Company, pay to such account or accounts as the Company specifies to Buyer pursuant to the Closing Date Financial Certificate, the aggregate amount of any Company Indebtedness;

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(iii) on behalf of the Company, pay to such account or accounts as the Company specifies to Buyer pursuant to the Closing Date Financial Certificate, the aggregate amount of the Seller Transaction Expenses; and

(iv) deposit the Adjustment Escrow Amount with the Escrow Agent by wire transfer of immediately available funds, which will be held by the Escrow Agent in accordance with the terms of the Escrow Agreement to secure the obligations of Seller under Section 2.5.

(b) At the Closing, Ascribe, on behalf of Buyer, shall transfer and deliver to Seller the Senior Notes, it being understood that, in order to effectuate such transfer and delivery, Ascribe shall instruct the Depository Trust Company to effect the transfer of the Senior Notes directly from Ascribe to Seller by book entry transfer, in accordance with the applicable procedures of the Depository Trust Company, for and on account of the Buyer (the “Senior Notes Transfer”).

Section 2.4 Closing Date Statements. The Company has previously delivered to Buyer a certificate (the “Closing Date Financial Certificate”), signed by the Chief Financial Officer of the Company, which sets forth (i) the Company’s estimate of the Net Working Capital (the “Estimated Working Capital”) and the Estimated Working Capital Surplus or the Estimated Working Capital Deficit, as the case may be, (ii) the amount of any Company Indebtedness, listed by each applicable lender, the amount due and wiring instructions for each such applicable lender, and with Release and Termination Agreements attached thereto, and (iii) the amounts comprising the Seller Transaction Expenses, listed by name, amount due and wiring instructions for each such amount.

Section 2.5 Adjustment to Purchase Price.

(a) The Purchase Price shall be increased or reduced as set forth in Section 2.5(f) hereof. Any increase or decrease in the Purchase Price pursuant to this Section 2.5 shall be referred to as a “Purchase Price Adjustment.”

(b) Within 90 days after the Closing Date, Buyer shall prepare and deliver to Seller a statement (the “Preliminary Working Capital Statement”), which sets forth Buyer’s calculation of Net Working Capital (calculated in accordance with the Working Capital Guidelines) and the Net Working Capital Deficit, if any, or the Net Working Capital Surplus, if any.

(c) Seller shall have a period of 30 days after the date Seller receives the Preliminary Working Capital Statement from Buyer to deliver to Buyer written notice of Seller’s disagreement with any item contained in the Preliminary Working Capital Statement, which notice shall set forth in reasonable detail the basis for such disagreement (a “Notice of Disagreement”). During the 30-day period following Seller’s receipt of the Preliminary Working Capital Statement, Buyer shall (i) permit Seller and its accountants to consult with Buyer’s accountants and (ii) provide to Seller and its accountants reasonable access during reasonable hours and under reasonable circumstances to all relevant books and records and any work papers relating to the preparation of the Preliminary Working Capital Statement, in each case as reasonably requested by Seller in connection with Seller’s review of the Preliminary Working Capital Statement. During the 30 days following Buyer’s receipt of a Notice of Disagreement, if any, Buyer and Seller shall seek in good faith to resolve in writing any differences which they have with respect to the matters specified in the Notice of Disagreement, and upon such resolution, the Final

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Working Capital Statement shall be prepared in accordance with the agreement of Buyer and Seller.

(d) If Buyer and Seller are unable to resolve any disputed items set forth in the Notice of Disagreement within 30 days following Buyer’s receipt of such Notice of Disagreement (or such longer period as Buyer and Seller shall mutually agree in writing), such dispute shall be submitted to, and all unresolved issues having a bearing on such dispute shall be resolved by, (i) KPMG US LLP or (ii) in the event such accounting firm is unable or unwilling to take such assignment, a nationally recognized accounting firm mutually agreed upon by Buyer and Seller or, if Buyer and Seller cannot agree on an accounting firm within 45 days after timely delivery of a Notice of Disagreement (or such longer period as Buyer and Seller shall mutually agree in writing), each of Buyer and Seller shall select a nationally recognized accounting firm and such two accounting firms shall designate a third nationally recognized accounting firm that neither presently is, nor in the past two years has been, engaged by either Party. KPMG US LLP, the accounting firm so agreed to by Buyer and Seller or the third accounting firm so selected by the two accounting firms is hereinafter referred to as the “Accounting Firm.” Buyer and Seller shall submit to the Accounting Firm for review and resolution all matters (but only such matters) that are set forth in the Notice of Disagreement which remain in dispute. Buyer and Seller shall instruct the Accounting Firm to select one of its partners experienced in purchase price adjustment disputes to make a final determination of Net Working Capital and the Net Working Capital Deficit, if any, or the Net Working Capital Surplus, if any, based solely on the items that are in dispute as set forth in the Notice of Disagreement. Buyer and Seller shall instruct the Accounting Firm that, in resolving the items in the Notice of Disagreement that are still in dispute and in determining Net Working Capital and the Net Working Capital Deficit, if any, or the Net Working Capital Surplus, if any, the Accounting Firm shall (A) not assign to any item in dispute a value that is (1) greater than the greatest value for such item assigned by Buyer, on the one hand, or Seller, on the other hand or (2) less than the smallest value for such item assigned by Buyer, on the one hand, or Seller, on the other hand, (B) make its determination based on an independent review (which will be in accordance with the guidelines and procedures set forth in this Agreement) and, if requested by Buyer or Seller, a one (1)-day conference concerning the dispute, at which conference each of Buyer and Seller shall have the right to present their respective positions with respect to the dispute and have present their respective advisors, counsel and accountants, (C) render a final resolution in writing to Buyer and Seller (which final resolution shall be requested by Buyer and Seller to be delivered not more than 45 days following submission of such disputed matters), which shall be final, conclusive and binding on the Parties with respect to Net Working Capital and the Net Working Capital Deficit or Net Working Capital Surplus, if any, and (D) provide a written report to Buyer and Seller, if requested by either of them, which sets forth in reasonable detail the basis for the Accounting Firm’s final determination. The fees and expenses of the Accounting Firm shall be allocated between Buyer, on the one hand, and Seller, on the other hand, based upon the percentage by which the portion of the contested amount not awarded to each of Buyer and Seller bears to the amount actually contested by such Party.

(e) The Preliminary Working Capital Statement shall be deemed final for the purposes of this Section 2.5 upon the earliest of (i) the failure of Seller to notify Buyer of a dispute within 30 days after Seller receives the Preliminary Working Capital Statement, (ii) the resolution of all disputes, pursuant to Section 2.5(c), by Buyer and Seller and (iii) the resolution of all disputes, pursuant to Section 2.5(d), by the Accounting Firm. The Preliminary Working Capital Statement,

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as finalized in accordance with this Section 2.5, is referred to herein as the “Final Working Capital Statement.”

(f) Within 10 days following the determination of the Final Working Capital Statement in accordance with Section 2.5(e):

(i) If there is a Net Working Capital Deficit as finally determined pursuant to this Section 2.5, then Buyer shall be entitled to recover an amount equal to such deficit from the Adjustment Escrow Fund; provided, however, that to the extent, if any, that such deficit exceeds the Adjustment Escrow Fund, then Seller shall pay the amount of such excess to Buyer. In accordance with the foregoing, Seller and Buyer shall promptly deliver a joint written instruction to the Escrow Agent instructing it to release (A) to Buyer or its designee, from the Adjustment Escrow Fund, an amount equal to the lesser of (i) the Net Working Capital Deficit, if any or (ii) the Adjustment Escrow Fund and (B) if an amount remains in the Adjustment Escrow Fund after giving effect to the foregoing clause “(A),” the remaining amount of the Adjustment Escrow Fund to Seller.

(ii) If there is a Net Working Capital Surplus as finally determined pursuant to this Section 2.5, then (A) Seller and Buyer shall promptly deliver a joint written instruction to the Escrow Agent instructing it to release the Adjustment Escrow Fund to Seller, and (B) Buyer shall also pay to Seller an amount equal to the lesser of (X) the amount of the Net Working Capital Surplus, and (Y) Two Million Dollars ($2,000,000).

(g) All payments required under this Section 2.5 shall be made in cash by wire transfer of immediately available funds to such bank account(s) as shall be designated in writing by the recipient(s) at least three Business Days prior to the applicable payment date.

(h) Any payments by Buyer required under this Section 2.5 shall be treated as an adjustment to the Purchase Price for U.S. federal income tax purposes.

Article III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Subject to the terms, conditions and limitations set forth in this Agreement, the Company hereby represents and warrants to Buyer, except as set forth in the Schedules (with the understanding and acknowledgement that Buyer would not have entered into this Agreement without being provided with the representations and warranties set forth in this Article III and that Buyer is relying on these representations and warranties), as follows:

Section 3.1 Organization. The Company is a corporation duly formed, validly existing and in good standing under the Laws of the State of Delaware. The Company is duly qualified or registered as a foreign company to transact business under the Laws of each jurisdiction where the character of its activities or the location of the properties owned or leased by it requires such qualification or registration, except where the failure of such qualification or registration would not, individually or in the aggregate, have a Material Adverse Effect.

Section 3.2 Authorization. The Company has the requisite corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. This Agreement has been duly authorized,

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executed and delivered by the Company and, when duly executed by all Parties and delivered by the Company, will constitute the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to applicable bankruptcy, insolvency and other similar Laws affecting the enforceability of creditors’ rights generally, general equitable principles and the discretion of courts in granting equitable remedies.

Section 3.3 Capitalization. There are 310,000 shares of convertible preferred stock, par value $0.01 per share, of the Company issued and outstanding. All of such issued and outstanding shares of capital stock are beneficially owned by Seller as set forth on Schedule 3.3 and are validly issued, fully paid and nonassessable and have been issued in accordance with applicable Law and preemptive rights. There are no other equity interests of the Company issued or outstanding. There are no subscriptions, options, warrants, calls, contracts, demands, commitments or other agreements requiring the Company to issue, or entitling any Person to acquire, any additional shares of capital stock of the Company or any other equity or debt security of the Company, including any right of conversion or exchange under any outstanding security or other instrument, and the Company is not obligated to issue any additional shares of capital stock or any other securities, including debt securities, for any purpose or reason. There are no outstanding obligations of the Company to repurchase, redeem or otherwise acquire any outstanding shares of capital stock of the Company. All equity interests of the Company have been issued and granted in compliance with all applicable securities Laws and all other applicable Laws.

Section 3.4 Company Subsidiaries.

(a) Schedule 3.4 sets forth a correct and complete list of the Subsidiaries of the Company, listing for each Subsidiary its name, type of entity, the jurisdiction and date of its incorporation or organization, its authorized capital stock or other equity interests, the number and type of its issued and outstanding shares of capital stock or other equity interests and the current ownership of such shares or other equity interests. The Company has no direct or indirect Subsidiaries, other than the Subsidiaries set forth on Schedule 3.4.

(b) Each Company Subsidiary is a corporation, limited partnership, limited liability company or other business entity, as the case may be, duly organized, validly existing and in good standing (or the equivalent thereof, if applicable) under the laws of its respective jurisdiction of formation or organization (as applicable). Each Company Subsidiary is duly qualified or registered as a foreign company to transact business under the Laws of each jurisdiction where the character of its activities or the location of the properties owned or leased by it requires such qualification or registration, except where the failure of such qualification or registration would not, individually or in the aggregate, have a Material Adverse Effect.

(c) All of the outstanding equity securities of the Company Subsidiaries are validly issued, fully paid and nonassessable and have been issued in accordance with applicable Law and preemptive rights and are owned by the Company, free and clear of all Liens. There are no subscriptions, options, warrants, calls, Contracts, demands, commitments or other agreements requiring any Company Subsidiary to issue, or entitling any Person to acquire, any additional shares of capital stock or any other equity or debt security of any Company Subsidiary, including any right of conversion or exchange under any outstanding security or other instrument, and no Company Subsidiary is obligated to issue any additional units, shares of capital stock or any other securities, including debt securities, for any purpose or reason. The Company Subsidiaries do not have any outstanding obligation to repurchase, redeem or otherwise acquire

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any outstanding units or shares of capital stock of any Company Subsidiary. There are no bonds, debentures, notes or other Indebtedness of any Company Subsidiary having the right to vote or consent (or convertible into, or exchangeable for, securities having the right to vote or consent) on any matters on which equity interest holders of the Company Subsidiaries may vote. Schedule 3.4 also lists Contracts that could impact the future sale of the equity interests of certain Company Subsidiaries.

Section 3.5 Consents and Approvals; No Violations. Neither the execution and delivery of this Agreement by the Company nor the consummation by the Company of the transactions contemplated by this Agreement will (a) conflict with or result in any breach of any provision of the Certificate of Incorporation (or other similar governing document) of any Group Company, (b) require any filing with, or the obtaining of any permit, authorization, consent or approval of, any Governmental Entity, (c) violate, conflict with or result in a default under, in each case, in any material respect, or give rise to any right of termination, cancellation or acceleration under, any of the terms, conditions or provisions of any Company Contract or (d) violate any Law, order, injunction or decree applicable to the Group Companies, excluding from the foregoing clause “(b),” such requirements, which (i) would not be material, individually or in the aggregate, to the Company or any of its Subsidiaries or (ii) would not prevent or materially restrict or delay the consummation by Seller of the transactions contemplated by this Agreement.

Section 3.6 Financial Statements.

(a) The Company has made available to Buyer copies of the unaudited combined balance sheets of the Group Companies for the fiscal years ended 2018 and 2019, and the related unaudited combined statements of income of the Group Companies (collectively referred to as the “Financial Statements”). Each of the Financial Statements (i) has been prepared in accordance with GAAP consistently applied through the periods covered and in accordance with the Company’s historic past practice, and (ii) fairly presents, in all material respects, the financial position and results of operations of the Group Companies as of the respective dates thereof and for the respective periods indicated therein.

(b) The Company maintains a system of internal accounting controls sufficient provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of the Financial Statements in conformity with GAAP and to maintain accountability for assets, (iii) access to assets is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. There is not, and, since January 1, 2018, has not been, any fraud, whether or not material, that involves or involved the management or other employees of the Group Companies who have or had a significant role in the Group Companies’ internal control over financial reporting. Since January 1, 2018, no significant deficiencies or material weaknesses in the design or operation of the system of internal control over financial reporting of the Group Companies have been identified that would be reasonably likely to adversely affect Seller’s ability to record, process, summarize and report financial information.

Section 3.7 No Undisclosed Liabilities. Except as set forth in the Financial Statements, the Group Companies do not have any Liabilities, except for (a) Liabilities incurred since September 30, 2019 in the Ordinary Course, (b) Liabilities incurred since September 30, 2019 pursuant to or in connection with this Agreement or the transactions contemplated hereby,

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(c) Liabilities set forth on, reflected in, reserved against or disclosed in the most recent balance sheet included in the Financial Statements and (d) Liabilities which would not be material, individually or in the aggregate, to the Company or any of its Subsidiaries.

Section 3.8 Absence of Certain Changes. Except as set forth on Schedule 3.8, since September 30, 2019 and through the date hereof:

(a) the Group Companies have conducted the Business in all material respects in the Ordinary Course;

(b) there has been no Material Adverse Effect;

(c) there has been no casualty, Loss, damage or destruction (whether or not covered by insurance) of any property that is material to the Group Companies;

(d) there has been no recognition of any union or other labor organization, entry into any collective bargaining agreement, written or oral, or modification of the terms of any such existing, contract or agreement, appraisal of or opposition to any union organization campaign, settlement of any material grievances or unfair labor practice charges, reception of any unfair labor practice charges, or otherwise been subject to any action similar to the foregoing;

(e) there has been no (i) increase in the compensation payable or those that will become payable to any employee or service provider of the Group Companies with a base salary of $100,000 or above, (ii) grant of any new bonus or severance arrangement to any employee of service provider of the Group Companies with respect to any employee or service provider of the Group Companies with a base salary of $100,000 or above, or (iii) establishment of any new Employee Benefit Plan;

(f) there has been no delay or postponement of the payment of accounts payable or other Liabilities or waiver, settlement, or compromise of any accounts receivable, debt or other rights outside of the Ordinary Couse; and

(g) there has been no material change in the accounting methods or practices of the Group Companies or any change in depreciation or amortization policies or rates theretofore adopted by the Group Companies.

Section 3.9 Real Property and Personal Property.

(a) Schedule 3.9(a) lists (i) all real property owned either (A) in fee simple or (B) as to surface (but not mineral) rights by the Group Companies (together with all buildings, improvements and fixtures located thereon, the “Owned Real Property”) and sets forth the street address of each Owned Real Property and (ii) all real property leased, licensed, occupied, or subleased by the Group Companies (the “Leased Real Property,” and together with the Owned Real Property, the “Company Real Property”), and sets forth the name of the landlord and the street address of each Leased Real Property. The Company Real Property constitutes all of the real property owned or leased and used by the Group Companies in connection with the Business.

(b) Copies of all ALTA land title surveys and all title insurance commitments or policies in respect of the Owned Real Property in Seller’s possession have been made available to Buyer. Copies of all leases and amendments thereto with respect to the Leased Real Property

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(individually, a “Lease” and collectively, the “Leases”) in Seller’s possession have been made available to Buyer.

(c) With respect to each of the Owned Real Property, the Group Company that is the owner thereof has good and valid fee simple title thereto subject only to Permitted Liens.

(d) With respect to each of the Leased Real Property: (i) the Lease for such Leased Real Property is valid and subsisting, free and clear of any Liens, except for the Permitted Liens; (ii) the Group Companies are not in default (after expiration of applicable notice and cure periods) under any of the Leases, and there are no arrearages of rent under any of the Leases that would allow any termination thereof and, to the Knowledge of the Company, there does not exist under any Lease any event or condition that, after notice or lapse of time or both, would constitute a violation, breach or event of default thereunder as of the date hereof on the part of any Group Company; (iii) all Leases are in full force and effect and, to the Knowledge of the Company assuming the due authorization, execution and delivery by any other party thereto, are currently enforceable in all material respects against each Group Company party to such Lease and, to the Knowledge of the Company, as of the Closing will be, if not previously terminated or expired, enforceable in all material respects against the other party thereto in accordance with the express terms thereof, subject to bankruptcy, insolvency, reorganization, moratorium and similar Laws of general applicability relating to or affecting creditors’ rights and to general principles of equity; (iv) no security deposit or portion thereof deposited with respect to such Lease has been applied in respect of a breach or default thereunder which has not been replenished to the extent required under such Lease; (v) the Group Companies do not owe any brokerage commissions or finder’s fees with respect to such Lease; and (vi) the Group Companies have not subleased, licensed or otherwise granted any Person the right to use or occupy the Leased Real Property (or any portion thereof) that is the subject matter of such Lease.

(e) The Group Companies have not collaterally assigned, mortgaged, or granted any other security interest in any Company Real Property or any interest therein.

(f) No Owned Real Property is subject to any decree or order of any Governmental Entity to be sold or is being condemned, expropriated or otherwise taken by any Governmental Entity with or without payment of compensation therefor (or, to the Knowledge of the Company, threatened or proposed order).

(g) All Taxes (including real and personal property Taxes and assessments and all special assessments, if any) payable by the Group Companies and pertaining to the Company Real Property have been, and will continue to be, paid in full on or before the date that such Taxes fall due, and there are no currently existing delinquencies with respect thereto. As of the date hereof, the Group Companies have not received any written notice of proposed local improvement charges or special levies of a material nature with respect to any of the Company Real Property.

(h) No written notice of violation of any applicable Law or of any covenant, restriction or easement affecting the Company Real Property or any part thereof or with respect to the use or occupancy of the Company Real Property or any part thereof has been received by the Group Companies from any Governmental Entity having jurisdiction over such Company Real Property.

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(i) Each of the Company Real Properties has full and free legally enforceable access to and from public roads, which access is sufficient for the purposes of the operation of the Business thereon, and is zoned so as to permit its current use.

(j) The Group Companies own or hold under valid leases all material machinery, equipment and other tangible personal property necessary for the conduct of their businesses as currently conducted, subject to no Liens except for Permitted Liens.

Section 3.10 Intellectual Property.

(a) Schedule 3.10(a) sets forth a complete and accurate listing of (i) all patents, patent applications, trademark registrations, trademark applications, domain name registrations, service mark registrations, service mark applications, and copyright registrations and copyright registration applications for the Company Owned Intellectual Property, including the record owner and the jurisdiction in which each such Company Owned Intellectual Property has been issued or registered or in which any such application for issuance or registration has been filed; and (ii) all agreements pursuant to which the Group Companies are licensed to use the Company Licensed Intellectual Property (excluding all agreements for “off-the-shelf” commercially available software programs having an annual license, renewal or assurance fee of less than $50,000 in the aggregate).

(b) The Company Intellectual Property constitutes all of the material Intellectual Property necessary to enable the Group Companies to conduct the Business in the manner in which it is currently being conducted.

(c) (i) The Group Companies are the exclusive owner of the Company Owned Intellectual Property, free and clear of all Liens (other than Permitted Liens); (ii) as of the date hereof, no proceedings, actions, suits, hearings, arbitrations, investigations, charges, complaints, claims, demands or similar actions have been instituted, are pending or, to the Knowledge of the Company, are threatened that challenge the validity, enforceability, use or ownership of any Company Intellectual Property; (iii) neither the use of any Company Owned Intellectual Property by any of the Group Companies in the conduct of the Business, nor the conduct of the Business, presently infringes, misappropriates or otherwise violates, or, since March 24, 2015, has infringed, misappropriated or otherwise violated, the Intellectual Property rights of any Person, and, from March 24, 2015 to the date hereof, the Group Companies have not received any written charge, complaint, claim, demand or notice alleging such infringement, misappropriation or violation; and (iv) no Person is infringing, misappropriating or otherwise violating any material item of the Company Owned Intellectual Property.

(d) The Group Companies are not in breach or default (with or without notice or lapse of time or both) in any material respect in the performance of any term or condition contained in any agreement pursuant to which any Group Company is licensed to use the Company Licensed Intellectual Property.

Section 3.11 Litigation. Except as provided on Schedule 3.11, (a) there are no Actions pending or, to the Knowledge of the Company, threatened, by any Governmental Entity with respect to the Group Companies; (b) there are no claims, actions, suits, proceedings, arbitrations or mediations pending or, to the Knowledge of the Company, threatened, against or affecting the Group Companies, or any of its properties, at Law or in equity; and (c) there are no

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judgments, orders, awards, injunctions or decrees of any Governmental Entity with respect to the Group Companies or any of their respective properties.

Section 3.12 Company Contracts.

(a) Schedule 3.12(a) sets forth a correct and complete list, as of the date hereof, of the following Contracts currently in effect and to which any Group Company is a party, by which the Group Companies or any property of any thereof is subject, or by which the Group Companies are otherwise bound (the “Company Contracts”) (other than the Employee Benefit Plans set forth on Schedule 3.16(a)):

(i) all Contracts that individually require payments to or from any Group Company in excess of $100,000 on an annual basis;

(ii) all Contracts between any Group Company, on the one hand, and a Major Customer or Major Supplier, on the other hand;

(iii) any Contract for the employment of any employee employed by any Group Company that is not terminable at-will;

(iv) all bonds, debentures, notes, loans, credit or loan agreements or loan commitments, mortgages, indentures, guarantees or other contracts relating to the borrowing of money;

(v) all Lease Documents or other leases or licenses involving any properties or assets (whether real, personal or mixed, tangible or intangible) involving an annual commitment or payment of more than $100,000 by any Group Company;

(vi) all Contracts that provide for an increased payment or benefit, or accelerated vesting, upon the execution of this Agreement or the Closing or in connection with the transactions contemplated hereby;

(vii) all joint venture or partnership contracts, cooperative agreements and all other Contracts providing for the sharing of any profits;

(viii) all Contracts between any Group Company, on the one hand, and any member, stockholder, partner, officer, director, manager or employee or Affiliate of the foregoing on the other hand;

(ix) all Contracts for pending, or with respect to agreements entered into in the past five years, completed, dispositions of any assets having a value greater than $100,000 in the Ordinary Course; and

(x) all Contracts (A) restricting any Group Company from engaging in or competing with any business or with any Person in any geographic area or during any period of time, (B) providing for exclusivity or any similar requirement, (C) granting “most favored nation” pricing or terms, (D) restricting or purporting to restrict the ability of any Group Company to solicit or hire any person or (E) granting any right of first refusal, right of first negotiation or similar right.

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(b) Copies of the Company Contracts, including all amendments and modifications thereto, have been made available to Buyer.

(c) Except as would not be material, individually or in the aggregate, to the Company or any of its Subsidiaries, all Contracts are in full force and effect and, to the Knowledge of the Company assuming the due authorization, execution and delivery by any other party thereto, are currently enforceable in all material respects against each Group Company party to such Contract and, to the Knowledge of the Company, as of the Closing will be, if not previously terminated or expired, enforceable in all material respects against the other party thereto in accordance with the express terms thereof, subject to bankruptcy, insolvency, reorganization, moratorium and similar Laws of general applicability relating to or affecting creditors’ rights and to general principles of equity. Except as would not be material, individually or in the aggregate, to the Company or any of its Subsidiaries, there does not exist under any Contract, any event of default or event or condition that, after notice or lapse of time or both, would constitute a violation, breach or event of default thereunder as of the date hereof on the part of any Group Company, except as set forth on Schedule 3.12(c). No party to any Contract has given notice that it will exercise any termination rights with respect to such Contract and no party has given notice to the Company or any of its Affiliates of any material dispute with respect thereto, except for such notices as would not be material, individually or in the aggregate, to the Company or any of its Subsidiaries.

Section 3.13 Tax Returns; Taxes.

(a) All Tax Returns filed or required to have been filed by or on behalf of the Group Companies have been duly and timely filed with the appropriate Tax Authority in all jurisdictions in which such Tax Returns were required to be filed (after giving effect to any valid extensions of time in which to make such filings), and all such filed Tax Returns are true, correct and complete in all respects. All Taxes shown to be due and owing on such filed Tax Returns or otherwise required to have been paid by or with respect to each of the Group Companies have been fully and timely paid, except to the extent that such Taxes are being contested in good faith by appropriate proceedings, for which adequate reserves have been established on the Financial Statements in accordance with GAAP.

(b) Since December 31, 2018, no Group Company has (i) made, changed or revoked any election in respect of Taxes; (ii) made, changed or revoked any accounting method in respect of Taxes; (iii) prepared any Tax Returns in a manner which is not consistent with the past custom and practice with respect to the treatment of items on such Tax Returns; (iv) filed any amendment to a Tax Return; (v) incurred any Liability for Taxes other than in the Ordinary Course; (vi) settled any claim or assessment in respect of Taxes; (vii) consented to the extension or waiver of the limitation period applicable to any claim or assessment in respect of Taxes with any Governmental Entity; or (viii) surrendered any right to claim a refund of payments made in respect of Taxes.

(c) Since December 31, 2018, no written claim has been received by the Group Companies from a Tax Authority in a jurisdiction where the Group Companies do not file a Tax Return to the effect that the Group Companies are or may be subject to taxation in that jurisdiction, nor, to the Knowledge of the Company, has any Tax Authority threatened to make such an assertion.

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(d) All deficiencies asserted or assessments made as a result of any examinations or audits by any Tax Authority with respect to the Group Companies have been fully paid, or each of the Group Companies has made full and adequate provision in its books and records and the Financial Statements for all Taxes which are not due and payable and all required estimated Tax payments sufficient to avoid any underpayment penalties have been made by or on behalf of the Group Companies. As of the date hereof, no federal, state, local or foreign Audits, examinations, matters in controversy, proposed adjustments or Actions by any Governmental Entity are presently pending, in progress or threatened with regard to any Taxes or Tax Returns filed by or on behalf of the Group Companies. No Group Company has received from a Governmental Entity any written notice indicating an intent to open an audit or other review with respect to any Group Company or any request for information related to Tax matters of or with respect to any Group Company.

(e) None of the Group Companies or any other Person on behalf of the Group Companies has been given or requested any extension of time within which to file any Tax Return, which Tax Return has not since been filed, nor been granted any extension for the assessment or collection of Taxes, other than extensions with respect to Tax Periods for which the applicable statute of limitations, as so extended, has since expired. No waivers of statutes of limitations have been given or requested with respect to any Taxes of any Group Companies.

(f) There are no Liens as a result of any unpaid Taxes (other than current Taxes not yet due and payable) upon any of the assets of the Group Companies.

(g) None of the Group Companies is a party to any Tax sharing, Tax allocation, Tax indemnity or any similar written or unwritten agreement, arrangement, understanding or practice relating to Taxes, and no Group Company has Liability or potential Liability for Taxes of another Person under any such agreement, arrangement, understanding or practice, or as a transferee or successor or by operation of law or otherwise.

(h) The Group Companies have withheld or collected and timely paid to the appropriate Tax Authority (or is properly holding for such timely payment) all Taxes required to have been withheld and complied in all material respects with all applicable Laws relating to the payment and withholding of Taxes, including all applicable Laws relating to information reporting and record retention, and paid (other than current Taxes not yet due and payable) in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder or other third party.

(i) None of the Group Companies (i) is subject to any private letter ruling of the IRS or comparable rulings of any other Governmental Entity; (ii) has ever had a permanent establishment (or other taxable presence) in any country other than the United States; (iii) has engaged in any “reportable transaction” within the meaning of Treasury Regulations Section 1.6011-4(b) or (iv) is a “United States real property holding corporation” within the meaning of Section 897 of the Code.

(j) None of the Group Companies will be required to include amounts in income, or exclude items of deduction, in a Taxable period beginning after the Closing Date as a result of: (i) a change in method of accounting occurring on or prior to the Closing Date; (ii) closing agreement as described in Section 7121 of the Code (or any similar provision of other applicable Law) on or prior to the Closing Date; (iii) an installment sale or open transaction arising in any Pre-Closing Tax Period; (iv) a prepaid amount received, or paid, prior to the Closing Date;

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(v) deferred gains arising prior to the Closing Date; (vi) Section 108(i) of the Code; or (vii) election to defer any Tax under Section 965 of the Code (including, an election under Section 965(h) of the Code).

(k) None of the Group Companies has constituted either a “distributing corporation” or a “controlled corporation” in a distribution of stock intended to qualify for tax-free treatment under Sections 355 and 361 of the Code.

(l) Each Group Company is and has been at all times since its incorporation, properly classified as a corporation for U.S. federal and applicable state income tax purposes.

(m) The Company has no Liability for Taxes of any other Person (including predecessor) by operation of Law, Contract, assumption, transferee or successor Liability or otherwise (including by reason of Treasury Regulations Section 1.1502-6).

(n) The Company is not required to make any adjustments by reason of Treasury Regulations Section 1.1502-36(d).

(o) For purposes of this Section 3.13, any reference to the Group Companies shall be deemed to include any Person (i) that merged with or was liquidated or converted into the Group Companies or (ii) for which any Group Company is a successor under Section 381 of the Code (or under any similar provision of Law).

Section 3.14 Environmental, Health & Safety Matters.

(a) The Group Companies are, and since March 24, 2015 have been, in compliance in all material respects with applicable Environmental, Health & Safety Laws, including obtaining, maintaining and complying with all Environmental Permits necessary to operate the Business. No action or proceeding is pending or, to the Knowledge of the Company, threatened to revoke, modify or terminate any such Environmental Permit.

(b) No Group Company has received written notice from any Governmental Entity or other Person that any Group Company is subject to any pending or threatened claim or may have Liability (i) based upon any provision of any Environmental, Health & Safety Law and arising out of any act or omission of the Group Companies or any of their employees, agents or representatives or (ii) arising out of the ownership, use, control or operation by the Group Companies of any facility, site, area or property from which there was a Release of any Hazardous Substance.

(c) Since March 24, 2015, there has been no Release of Hazardous Substances at, on, in under or from (i) any Company Real Property, (ii) any property formerly owned, operated or leased by any Group Company or (iii) any property or facility to which any Hazardous Substance has been transported for disposal, recycling or treatment by or on behalf of any Group Company, in each case, at concentrations that could reasonably be expected to result in any Group Company incurring material Liabilities.

(d) None of the Group Companies has assumed, provided an indemnity with respect to or otherwise become subject to any Liability of any other Person that could result in any Group Company incurring material Liability under Environmental, Health & Safety Laws.

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(e) The Company has made all of the payments required pursuant to the Plea Agreement and the Court Judgment, is and has been in compliance with the Plea Agreement and any judgments (including the Court Judgment) entered or amendments made thereto, and is not aware of any facts, circumstances or conditions that would violate the terms of probation or the special conditions of supervision set forth in the Court Judgment.

(f) Except for the charged crime resolved by the Plea Agreement, none of the Group Companies have been named in any other action, claim, proceeding or litigation arising out of the facts, circumstances or conditions that gave rise to the Plea Agreement.

(g) The transactions contemplated by this Agreement do not require the approval or consent of any Governmental Entity under applicable Environmental, Health & Safety Laws.

(h) The Group Companies have made available to Buyer copies of (i) all material environmental assessments, studies, audits, analyses and reports relating to any property currently owned, operated or leased by the Group Companies or otherwise in connection with the Business and (ii) all material, non-privileged document relating to any material and outstanding Liabilities of the Group Companies under Environmental, Health & Safety Laws.

Section 3.15 Licenses and Permits. Schedule 3.15 sets forth a correct and complete list of all material Licenses (including Environmental Permits) held by any of the Group Companies as of the date hereof. Each of the Group Companies owns or possesses all Licenses that are necessary to enable it to carry on the Business as presently conducted, except, in each case, as would not be material, individually or in the aggregate, to the Company or any of its Subsidiaries. No Group Company is in default or violation, and no event has occurred that, with notice or lapse of time, or both, would constitute a default or violation, in any material respect, of any term, condition or provision of any material License, and there are no facts or circumstances that would, individually or in the aggregate, reasonably be expected to form the basis for any such default or violation. No proceeding is pending, or to the Knowledge of the Company, threatened to revoke any material License. The Company has made available true and complete copies of all Licenses (including Environmental Permits).

Section 3.16 Employee Benefit Plans.

(a) Schedule 3.16(a) contains a complete list of each Employee Benefit Plan in effect as of the date hereof. None of the Group Companies will assume or retain sponsorship of, or be required to contribute to or participate in, or remain a party to, any Employee Benefit Plans or other plan, program, arrangement, or agreement providing compensation or benefits to any current or former director, officer, employee or other service provider of Seller or its Affiliates, nor are there any Employee Benefit Plans or other plan, program, arrangement, or agreement providing compensation or benefits to any current or former director, officer, employee or other service provider of Seller or its Affiliates, in each case, with respect to which any Group Company will have any Liability (whether actual or contingent, or direct or indirect), in each case, following the Closing.

(b) A summary of all Employee Benefit Plans has been made available to Buyer.

(c) No Group Company or any Company ERISA Affiliate sponsors, contributes to, has contributed to, has ever had an obligation to contribute to, or has or could reasonably be expected to have any Liability with respect to: (i) a plan subject to Title IV of ERISA, the

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minimum funding standards of Section 302 of ERISA or Section 412 of the Code (including any “defined benefit plan” within the meaning of Section 3(35) of ERISA); (ii) a “multiemployer plan” (as defined in Section 3(37) of ERISA); (iii) a multiple employer plan (within the meaning of Section 4063 or 4064 of ERISA or Section 413(c) of the Code); or (iv) a multiple employer welfare arrangement (within the meaning of Section 3(40) of ERISA).

(d) Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby, either alone or in connection with any other event, will (i) give rise to any payments or benefits that would be nondeductible to any Group Company under Section 280G of the Code or that could result in an excise Tax on any recipient under Section 4999 of the Code, (ii) result in any payment or benefit becoming due to any current or former Business Employee or Business Service Provider, (iii) increase the amount or value of any compensation or benefits payable under any Employee Benefit Plan or (iv) result in any acceleration of the time of payment or vesting of any compensation or benefits or provide any additional compensatory rights or benefits (including funding of compensation or benefits through a trust or otherwise) to any current or former Business Employee or Business Service Provider.

Section 3.17 Labor Relationships.

(a) No Group Company is party to any labor or collective bargaining agreements and none of the Group Companies’ employees are represented by a labor organization or group that was either voluntarily recognized or certified by any labor relations board (including the NLRB) or by any other Governmental Entity.

(b) To the Knowledge of the Company, none of the Group Companies’ employees are a signatory to a collective bargaining agreement with any trade union, labor organization or group.

(c) No union, labor organization or group of employees of any of the Group Companies has made a pending demand for recognition, and there are no representation proceedings or petitions seeking a representation proceeding presently pending or, to the Knowledge of the Company, threatened to be brought or filed, with the NLRB or other labor relations tribunal. There is no organizing activity involving the Company or any of its Subsidiaries pending or, to the Knowledge of the Company, threatened by any union, labor organization or group of employees of the Group Companies.

(d) No labor dispute, walk out, strike, hand billing, picketing, or work stoppage involving the employees of any of the Group Companies has occurred, is in progress or, to the Knowledge of the Company, has been threatened in the two (2) years prior to the date hereof.

(e) No judgment, consent decree, or arbitration award imposes continuing remedial obligations or otherwise limits or affects any of the Group Companies’ ability to manage its employees, service providers, or job applicants.

(f) Each of the Group Companies is, and has been, in material compliance with all Laws relating to the employment of labor, including all such Laws relating to wages (including minimum wage and overtime), hours of work, child labor, discrimination, civil rights, withholdings and deductions, classification and payment of employees, independent contractors, and consultants, equal employment opportunity, WARN and any similar state or local “mass layoff” or

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“plant closing” Law, collective bargaining, occupational health and safety, workers’ compensation, and immigration. There has been no “mass layoff” or “plant closing” (as defined by WARN) with respect to any of the Group Companies within the six months prior to Closing.

(g) None of the Group Companies has incurred, and no circumstances exist under which any of the Group Companies would reasonably be expected to incur, any Liability arising from (i) the failure to pay wages (including overtime wages), (ii) the misclassification of employees as independent contractors and/or (iii) the misclassification of employees as exempt from the requirements of the Fair Labor Standards Act of 1938, as amended, or similar state Laws.

(h) The current employees of any of the Group Companies who work in the United States are authorized and have appropriate documentation to work in the United States. The Group Companies have never been notified of any pending or threatened investigation by any branch or department of U.S. Immigration and Customs Enforcement (“ICE”), or other federal agency charged with administration and enforcement of federal immigration laws concerning the Group Companies, and the Group Companies have never received any “no match” notices from ICE or any other Governmental Entity.

(i) Each of the Group Companies has promptly, thoroughly and impartially investigated (to the extent reasonable) all employment discrimination and sexual harassment allegations of, or against, the Group Companies or any employee, officer or director of any of the Group Companies. Each of the Group Companies has taken prompt corrective action that is reasonably calculated to prevent further discrimination and harassment found to exist, or potentially to exist, based upon such allegations. None of the Group Companies has incurred, and no circumstances exist under which any of the Group Companies would reasonably be expected to incur, any Liability arising from such allegations.

(j) The execution and delivery of this Agreement and the performance of this Agreement do not require any of the Group Companies to seek or obtain any consent, engage in consultation with, or issue any notice to or make any filing with (as applicable) any unions, labor organizations, or groups of employees of any of the Group Companies, or any Governmental Authority, with respect to any employee of any of the Group Companies.

Section 3.18 Certain Fees. Evercore, Inc. has served as the investment banker for the Company and Seller in connection with the transactions contemplated by this Agreement, and any fee or commission owed to it in connection with the transactions contemplated by this Agreement will be included in the Seller Transaction Expenses and paid pursuant to Section 2.3(a)(iii). Buyer shall not otherwise, directly or indirectly, be obligated to pay or bear (e.g., by virtue of any payment by or obligation of Seller or the Group Companies at or at any time after the Closing) any brokerage, finder’s or other fee or commission to any broker, finder or investment banker in connection with the transactions contemplated by this Agreement based on arrangements made by or on behalf of Seller, the Group Companies or any of their respective Affiliates.

Section 3.19 Insurance Policies. Schedule 3.19 contains a correct and complete list of all insurance policies carried by or for the benefit of any of the Group Companies as of the date hereof. All insurance policies and bonds with respect to the Business and the assets of the Group Companies are in full force and effect (including with respect to any premium or other payments due under such insurance policies) as they apply to any matter, action or event

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relating to any of the Group Companies occurring through the Closing Date, except where failure would not be material, individually or in the aggregate, to the Company or any of its Subsidiaries.

Section 3.20 Compliance with Applicable Law. Each Group Company is, and has been since March 24, 2015, in compliance, in all material respects, with all applicable Laws applicable to the Group Companies and the Business, and no Group Company has received any notice of violation of any such Law. Since March 24, 2015, no Group Company has received any communication from any Governmental Entity with respect to the Business regarding any actual or potential violation of, or failure to comply with, any Law. To the Knowledge of the Company, no fact or circumstance exists that would be reasonably expected to give rise to a claim by any Governmental Entity based on any Group Company’s failure to comply with any Law.

Section 3.21 Major Customers and Suppliers.

(a) Schedule 3.21(a) sets forth an accurate and complete list of each current or former customer of any Group Company which generated in the aggregate more than $2,000,000 in collections and accounts receivable since January 1, 2019 (the “Major Customers”), together with the amount of such collections and accounts receivable generated by each Major Customer during such period.

(b) Schedule 3.21(b) sets forth an accurate and complete list of each current or former supplier of goods or services to any Group Company collectively paid in the aggregate more than $500,000 since January 1, 2019 or that is a sole source supplier of any Group Company (collectively, the “Major Suppliers”), together with the amount paid to each Major Supplier during such period.

(c) Since January 1, 2019, no Major Customer or Major Supplier has terminated its relationship with any Group Company or materially reduced or changed pricing terms in a manner that would be material to any Group Company. No Group Company is engaged in any material dispute with any Major Customer or Major Supplier and, to the Knowledge of the Company, no Major Customer or Major Supplier intends to (i) terminate, limit or reduce its business relations with any Group Company or (ii) materially reduce or change the pricing or other terms of its business with any Group Company.

Section 3.22 No Other Representations or Warranties. Buyer, Ascribe and their representatives have not made any representation, warranty or other inducement to the Company other than the representations and warranties made by Buyer in Article V and Ascribe in Article VI, respectively, or in any other instruments or agreements to be delivered by Buyer or Ascribe as contemplated by this Agreement, and the Company is not relying on any representation, warranty or other inducement to enter into this Agreement, other than as set forth in Article V and Article VI. The Company hereby acknowledges that Buyer and Ascribe are relying on the truth and accuracy of this statement, and the other representations and warranties of the Company set forth in this Article III.

Article IV

REPRESENTATIONS AND WARRANTIES OF SELLER

Subject to the terms, conditions and limitations set forth in this Agreement, Seller hereby represents and warrants to Buyer, except as set forth in the Schedules (with the understanding

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and acknowledgement that Buyer would not have entered into this Agreement without being provided with the representations and warranties set forth in this Article IV and that Buyer is relying on these representations and warranties), as follows:

Section 4.1 Organization. Seller is a corporation duly incorporated, validly existing and in good standing under the Laws of the State of Delaware, and has the corporate power and authority to own, lease and operate its properties and assets and to carry on its business as now being conducted.

Section 4.2 Authorization. Seller has the legal right, capacity and authority to execute and deliver this Agreement and the Escrow Agreement and to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. This Agreement has been, and upon execution and delivery the Escrow Agreement, will be, duly executed and delivered by Seller, and, when duly executed by all other Parties and delivered by Seller, will constitute the valid and binding agreement of Seller, enforceable against Seller in accordance with its terms, subject to applicable bankruptcy, insolvency and other similar Laws affecting the enforceability of creditors’ rights generally, general equitable principles and the discretion of courts in granting equitable remedies.

Section 4.3 Share Ownership. Seller is the sole and exclusive, record and beneficial owner of the Shares set forth on Schedule 3.3. Seller has, and at the Closing, will have sole, exclusive and good title to such Shares. The delivery by Seller of the Shares at the Closing pursuant to the terms of this Agreement will transfer good and valid title to all of the Shares, free and clear of any restrictions on transfer or other Liens (other than any transfer restriction under any securities Law).

Section 4.4 Consents and Approvals; No Violations. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (a) conflict with or result in any breach of any provision of the certificate of incorporation, bylaws and other similar organizational documents of Seller; (b) require any filing with, or the obtaining of any permit, authorization, consent or approval of, any Governmental Entity; (c) violate, conflict with or result in a default under, in each case, in any material respect, or give rise to any right of termination, cancellation or acceleration under, any of the terms, conditions or provisions of any note, mortgage, other evidence of indebtedness, guarantee, license, agreement, lease or other contract, instrument or obligation to which Seller is a party or by which Seller or any of its assets may be bound; or (d) violate any Law, order, injunction or decree applicable to Seller, excluding from the foregoing clause “(b),” such requirements (i) which would not prevent or materially restrict or delay the consummation by Seller of the transactions contemplated by this Agreement or the documents and agreements contemplated hereby or (ii) which become applicable as a result of any acts or omissions by, or the status of or any facts pertaining to, Seller.

Section 4.5 Litigation. There is no claim, action, suit, proceeding or governmental investigation pending or, to the Knowledge of Seller, threatened against Seller, by or before any Governmental Entity or by any third party which challenges the validity of this Agreement or the Escrow Agreement or which would be reasonably likely to prevent or materially restrict or delay Seller’s ability to consummate the transactions contemplated by this Agreement or the Escrow Agreement.

Section 4.6 Material Non-Public Information. Seller understands and acknowledges that Buyer is in possession of information about the Buyer and its securities, including the Senior

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Notes, which may include material non-public information, that may or may not be material or superior to information available to Seller and that may or may not have been disclosed to Seller. Seller acknowledges that it has not requested Buyer to disclose any material or potentially material non-public information relating to Buyer or its securities other than as represented and warranted in this Agreement, and Buyer has not done so. Seller agrees that Buyer shall not be obligated to disclose any material non-public information it may have other than as represented and warranted in this Agreement, or have any liability with respect to such non-disclosure. Seller hereby waives any claim, or potential claim, it has or may have against Buyer relating to or arising out of any failure of Buyer or any of its Affiliates to disclose material non-public information in connection with the transactions contemplated by this Agreement other than as represented and warranted in this Agreement.

Section 4.7 No Other Representations or Warranties. Buyer, Ascribe and their representatives have not made any representation, warranty or other inducement to Seller other than the representations and warranties made by Buyer in Article V and Ascribe in Article VI, respectively, or in any other instruments or agreements to be delivered by Buyer or Ascribe as contemplated by this Agreement, and Seller is not relying on any representation, warranty or other inducement to enter into this Agreement, other than as set forth in Article V and Article VI. Seller hereby acknowledges that Buyer and Ascribe are relying on the truth and accuracy of this statement, and the other representations and warranties of Seller set forth in this Article VI.

Article V

REPRESENTATIONS AND WARRANTIES OF BUYER

Subject to the terms, conditions and limitations set forth in this Agreement, Buyer hereby represents and warrants to Seller and the Company (with the understanding and acknowledgement that Seller and the Company would not have entered into this Agreement without being provided with the representations and warranties set forth in this Article V and that Seller and the Company are relying on these representations and warranties), as follows:

Section 5.1 Organization. Buyer is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware and has the corporate power and authority to own, lease and operate its properties and assets and to carry on its business as now being conducted.

Section 5.2 Authorization. Buyer has the requisite corporate power and authority to execute and deliver this Agreement and the Escrow Agreement, and to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. This Agreement and the Senior Notes have been duly authorized, executed and delivered by Buyer, and this Agreement and the Senior Notes constitute, and the Escrow Agreement shall constitute, as the case may be, when duly executed by all other Parties thereto and delivered by Buyer, the legal, valid and binding obligations of Buyer, enforceable against Buyer in accordance with their respective terms, subject to applicable bankruptcy, insolvency and other similar Laws affecting the enforceability of creditors’ rights generally, general equitable principles and the discretion of courts in granting equitable remedies.

Section 5.3 Consents and Approvals; No Violations. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (a) conflict with or result in any breach of any provision of the certificate of incorporation, bylaws, or other

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similar organizational documents of Buyer; (b) require any filing with, or the obtaining of any permit, authorization, consent or approval of, any Governmental Entity; (c) violate, conflict with or result in a default under, in each case, in any material respect, or give rise to any right of termination, cancellation or acceleration under, any of the terms, conditions or provisions of any note, mortgage, other evidence of indebtedness, guarantee, license, agreement, lease or other contract, instrument or obligation to which Buyer is a party or by which Buyer or any of its assets may be bound; or (d) violate any Law, order, injunction or decree applicable to Buyer, excluding from the foregoing clause “(b),” such requirements (i) which would not prevent or materially restrict or delay the consummation by Buyer of the transactions contemplated by this Agreement or the documents and agreements contemplated hereby or (ii) which become applicable as a result of any acts or omissions by, or the status of or any facts pertaining to, Seller or the Group Companies.

Section 5.4 Litigation. There is no claim, action, suit, proceeding or governmental investigation pending or, to the knowledge of Buyer, threatened against Buyer, by or before any Governmental Entity or by any third party which challenges the validity of this Agreement or the Escrow Agreement or which would be reasonably likely to prevent or materially restrict or delay Buyer’s ability to consummate the transactions contemplated by this Agreement or the Escrow Agreement.

Section 5.5 No Other Representations or Warranties. The Company and Seller and their representatives have not made any representation, warranty or other inducement to Buyer other than the representations and warranties made by the Company in Article III and Seller in Article IV, respectively, and Buyer is not relying on any representation, warranty or other inducement to enter into this Agreement, other than as set forth in Article III and Article IV. Buyer hereby acknowledges that the Company and Seller are relying on the truth and accuracy of this statement, and the other representations and warranties of Buyer set forth in this Article V.

Section 5.6 Purchase for Investment.

(a) Buyer is acquiring the Shares solely for investment for its own account and not with the view to, or for resale in connection with, any “distribution” (as such term is used in Section 2(11) of the Securities Act of 1933, as amended (the “Securities Act”)) thereof. Buyer understands that the Shares have not been registered under the Securities Act or any state or foreign securities laws by reason of specified exemptions therefrom that depend upon, among other things, the bona fide nature of its investment intent as expressed herein and as explicitly acknowledged hereby and that under such laws and applicable regulations such securities may not be resold without registration under the Securities Act or under applicable state or foreign law unless an applicable exemption from registration is available.

(b) Buyer is an “accredited investor” within the meaning of Rule 501 of Regulation D promulgated under the Securities Act.

Section 5.7 Certain Fees. Neither the Group Companies nor any Seller shall be directly or indirectly obligated to pay or bear (e.g., by virtue of any payment by or obligation of any of Buyer or any of its Affiliates at or at any time after the Closing) any brokerage, finder’s or other fee or commission to any broker, finder or investment banker in connection with the transactions contemplated by this Agreement based on arrangements made by or on behalf of Buyer or any of its Affiliates.

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Article VI

REPRESENTATIONS AND WARRANTIES OF ASCRIBE

Ascribe hereby represents and warrants to Seller and the Company, solely with respect to the obligations of Ascribe set forth in Section 2.3(b), Section 7.1, Section 8.4, and Article IX of this Agreement, as follows:

Section 6.1 Organization. Ascribe is a limited liability company duly organized, validly existing and in good standing under the Laws of the State of Delaware and has the limited liability company power and authority to own, lease and operate its properties and assets and to carry on its business as now being conducted.

Section 6.2 Authorization. Ascribe has the requisite limited liability company power and authority to execute and deliver this Agreement and to perform its obligations hereunder and to consummate the transactions contemplated hereby. This Agreement has been duly authorized, executed and delivered by Ascribe, and this Agreement constitutes, when duly executed by all other Parties thereto and delivered by Ascribe, as applicable, the legal, valid and binding obligation of Ascribe, enforceable against Ascribe in accordance with its terms, subject to applicable bankruptcy, insolvency and other similar Laws affecting the enforceability of creditors’ rights generally, general equitable principles and the discretion of courts in granting equitable remedies.

Section 6.3 Consents and Approvals; No Violations. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (a) conflict with or result in any breach of any provision of the certificate of formation, limited liability company agreement or other similar organizational documents of Ascribe; (b) require any filing with, or the obtaining of any permit, authorization, consent or approval of, any Governmental Entity; (c) violate, conflict with or result in a default under, in each case, in any material respect, or give rise to any right of termination, cancellation or acceleration under, any of the terms, conditions or provisions of any note, mortgage, other evidence of indebtedness, guarantee, license, agreement, lease or other contract, instrument or obligation to which Ascribe is a party or by which Ascribe or any of its assets may be bound; or (d) violate any Law, order, injunction or decree applicable to Ascribe, excluding from the foregoing clause “(b),” such requirements (i) which would not prevent or materially restrict or delay the consummation by Ascribe of the transactions contemplated by this Agreement or the documents and agreements contemplated hereby or (ii) which become applicable as a result of any acts or omissions by, or the status of or any facts pertaining to, Seller or the Group Companies.

Section 6.4 Ascribe Funds. The Ascribe Funds have sufficient unfunded capital to fund the Par Value of the Senior Notes, and Ascribe is authorized to call capital from the Ascribe Funds for purposes of making payments pursuant to Section 7.1.

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Article VII

COVENANTS

Section 7.1 Senior Notes.

(a) At the Closing, Ascribe and Buyer will enter into the Exchange Agreement pursuant to which Ascribe will exchange its Senior Notes for common equity interests in Buyer.

(b) If (i) Seller holds the Senior Notes until the first anniversary of the Closing Date (the “Holding Period”) or (ii) an Acceleration Event occurs prior to the first anniversary of the Closing Date, then within ten (10) Business Days following the date (the “Redemption Date”) that is the earlier of (A) the expiration of the Holding Period or (B) the date of an Acceleration Event, Ascribe shall, as agent for Seller, sell the Senior Notes for cash and pay the proceeds thereof to Seller.

(c) If the sale of the Senior Notes by Ascribe in accordance with Section 7.1(b) or Section 7.1(d)(ii) results in a sale price for the Senior Notes (the “Sale Price”) less than the Par Value of the Senior Notes as of the date of such sale, Ascribe shall pay to Seller, in cash, the amount equal to the excess of the Par Value over the Sale Price (the “Make-Whole Payment”). If the Sale Price for the Senior Notes is equal to or greater than the Par Value of the Senior Notes, then Ascribe shall not be obligated to pay, and Seller shall not be entitled to receive, any Make-Whole Payment. Furthermore, if the Sale Price for the Senior Notes is greater than the Par Value of the Senior Notes, then the amount equal to the excess of the Sale Price over the Par Value shall be paid to, or retained by, Ascribe (and Ascribe acknowledges and agrees that it shall take into account the amount of such excess it receives or retains for income tax reporting purposes). If Ascribe is unable to sell the Senior Notes as and when required pursuant to this Section 7.1, then Ascribe shall purchase the Senior Notes, for cash, at Par Value within fifteen (15) Business Days following the Redemption Date.

(d) Notwithstanding anything in this Section 7.1 to the contrary,

(i) Seller shall have the right and continuing option to sell the Senior Notes at any time during the Holding Period; provided, however, that if Seller sells the Senior Notes during the Holding Period, Seller shall not be entitled to any Make-Whole Payment; and

(ii) Ascribe shall have the right and continuing option to cause Seller to sell the Senior Notes at any time during the Holding Period; provided, that, if Ascribe exercises its option pursuant to this Section 7.1(d)(ii), Ascribe shall arrange for the sale of the Senior Notes as agent for Seller. If the sale of the Senior Notes in accordance with this Section 7.1(d)(ii) results in a Sale Price less than the Par Value of the Senior Notes, Ascribe shall pay to Seller the applicable Make-Whole Payment.

(e) Any amounts payable to Seller under this Section 7.1 shall be paid to Seller within ten (10) Business Days following the sale of the Senior Notes pursuant to this Section 7.1.

(f) At all times at and following the Closing, Ascribe shall cause the Ascribe Funds to reserve sufficient capital commitments to cover Ascribe’s potential payment obligations to Seller

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pursuant to Section 7.1(c) or Section 7.1(d)(ii), in a minimum amount equal to the Par Value of the Senior Notes. In the event a payment is required to be made by Ascribe to Seller pursuant to Section 7.1(c) or Section 7.1(d)(ii), Ascribe will cause the Ascribe Funds to fund the amount of such payment, which shall be paid directly or indirectly by Ascribe to Seller in accordance with this Section 7.1.

(g) At all times following the Closing, if Ascribe arranges for the sale of the Senior Notes as agent for Seller, Seller shall provide such cooperation as shall reasonably be requested by Ascribe to facilitate and execute the sale of the Senior Notes, including, without limitation, establishing one or more accounts at financial institutions requested by Ascribe, providing know your customer and other information requested by any such financial institution and providing such documents and signatures as may be required in connection with the sale or transfer of the Senior Notes.

Section 7.2 Tax Matters.

(a) Tax Returns. Following the Closing, Seller shall prepare or cause to be prepared and file or cause to be filed, at the expense of Seller, all Tax Returns for the Group Companies for all Tax Periods ending on or prior to the Closing Date that are required to be filed after the Closing Date. Such Tax Returns shall be prepared in a manner consistent with the past practices of the Group Companies, except as otherwise required by applicable Tax Law or changes in facts. Seller shall permit Buyer to review and comment on such Tax Returns (together, with schedules, statements and, to the extent requested by Buyer, supporting documentation) at least 30 days prior to the due date for filing (including extensions) of such Tax Returns and shall revise such Tax Returns to reflect any reasonable comments made by Buyer prior to the filing of such Tax Returns. If any such Tax Return must be signed by Buyer, any Affiliate thereof or the Group Companies (or any representative of the foregoing), Buyer agrees that it will, or will cause such other parties to, cooperate fully and punctually in signing such Tax Return in order to permit the timely filing of such Tax Return. Following the Closing, Buyer shall prepare or cause to be prepared and file or cause to be filed, at the expense of Buyer, all Tax Returns for the Group Companies for all Straddle Periods. Such Tax Returns shall be prepared in a manner consistent with the past practices of the Group Companies, except as otherwise required by applicable Tax Law or changes in facts. Buyer shall permit Seller to review and comment on such Tax Returns (together, with schedules, statements and, to the extent requested by Seller, supporting documentation) at least 30 days prior to the due date for filing (including extensions) of such Tax Returns and shall revise such Tax Returns to reflect any reasonable comments made by Seller prior to the filing of such Tax Returns, but only to the extent the failure to include such comments could reasonably be expected to increase the Liability of the Seller for Taxes pursuant to this Agreement. Any amended Tax Return of the Group Companies or claim for Tax refund on behalf of the Group Companies for any Pre-Closing Tax Period shall be filed, or caused to be filed, only by Seller. Notwithstanding anything to the contrary anywhere in this Agreement, the Parties agree that all Transaction Deductions will be reported in Pre-Closing Tax Periods (and otherwise treated as attributable to Pre-Closing Tax Periods) to the extent permitted by Law.

(b) Straddle Period. Taxes for any Tax Period of the Group Companies that includes but does not end on the Closing Date (each such period, a “Straddle Period”) shall be allocated for all purposes of this Agreement (i) to the Pre-Closing Tax Period for the portion of the Straddle Period up to and including the close of business on the Closing Date and (ii) to the Post-Closing

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Tax Period for the portion of the Straddle Period subsequent to the Closing Date. For that purpose, (A) real, personal and intangible property Taxes and any other Taxes levied on an annual or other periodic basis (“Per Diem Taxes”) of the Group Companies for a Straddle Period shall be allocated between the periods described in clauses “(i)” and “(ii)” of the preceding sentence on a per diem basis based on the number of days during the Straddle Period ending with and including the Closing Date and number of days during the Straddle Period commencing on the day after the Closing Date and (B) Taxes that are not Per Diem Taxes, including income Taxes and any transactional Taxes such as Taxes based on sales or revenue, of the Group Companies for a Straddle Period shall be allocated between the periods described in clauses “(i)” and “(ii)” of the preceding sentence as if such Tax Period ended as of the close of business on the Closing Date. For purposes of clause “(B)” of the preceding sentence, any allocation of gross or net income or deductions or other items required to determine any Taxes attributable to such a Straddle Period shall be made by means of a closing of the books and records of the Group Companies as of the close of the Closing Date, provided, that exemptions, allowances and deductions that are calculated on an annual basis (including depreciation and amortization deductions) shall be allocated between the period ending on the Closing Date and the period after the Closing Date in proportion to the number of days in each such period.

(c) Transfer Taxes. Any and all Transfer Taxes shall be split between Buyer and Seller equally. Seller shall timely and accurately file all necessary Tax Returns and other documentation with respect to Transfer Taxes or fees (the “Transfer Tax Returns”) and timely pay all such Transfer Taxes. If required by applicable Tax Law, Buyer will join in the execution of any Transfer Tax Return.

(d) Cooperation. Buyer, the Group Companies and Seller and their respective Affiliates shall cooperate, as and to the extent reasonably requested by the other Party, in connection with the filing of Tax Returns pursuant to this Section 7.2, any Audit, litigation or other proceeding with respect to Taxes, and other Tax matters addressed by this Section 7.2. Such cooperation shall include the retention and (upon the other Party’s request) the provision of records and information which are reasonably relevant to any such Tax matters and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. The Group Companies shall retain all books and records with respect to Tax matters pertinent to the Group Companies relating to any Tax Periods commencing on or before the Closing Date and shall abide by all record retention agreements entered into with any Tax Authority, and shall give Seller reasonable written notice prior to transferring, destroying or discarding any such books and records prior to the expiration of the applicable statute of limitations for that Tax Period, and, if Seller so requests, the Group Companies shall allow Seller to take possession of such books and records rather than destroying or discarding such books and records.

(e) Dispute Resolution. Any dispute, controversy, or claim between Buyer, on the one hand, and Seller, on the other hand, arising out of or relating to the provisions of this Agreement that relates to Taxes that cannot be resolved by negotiations between Buyer and Seller shall be submitted to the Accounting Firm for resolution. The Accounting Firm shall control the proceedings related to the dispute resolution and may request such evidence and information as it deems necessary. The Accounting Firm shall determine (it being understood that in making such determination, the Accounting Firm shall be functioning as an expert and not as an arbitrator), based solely on written submissions by Buyer and Seller and not by independent

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review, only those issues in dispute and shall render a written report as to the resolution of the dispute and the resulting computation of any Tax, fee, deduction or other amount in dispute which, absent manifest error, shall be conclusive and binding on Buyer, Seller and their respective Affiliates. In resolving any disputed item, the Accounting Firm may not assign a value to any item greater than the greatest value for such items claimed by either Party or less than the smallest value for such items claimed by either Party. The fees, costs and expenses of the Accounting Firm shall be allocated to and borne by Buyer and Seller, based on the inverse of the percentage that the Accounting Firm’s determination (before such allocation) bears to the total amount of the total items in dispute as originally submitted to the Accounting Firm. For example, should the items in dispute total an amount equal to $1,000 and should the Accounting Firm award $600 in favor of Seller’s position, 60% of the costs of its review would be borne by Buyer and 40% of the costs would be borne by Seller.

(f) Seller’s Indemnification for Taxes. Seller agrees to indemnify Buyer for (i) any Pre-Closing Taxes; (ii) any income Taxes of any member of an affiliated, consolidated, combined or unitary group of which any of the Group Companies (or their predecessors) is or was a member on or prior to the Closing Date, pursuant to Treasury Regulations Section 1.1502-6 or any analogous or similar state, local or non-U.S. Law or regulation and (iii) the failure of Seller to perform any covenant contained in this Agreement with respect to Taxes, including this Section 7.2, in each case, only if and to the extent such Taxes are not taken into account as a Liability in the calculation of Net Working Capital. Any indemnity payment under this Agreement shall be treated as an adjustment to the Purchase Price for U.S. federal income tax purposes.

(g) Certain Refunds and Other Tax Benefits. Any Tax refunds that are received by Buyer or the Group Companies, and any amounts credited against Tax to which Buyer or the Group Companies become entitled, that relate to a Pre-Closing Tax Period of the Group Companies shall be for the account of Seller, and Buyer shall pay over to Seller any such refund or the amount of any such credit within 15 days after receipt or entitlement thereto, except to the extent such refund or credit was treated as a current asset on the Final Working Capital Statement.

Section 7.3 Employees; Employee Benefits.

(a) For the 12-month period following the Closing Date (the “Continuation Period”), Buyer shall provide, or shall cause the Company to continue providing, to each individual who is a Business Employee as of the Closing (each, a “Continuing Employee”): (i) a base salary or hourly wage rate, as applicable, that is at least equal to the base salary or hourly wage rate provided to such Continuing Employee immediately prior to the Closing, (ii) annual or other short-term cash bonus opportunities (for the avoidance of doubt, excluding equity and equity based rights) that are substantially comparable to those provided to such Continuing Employee immediately prior to Closing, and (iii) medical and defined contribution retirement benefits that are substantially comparable, in the aggregate, to those provided to similarly situated employees of Buyer or its Affiliates. If Buyer terminates, or causes the Company to terminate, any Continuing Employee in the 6-month period following the Closing Date (each, a “Terminated Employee”), Buyer or the Company, as the case may be, shall provide to such Terminated Employee the amount of severance, as determined by Buyer in good faith, to which such Terminated Employee would have been entitled under the Company’s existing severance plan in place as of the Closing Date.

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(b) For all purposes, including vesting, eligibility to participate and level of benefits (other than benefits under defined benefit pension plans) under the Employee Benefit Plans of Buyer or its Affiliates (as applicable) providing benefits to Continuing Employees after the Closing in which such Continuing Employees are eligible to participate (the “New Plans”), each Continuing Employee in such plans shall be credited with his or her years of service with the Company and its predecessors prior to the Closing, to the same extent as such Continuing Employee was entitled, before the Closing, to credit for such service under any similar Employee Benefit Plan in which such Continuing Employee participated or was eligible to participate immediately prior to the Closing (such plans, collectively, the “Old Plans”); provided, however, that the foregoing shall not apply to the extent that its application would result in a duplication of benefits with respect to the same period of service. In addition, and without limiting the generality of the foregoing, Buyer shall undertake commercially reasonable efforts to provide that (i) each Continuing Employee shall be immediately eligible to participate, without any waiting time, in any and all New Plans to the extent coverage under any such New Plan replaces coverage under any Old Plan and (ii) for purposes of each New Plan providing medical, dental, pharmaceutical, vision, disability, life insurance and/or other welfare benefits to any Continuing Employee (collectively, the “New Welfare Plans”), Buyer shall cause (A) all pre-existing conditions, exclusions or limitations, eligibility waiting periods and actively-at-work requirements of such New Welfare Plans to be waived for such Continuing Employee and his or her covered dependents (to the extent such conditions, exclusions, limitations, periods and requirements were waived or satisfied as of immediately prior to the Closing under comparable Old Plans), and (B) any eligible expenses incurred by each Continuing Employee and his or her covered dependents during the portion of the plan year of the Old Plan ending on the date such Continuing Employee’s participation in the corresponding New Welfare Plan begins to be taken into account under such New Welfare Plan for purposes of satisfying all deductible, co-payment, coinsurance and maximum out-of-pocket requirements applicable to such Continuing Employee and his or her covered dependents for the applicable plan year as if such amounts had been paid in accordance with such New Welfare Plan.

(c) As of the Closing, Seller and its Affiliates (other than the Group Companies) shall assume and/or retain sponsorship of and be solely responsible for all Liabilities relating to or at any time arising under or in connection with or pursuant to any Employee Benefit Plan or other plan, program, arrangement, or agreement providing compensation or benefits to any current or former director, officer, employee or other service provider of Seller or its Affiliates.

(d) Nothing contained in this Section 7.3 or elsewhere in this Agreement, express or implied, shall confer upon any current or former Business Employee or Business Service Provider any right to continued employment or service (or resumed employment or service) subsequent to the Closing. This Section 7.3 shall operate exclusively for the benefit of the Parties and not for the benefit of any other Person, including any current or former Business Employees or the Continuing Employees, which Persons shall have no rights to enforce this Section 7.3 of this Agreement. Nothing in this Section 7.3 shall: (i) create any third party rights in any current or former Business Employee or Business Service Provider (including any beneficiary or dependent thereof) or (ii) be treated as an amendment of any Employee Benefit Plan or restrict the ability of the Parties or their Affiliates to amend, modify, discontinue or terminate any Employee Benefit Plan or any other employee benefit plan, practice or policy established or maintained by the Parties or their Affiliates.

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Section 7.4 Confidentiality. As of the Closing Date, the Confidentiality Agreement shall be terminated and have no further force or effect.

Section 7.5 Noncompetition.

(a) During the period commencing on the Closing Date until the 2-year anniversary of the Closing Date and subject to Section 7.5(b), without the express, prior written consent of Buyer, Seller and its Affiliates agree not to, directly or indirectly, including as partner, member, stockholder or investor or in any other capacity, own, control, manage, operate or participate in, the Business.

(b) Notwithstanding the foregoing, nothing contained in Section 7.5(a) shall prohibit Seller or its Affiliates from acquiring (or owning or operating after its acquisition) any diversified business that engages in the Business so long as (i) the closing of such business acquisition occurs at least 12 months after the date of this Agreement and (ii) such business’ revenues derived from the Business for its fiscal year prior to when the acquisition occurs constitute no more than 10% of such business’ revenues for such fiscal year.

(c) Seller and Buyer agree that the terms of the covenants in this Section 7.5 are fair and reasonable with respect to its duration, geographical area and scope, are necessary to accomplish the full transfer of the goodwill and other intangible assets contemplated hereby, and were a material and necessary inducement for Purchaser to agree to the transactions herein contemplated. In the event that any provision contained in Section 7.5 shall be determined by any court of competent jurisdiction or any Governmental Entity to be unenforceable for any reason whatsoever (including in relation to duration or the scope of the activities covered thereby), then the Parties agree that the court should redefine such covenant so as to comply with applicable Law, it being specifically agreed by the Parties that it is each of their continuing desire that each covenant in this Section 7.5 be enforced to the full extent of its terms and conditions.

Section 7.6 R&W Policy. Exhibit 7.6 sets forth the binder for the R&W Policy. The R&W Policy shall provide that the insurers thereunder may not seek to or enforce any subrogation rights it might have against Seller (except in the case of Fraud by Seller), which provision shall not be amended by Buyer following the Closing in a manner that would adversely affect the rights or obligations of Seller hereunder or thereunder without the prior written consent of Seller.

Section 7.7 Access to Excluded Facilities.

(a) For a period of 60 days after the Closing Date, (i) Seller shall afford (and shall cause its Affiliates, employees, representatives and agents to afford) to Buyer and its Affiliates, employees, representatives and agents reasonable access to leased land, buildings, improvements and facilities set forth on Schedule 7.7 (the “Excluded Facilities”), upon advance written notice and during normal business hours for the purpose of removing, at Seller’s sole cost and expense, the inventory set forth on Schedule 7.7 that is physically located at any Excluded Facility.

(b) To the fullest extent permitted by Law:

(i) Seller and its Affiliates, employees, representatives and agents shall (A) not be responsible or liable to Buyer for personal injuries or property damage sustained by

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Buyer or its Affiliates, employees, representatives and agents in connection with the access provided pursuant to this Section 7.7 and (B) shall be indemnified and held harmless by Buyer for any Losses suffered by any such Persons in connection with any such personal injuries and property damages, EXCEPTING LOSSES ACTUALLY RESULTING ON THE ACCOUNT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SELLER; and

(ii) Buyer and its Affiliates, employees, representatives and agents shall (A) not be responsible or liable to Seller for personal injuries or property damage sustained by Seller or their respective Affiliates, employees, representatives and agents in connection with the access provided pursuant to this Section 7.7 and (B) shall be indemnified and held harmless by Seller for any Losses suffered by any such Persons in connection with any such personal injuries and property damage, EXCEPTING LOSSES ACTUALLY RESULTING ON THE ACCOUNT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF BUYER; provided, however, that Buyer shall indemnify Seller and its respective Affiliates, employees, representatives and agents for any property damage sustained to the Excluded Facilities in connection with Buyer’s exercise of its rights under Section 7.7(a), and any such property damage shall be recoverable from Buyer.

Section 7.8 Access to Information; Confidentiality.

(a) In connection with Buyer’s filing obligations under applicable securities Laws, Seller and its Affiliates shall cooperate with Buyer and shall (i) give Buyer and its authorized representatives reasonable access to the books, records, work papers, offices and other facilities and properties of the Group Companies, (ii) permit Buyer to make such inspections thereof as Buyer may reasonably request and (iii) cause the officers of each of the Group Companies to furnish Buyer with such financial and operations data and other information as Buyer may reasonably request; provided, however, that any such investigation shall be conducted during normal business hours under the supervision of the applicable personnel of Seller, the Company or their Affiliates and in such a manner as to not interfere unreasonably with the operations of the Group Companies. Neither Seller nor the Group Companies shall be under any obligation to disclose to Buyer (A) any information the disclosure of which is restricted by Contract or Law, (B) any information that, in the reasonable judgment of Seller or the Group Companies, as the case may be, would result in the disclosure of any trade secrets or competitively sensitive information or (C) any information that consists of accounting workpapers or that may adversely affect the attorney-client privilege of Seller or the Group Companies, as the case may be; provided, however, that Seller and the Group Companies shall use commercially reasonable efforts to provide appropriate substitute arrangements in circumstances where this sentence applies.

(b) Following the Closing, the Parties shall cooperate with each other reasonably and in good faith, and in a timely manner, in connection with all Seller Litigation matters, by providing access to all such information and people as may be reasonably requested by any Party with respect to such matters.

(c) Following the Closing, the Seller and its Affiliates shall treat all documents and other information concerning the Group Companies, including all documents and information furnished to Buyer in connection with this Agreement or the transactions contemplated hereby, (together, “Confidential Information”) as confidential and refrain from using any Confidential Information. In the event that Seller or any of its Affiliates or representatives is requested or

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required pursuant to a written or oral question or request for information or documents in any Action to disclose any Confidential Information by judicial or administrative process or by other requirements of any applicable Law, Seller will notify Buyer promptly of the request or requirement, so Buyer may seek an appropriate protective order. If, in the absence of a protective order, Seller or such Affiliate is, on the advice of counsel, required or compelled to disclose any such Confidential Information by judicial or administration process or by other requirements of any applicable Law, Seller or such Affiliate may disclose such Confidential Information to the extent so required to be disclosed, without liability hereunder; provided, however that Seller and its Affiliates shall reasonably cooperate with Buyer’s efforts (if any) to obtain a protective order or other assurance that confidential treatment will be accorded to such portion of the Confidential Information required to be disclosed. Confidential Information does not include information that is generally available to the public immediately prior to the time of disclosure unless such Confidential Information is so available due to the actions of Seller or any of its respective Affiliates or representatives.

Section 7.9 Interest Reimbursement. Upon the receipt of the first payment of interest in the full amount of $1,843,625 on the Senior Notes (that is payable with respect to the time period beginning October 1, 2019 and ending March 31, 2020) after Seller takes delivery of the Senior Notes from Ascribe, Seller shall, not more than two Business Days after the receipt of such payment, pay by wire transfer to the bank account or accounts designated by Buyer, $1,466,793 to Buyer, which shall represent a reimbursement of the interest accrued upon the Senior Notes prior to the Senior Notes being delivered to Seller pursuant to this Agreement.

Section 7.10 Reimbursement of Certain Payments. Following the Closing, Buyer shall reimburse Seller and its Affiliates for any post-Closing payments (including deductible payments or any payments that erode retention amounts under insurance coverage policies, and other non-insured payments) made by Seller or its Affiliates on account of any claims or litigation matters set forth on Schedule 3.11, exclusive, however, of any Seller Litigation. Buyer shall make such reimbursement payments promptly following receipt of an invoice therefor (accompanied by reasonable supporting documentation) from Seller. For clarity, neither Seller not its Affiliates shall be entitled to reimbursement for any such payments made prior to the Closing Date.

Article VIII

CLOSING

Section 8.1 Closing. Subject to the terms and conditions of this Agreement, the closing of the transactions contemplated by this Agreement (the “Closing”) shall occur contemporaneously with the execution and delivery of this Agreement. The date of the Closing shall be referred to herein as the “Closing Date.” The Closing shall take place at the offices of King & Spalding LLP located at 1100 Louisiana Street, Suite 4000, Houston, Texas 77002, at 7:45 a.m. Houston, Texas time, or at such other place or at such other time as Seller and Buyer may agree in writing.

Section 8.2 Deliveries by Seller. At the Closing, Seller will deliver or cause to be delivered to Buyer (unless delivered previously) the following:

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(a) the certificates (if certificated) for the Shares, together with a duly executed stock power from Seller, evidencing the transfer to Buyer of the beneficial and record ownership of the Shares, effective immediately upon the Closing;

(b) the Escrow Agreement executed by Seller;

(c) an Employment Agreement (the “Employment Agreement”) entered into by Jack Renshaw and Buyer, effective as of the Closing Date, and attached hereto as Exhibit 8.2(c);

(d) a certificate executed by Seller, dated as of the Closing Date and prepared in accordance with Treasury Regulations section 1.1445-2(b), establishing that Seller is not a “foreign person” for purposes of section 1445 of the Code;

(e) the resignations of the directors and officers, effective as of the Closing Date, of the Group Companies;

(f) the Transition Services Agreement executed by Seller and the Company;

(g) the Release and Termination Agreements; and

(h) the Consent to Second Amended and Restated Asset-Based Revolving Credit Agreement, dated as of March 9, 2020, by and among Keane Group Holdings, LLC, certain Loan Parties thereto, certain Lenders party thereto and Bank of America, N.A., as Administrative Agent.

Section 8.3 Deliveries by Buyer. At the Closing, Buyer will deliver or cause to be delivered to Seller the following:

(a) the Closing Payment to be paid at the Closing and such other amounts to be paid at Closing by Buyer pursuant to Section 2.3, paid and delivered in accordance with such Section;

(b) the Transition Services Agreement executed by Buyer; and

Section 8.4 Deliveries by Ascribe. At the Closing, Ascribe will deliver or cause to be delivered to Seller, the Senior Notes and the Ascribe Guarantees.

Article IX

INDEMNIFICATION

Section 9.1 Survival.

(a) Subject to Section 9.1(b) and Section 9.1(f), the representations and warranties made by the Company and Seller in this Agreement or in any certificates or documents delivered hereunder, in each case other than the Fundamental Representations and the representations and warranties made by the Company and Seller in Section 3.6 (Financial Statements) and Section 3.9 (Real Property and Personal Property), shall survive until 11:59 p.m. Central time on

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that date that is 12 months after the Closing Date; provided, however, that if at any time prior to such time, a Buyer Indemnified Party delivers to a Indemnifying Party a written notice alleging the existence of an inaccuracy in or a breach of any such representations and warranties and asserting a claim for recovery pursuant to the terms of Article IX hereunder, then the claim asserted in such notice shall survive until such claim is fully and finally resolved. All pre-Closing covenants and agreements of Seller and the Company shall expire as of the Closing Date. Except as hereinafter provided, all post-Closing covenants and agreements of Seller and the Company shall survive the Closing until satisfied pursuant to their terms. Notwithstanding the foregoing, Seller’s obligations with respect to Section 9.2(h) shall survive only until 11:59 p.m., Central time on the first anniversary of the Closing Date, and, for clarity, only with respect to claims for recovery thereunder asserted pursuant to the terms of Article IX on or prior to such anniversary date.

(b) Subject to Section 9.1(f), each Fundamental Representation made by the Company and Seller in this Agreement or in any certificates or documents delivered hereunder with respect to such representations and warranties, shall survive until 11:59 p.m. Central time on that date that is the longer of (i) three (3) years after the Closing Date and (ii) the expiration of the longest statute of limitations (as it may be and is actually extended) applicable to a Buyer Indemnified Party’s right of recovery for the inaccuracy or breach of such representation; provided, however, that if at any time prior to such time, a Buyer Indemnified Party delivers to a Indemnifying Party a written notice alleging the existence of an inaccuracy in or a breach of a Fundamental Representation and asserting a claim for recovery pursuant to the terms of Article IX hereunder, then the claim asserted in such notice shall survive until such claim is fully and finally resolved.

(c) Subject to Section 9.1(f), (i) the representations and warranties made by the Company in Section 3.6 (Financial Statements) or in any certificates or documents delivered hereunder with respect to such representations and warranties shall survive until 11:59 p.m. Central time on that date that is 18 months after the Closing Date; and (ii) the representations and warranties made by the Company in Section 3.9 (Real Property and Personal Property) or in any certificates or documents delivered hereunder with respect to such representations and warranties shall survive until 11:59 p.m. Central time on that date that is 2 years after the Closing Date; provided, however, that if at any time prior to such time, a Buyer Indemnified Party delivers to a Indemnifying Party a written notice alleging the existence of an inaccuracy in or a breach of any such representations or warranties and asserting a claim for recovery pursuant to the terms of Article IX hereunder, then the claim asserted in such notice shall survive until such claim is fully and finally resolved.

(d) Subject to Section 9.1(e) and Section 9.1(f), the representations and warranties made by Buyer and Ascribe in this Agreement or in any certificates or documents delivered hereunder, in each case other than the Fundamental Representations, shall survive until 11:59 p.m. Central time on that date that is 12 months after the Closing Date; provided, however, that if at any time prior to such time, a Seller Indemnified Party delivers to a Indemnifying Party a written notice alleging the existence of an inaccuracy in or a breach of any such representations and warranties and asserting a claim for recovery pursuant to the terms of Article IX hereunder, then the claim asserted in such notice shall survive until such claim is fully and finally resolved. All pre-Closing covenants and agreements of Buyer and Ascribe shall expire as of the Closing Date. All post-Closing covenants and agreements of Buyer and Ascribe shall survive the Closing until satisfied pursuant to their terms.

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(e) Subject to Section 9.1(f), each Fundamental Representation made by Buyer and Ascribe in this Agreement or in any certificates or documents delivered hereunder with respect to such representations and warranties shall survive until 11:59 p.m. Central time on that date that is the longer of (i) three (3) years after the Closing Date and (ii) the expiration of the longest statute of limitations (as it may be and is actually extended) applicable to a Seller Indemnified Party’s right of recovery for the inaccuracy or breach of such representation; provided, however, that if at any time prior to such time, a Seller Indemnified Party delivers to a Indemnifying Party a written notice alleging the existence of an inaccuracy in or a breach of a Fundamental Representation and asserting a claim for recovery pursuant to the terms of Article IX hereunder, then the claim asserted in such notice shall survive until such claim is fully and finally resolved.

(f) Notwithstanding anything to the contrary set forth in Section 9.1(a), Section 9.1(b), Section 9.1(c), Section 9.1(d) or Section 9.1(e), the survival limitations set forth in Section 9.1(a), Section 9.1(b), Section 9.1(c), Section 9.1(d) and Section 9.1(e) shall not apply in the event of any Fraud with respect to a Party.

Section 9.2 Indemnification Obligations of Seller. Subject to the provisions of this Article IX, from and after the Closing, Seller shall indemnify and hold harmless, and shall compensate and reimburse, each of the Buyer Indemnified Parties from, against and in respect of any and all Losses which are directly or indirectly suffered or incurred by them at any time, or to which any of the Buyer Indemnified Parties may otherwise directly or indirectly become subject at any time (regardless of whether or not such Losses relate to any third party claim) and which arise directly or indirectly from or as a result of, or are directly or indirectly connected with:

(a) any breach of any representation or warranty made by the Company or Seller in Article III or Article IV (without giving effect to any materiality, Material Adverse Effect or similar qualifications limiting the scope of such representation or warranty, other than with respect to Section 3.6(a)(ii) and Section 3.8(b), in which case such language shall be given effect);

(b) any breach of any covenant, agreement or undertaking made by the Company (to the extent performed or to be performed by the Company prior to the Closing) or Seller in this Agreement;

(c) violations of the Plea Agreement or any judgments (including the Court Judgment) entered or amendments made thereto, occurring prior to the Closing;

(d) any claim or right asserted or held by any person who is or at any time was an officer, director, employee or agent of any Group Company (against Seller, any Group Company or any Affiliate of Seller or against any other Person) involving a right or entitlement or an alleged right or entitlement to employment, indemnification, reimbursement of expenses or any other relief or remedy (under the Certificate of Incorporation (or other similar governing document) of any Group Company, under any indemnification agreement or similar Contract, under any Law or otherwise) with respect to any act or omission on the part of such person or any event or other circumstance that arose, occurred or existed at or prior to the Closing Date;

(e) any Fraud;

(f) any Company Indebtedness or Seller Transaction Expenses in excess of the respective amounts, if any, paid on the Closing Date pursuant to Section 2.3 or otherwise set forth on the Final Working Capital Statement;

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(g) the Seller Litigation, but only with respect to Losses incurred in respect thereof after the date hereof;

(h) the presence prior to the Closing Date of any Hazardous Substances at concentrations in excess of those permitted under applicable Environmental, Health & Safety Laws at, on, in or under the Company Property, or any property formerly owned, leased or occupied by any Group Company, or any noncompliance with any Environmental, Health & Safety Law by any Group Company prior to the Closing; and

(i) all Liabilities relating to or at any time arising under or in connection with or pursuant to any Employee Benefit Plan or other plan, program, arrangement, or agreement providing compensation or benefits to any current or former director, officer, employee or other service provider of Seller or its Affiliate.

The Losses of the Buyer Indemnified Parties described in this Section 9.2 as to which the Buyer Indemnified Parties are entitled to indemnification are collectively referred to as “Buyer Losses.”

Section 9.3 Indemnification Obligations of Buyer. Buyer shall indemnify and hold harmless each of the Seller Indemnified Parties from, against and in respect of any and all Losses arising out of:

(a) any breach of any representation or warranty made by Buyer in Article V; and

(b) any breach of any covenant, agreement or undertaking made by Buyer in this Agreement.

The Losses of the Seller Indemnified Parties described in this Section 9.3 and the Losses of the Seller Indemnified Parties described in Section 9.4 hereof as to which the Seller Indemnified Parties are entitled to indemnification are collectively referred to as “Seller Losses.”

Section 9.4 Indemnification Obligations of Ascribe and Seller.

(a) Subject to the provisions of this Article IX, Ascribe shall indemnify and hold harmless each of the Seller Indemnified Parties from, against and in respect of any and all Losses arising out of:

(i) any breach of any representation or warranty made by Ascribe in Article VI; and

(ii) any breach of any covenant, agreement or undertaking made by Ascribe in Section 2.3(b), Section 7.1 and Section 8.4 of this Agreement; provided, however, that Ascribe’s sole covenant, agreement or undertaking with respect to the Senior Notes under Section 2.3(b) and Section 8.4 of this Agreement is to assign the Senior Notes to Seller free and clear of all Liens created by, through or under Ascribe and notwithstanding any other provision of this Agreement Ascribe shall have no liability or obligation arising out of or relating to any acts or omissions by, or the status of, or any facts pertaining to, Seller or Buyer.

(b) Subject to the provisions of this Article IX, Seller shall indemnify and hold harmless each of the Ascribe Indemnified Parties from, against and in respect of any and all Losses

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arising out of any breach of any covenant, agreement or undertaking made by Seller in Section 7.1(g) of this Agreement.

(c) Notwithstanding any other provision of this Agreement, the maximum liability of Ascribe to the Seller Indemnified Parties or of Seller to the Ascribe Indemnified Parties under this Agreement shall be an amount equal to the Make-Whole Payment, plus the proceeds of the sale, transfer or other disposition of the Senior Notes in the event Ascribe acts as agent for Seller, and plus the reasonable costs and expenses (including reasonable attorney’s fees and expenses) incurred by the Indemnified Party in enforcing its rights against Ascribe or Seller, as the case may be, under this Agreement.

Section 9.5 Indemnification Procedure.

(a) Promptly after receipt by an Indemnified Party of notice from a third party of a threatened or filed complaint or the threatened or actual commencement of any audit, investigation, action or proceeding (a “Third Party Claim”) with respect to which such Indemnified Party may be entitled to indemnification hereunder, such Indemnified Party shall provide written notification to Buyer, Seller or Ascribe, as the case may be, but in any event not later than 30 calendar days after receipt of such notice of such Third Party Claim, whichever is the appropriate indemnifying Party hereunder (the “Indemnifying Party”); provided, however, that the failure to so notify the Indemnifying Party shall relieve the Indemnifying Party from liability under this Agreement with respect to such claim only if, and only to the extent that, such failure to notify the Indemnifying Party results in (i) the forfeiture by the Indemnifying Party of rights and defenses otherwise available to the Indemnifying Party with respect to such claim or (ii) material prejudice to the Indemnifying Party with respect to such claim. Buyer shall have the right, at its sole discretion, to control the defense of any Third Party Claim that (1) relates to the Business or the Company or any of its Subsidiaries, including those asserted on behalf of a customer or supplier of any Group Company, (2) seeks an injunction or other equitable relief against any Group Company or with respect to the Business or (3) alleges criminal liability with respect to any Group Company (together, the “Buyer Controlled Claims”), including the employment of counsel reasonably satisfactory to Seller and the payment of the fees and disbursements of such counsel, and, to the extent that a Buyer Controlled Claim is required to be indemnified by Seller pursuant to Section 9.2, Buyer’s reasonable expenses related to the defense of a Buyer Controlled Claim shall be borne and paid exclusively by Seller; provided, Seller shall have the right to participate in the defense of any Buyer Controlled Claim with counsel selected by them subject to Buyer’s right to control the defense thereof and Seller’s reasonable expenses related to such participation in a Buyer Controlled Claim shall be borne and paid exclusively by Seller. The Buyer Indemnified Parties shall at all times use reasonable efforts to keep Seller reasonably apprised of the status of any Buyer Controlled Claim and to cooperate in good faith with each other with respect to the defense of any such matter. For any Third Party Claim that is not a Buyer Controlled Claim, upon written notice to the Indemnified Party, the Indemnifying Party shall have the right to assume the defense of such Third Party Claim at the Indemnifying Party’s sole expense and with counsel reasonably satisfactory to the Indemnified Party; provided, that the Indemnified Party may join in the defense of such Third Party Claim at its sole expense and with counsel reasonably satisfactory to the Indemnifying Party.

(b) No Indemnified Party may settle or compromise any claim or consent to the entry of any judgment with respect to which indemnification is being sought hereunder without the

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prior written consent of the Indemnifying Party (which consent shall not be unreasonably withheld, conditioned or delayed).

(c) If an Indemnified Party claims a right to payment pursuant to this Agreement not involving a Third-Party Claim, such Indemnified Party shall send written notice of such claim to the Indemnifying Party, but in any event not later than 30 calendar days after the Indemnified Party becomes aware of such claim. Such notice shall specify in reasonable detail the basis for such claim. As promptly as possible after the Indemnified Party has given such notice, such Indemnified Party and the Indemnifying Party shall establish the merits and amount of such claim (by mutual agreement, arbitration, litigation or otherwise) and, within five Business Days of the final determination of the merits and amount of such claim, the Indemnifying Party shall pay to the Indemnified Party immediately available funds in an amount equal to such claim as determined hereunder, if any.

Section 9.6 Liability Limits. Notwithstanding anything to the contrary set forth in this Agreement, Seller’s obligation to indemnify, defend and hold the Buyer Indemnified Parties harmless shall be limited as follows:

(a) no amounts of indemnity shall be payable pursuant to Section 9.2(a) unless and until the Buyer Indemnified Parties shall have suffered Buyer Losses in excess of $468,500 (the “Deductible Amount”) in the aggregate, in which case the Buyer Indemnified Parties shall be entitled to recover only Buyer Losses in excess of the Deductible Amount; provided, however, that Buyer Losses arising under Section 9.2(a) to the extent based on (i) Fundamental Representations or (ii) Fraud shall not, in each case, be subject to the Deductible Amount;

(b) in no event shall the aggregate amount of indemnity required to be paid by Seller pursuant to Section 9.2(a) exceed the Cap Amount; provided, that the limitation set forth in this Section 9.6(b) shall not apply to (i) Fraud (it being understood that there shall be no limitation on the liability of Indemnifying Parties directly or indirectly involved in any Fraud) or (ii) the matters referred in Section 9.2(b) through Section 9.2(i);

(c) no Losses may be claimed by any Buyer Indemnified Party pursuant to Section 9.2(h) or shall be reimbursable by, Seller, other than Buyer Losses in excess of One Hundred Fifty Thousand Dollars ($150,000) (the “Environmental Threshold Amount”) resulting from a single claim or aggregated claims;

(d) in no event shall the aggregate amount of indemnity required to be paid by Seller pursuant to Section 9.2(h) exceed Two Million Dollars ($2,000,000);

(e) notwithstanding anything to the contrary contained in Section 9.2, but subject to the other limitations contained in this Article IX, any liability for indemnification obligations for Buyer Losses under Section 9.2(a) shall be satisfied solely up to the Cap Amount and, in the event that a claim for indemnification is made pursuant to Section 9.2 in excess of the Cap Amount, then such Buyer Losses will remain unsatisfied other than as covered by the R&W Policy and no Buyer Indemnified Party shall be entitled to recover any such shortfalls from Seller;

(f) for purposes of computing the aggregate amount of indemnifiable claims against Seller, the amount of each claim for Buyer Losses by a Buyer Indemnified Party shall be deemed to be an amount equal to, and any payments by Seller pursuant to Section 9.2 shall be limited

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to, the amount of such Buyer Losses that remain after deducting therefrom any third party insurance proceeds and any indemnity, contributions or other similar payment payable;

(g) the amount of indemnity payable pursuant to Section 9.2 with respect to any Buyer Loss shall be reduced to the extent such Buyer Loss is reflected on the Final Working Capital Statement;

(h) any Indemnified Party that becomes aware of a Loss for which it seeks indemnification under this Article IX shall be required to use commercially reasonable efforts to mitigate such Loss and an Indemnifying Party shall not be liable for any Loss to the extent that it is attributable to the Indemnified Party’s failure to mitigate following a reasonable request;

(i) in any case where a Buyer Indemnified Party recovers from any third party any amount in respect of a matter with respect to which Seller has made indemnification payments to Buyer pursuant to this Agreement, such Buyer Indemnified Party shall promptly pay over to Seller the lesser of the amount so recovered and the aggregate of such indemnification payments;

(j) the liability of Seller for Buyer Losses shall be considered in the aggregate and shall be determined on a cumulative basis so that all Buyer Losses incurred under Article IX shall be combined for purposes of determining limitations on liability, including the maximum liability amounts described above;

(k) in any claim for indemnification under this Agreement, no Party shall be required to indemnify any Person for punitive or exemplary damages, except to the extent such damages are payable pursuant to a Third-Party Claim;

(l) any indemnity payment under this Agreement shall be treated as an adjustment to the Purchase Price for U.S. federal income tax purposes; and

(m) for the avoidance of doubt, this Section 9.6 shall not apply to any liability for indemnification obligation arising under Section 7.2(f).

Section 9.7 Knowledge Not Affected. Seller hereby agrees that (a) the Buyer Indemnified Parties’ right to indemnification, compensation and reimbursement contained in this Article IX relating to the representations and warranties of or relating to Seller or any Group Company are part of the basis of the bargain contemplated by this Agreement and (b) such representations and warranties (as modified by disclosures in the Schedules) and the rights and remedies that may be exercised by the Buyer Indemnified Parties with respect thereto, shall not be waived, limited or otherwise affected by or as a result of (and Buyer shall be deemed to have relied upon such representations and warranties (as modified by disclosures in the Schedules) any knowledge on the part of any of Buyer, its Affiliates or any of their representatives, regardless of whether obtained through any investigation by Buyer, its Affiliates or any of their representatives through disclosure by Seller, any Group Company or any other Person (other than as set forth in the Schedules), and regardless of whether such knowledge was obtained before or after the execution and delivery of this Agreement.

Section 9.8 Election of Claims. In the event that any Party alleges that they are entitled to indemnification hereunder, and that Party’s claim is covered under more than one provision of this Agreement, such Party shall be entitled to elect the provision or provisions under which it

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may bring a claim for indemnification. For the avoidance of doubt, in no event shall the existence of multiple applicable provisions of this Agreement permit an Indemnified Party to recover the amount of any Losses suffered by such Party more than once.

Section 9.9 Exclusive Remedies. Except as provided for in Section 7.2(f), the Parties acknowledge and agree that following the Closing, (a) the indemnification provisions of this Article IX shall be the sole and exclusive remedies of the Parties for any breach by the other party of the representations and warranties in this Agreement and for any failure by the other party to perform or comply with the covenants or agreements contemplated by this Agreement, except (i) that if any of the covenants or agreements contemplated by this Agreement are not performed in accordance with their terms, the parties shall be entitled to specific performance of the terms of the terms thereof and (ii) in the case of Fraud shall not be so limited and (b) no breach of any representation, warranty, covenant or agreement contained herein shall give rise to any right on the part of any Party to rescind this Agreement or any of the transactions contemplated.

Article X

MISCELLANEOUS

Section 10.1 Fees and Expenses. Except as otherwise expressly provided herein, (a) Buyer shall pay its own fees, costs and expenses incurred in connection herewith and the transactions contemplated hereby, including the fees, costs and expenses of its financial advisors, accountants and counsel and (b) the Seller Transaction Expenses shall be paid by Seller to the extent not payable by Buyer pursuant to Section 2.3(a)(iii) or not otherwise accrued as a current liability on the Final Working Capital Statement.

Section 10.2 Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given (a) when delivered in person or (b) on the next Business Day when sent by overnight courier to the respective Parties at the following addresses (or at such other address for a Party as shall be specified by like notice):

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If to Buyer, to:


Basic Energy Services, Inc.
801 Cherry Street, Suite 2100
Fort Worth, Texas 76102
Attention: David Schorlemer
Email: dschorlemer@basices.com

with a copy to (which shall not constitute notice):


Weil, Gotshal & Manges LLP
200 Crescent Court, Suite 300
Dallas, Texas 75201
Attention: James R. Griffin
Rodney L. Moore
Email: james.griffin@weil.com
rodney.moore@weil.com

If to Ascribe, to:


Ascribe III Investments LLC
299 Park Avenue, 34th Floor
New York, NY 10171
Attention: Lawrence First
Email: lfirst@ascribecapital.com

with a copy to (which shall not constitute notice):


Fried, Frank, Harris, Shriver & Jacobson LLP
One New York Plaza
New York, New York 10004
Attention: Warren S. de Wied
Email: warren.de.wied@friedfrank.com

If to Seller or the Group Companies (prior to the Closing Date) to:

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NexTier Completion Solutions
3990 rogerdale
Houston, TX 77042
Attention: Kevin McDonald
EVP, Chief Administrative Officer & General Counsel

with a copy to (which shall not constitute notice):


King & Spalding LLP
1180 Peachtree Street, N.E.
Atlanta, Georgia 30309-3521
Attention: Russell B. Richards
Email: rrichards@kslaw.com

Section 10.3 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of Law or public policy, all other terms, conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated by this Agreement is not affected in any manner materially adverse to any Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated by this Agreement be consummated as originally contemplated to the fullest extent possible.

Section 10.4 Binding Effect; Assignment. This Agreement and all of the provisions hereof shall be binding upon and shall inure to the benefit of the Parties and their respective successors and permitted assigns. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned, directly or indirectly, including by operation of law, by any Party without the prior written consent of the other Parties; provided, that Buyer may assign its rights, interests and obligations hereunder (a) to any direct or indirect wholly-owned subsidiary or to any Affiliate of which Buyer is a direct or indirect wholly-owned subsidiary, (b) as collateral for the purpose of securing obligations under any financing arrangements and (c) to the provider of the R&W Policy obtained by Buyer in the case of Fraud by Seller.

Section 10.5 No Third-Party Beneficiaries. This Agreement is exclusively for the benefit of the Parties, and, as applicable, their respective successors and permitted assigns.

Section 10.6 Headings. The Article and Section headings contained in this Agreement are exclusively for the purpose of reference, are not part of the agreement of the Parties and shall not in any way affect the meaning or interpretation of this Agreement.

Section 10.7 Consent to Jurisdiction. EACH PARTY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN STATE OF DELAWARE FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY AND AGREES THAT ALL CLAIMS IN RESPECT OF THE SUIT, ACTION OR OTHER PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT. EACH PARTY AGREES TO COMMENCE ANY SUCH SUIT, ACTION OR OTHER PROCEEDING IN THE STATE AND

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FEDERAL COURTS SITTING IN THE STATE OF DELAWARE. EACH PARTY WAIVES ANY DEFENSE OF IMPROPER VENUE OR INCONVENIENT FORUM TO THE MAINTENANCE OF ANY ACTION OR PROCEEDING SO BROUGHT AND WAIVES ANY BOND, SURETY OR OTHER SECURITY THAT MIGHT BE REQUIRED OF ANY OTHER PARTY WITH RESPECT THERETO. ANY PARTY MAY MAKE SERVICE ON ANY OTHER PARTY BY SENDING OR DELIVERING A COPY OF THE PROCESS TO THE PARTY TO BE SERVED AT THE ADDRESS AND IN THE MANNER PROVIDED FOR THE GIVING OF NOTICES IN Section 10.2. NOTHING IN THIS Section 10.7, HOWEVER, SHALL AFFECT THE RIGHT OF ANY PARTY TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AT EQUITY. EACH PARTY AGREES THAT A FINAL JUDGMENT IN ANY ACTION OR PROCEEDING SO BROUGHT SHALL BE CONCLUSIVE AND MAY BE ENFORCED BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW OR AT EQUITY.

Section 10.8 Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF, RELATING TO OR IN CONNECTION WITH ANY MATTER WHICH IS THE SUBJECT OF THIS AGREEMENT OR THE ACTIONS OF ANY PARTY HERETO IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT HEREOF.

Section 10.9 Entire Agreement. This Agreement (including the Schedules and Exhibits attached hereto), the Confidentiality Agreement and the other documents delivered pursuant to this Agreement constitute the entire agreement among the Parties with respect to the subject matter of this Agreement and supersede all other prior agreements and understandings, both written and oral, between the Parties with respect to the subject matter of this Agreement.

Section 10.10 Governing Law. THIS AGREEMENT AND ANY LEGAL DISPUTE ARISING UNDER OR RELATED IN ANY WAY TO THIS AGREEMENT, THE RELATIONSHIP OF THE PARTIES, THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND THE INTERPRETATION AND ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES HEREUNDER OR RELATED IN ANY WAY TO THE FOREGOING, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAW OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE.

Section 10.11 Specific Performance. The Parties acknowledge and agree that any breach of the terms of this Agreement could give rise to irreparable harm for which money damages may not be an adequate remedy and accordingly the Parties agree that, in addition to any other remedies, each Party shall be entitled to enforce the terms of this Agreement by a decree of specific performance without the necessity of proving the inadequacy of money damages as a remedy.

Section 10.12 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by e-mail shall be as effective as delivery of a manually executed counterpart of the Agreement.

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Section 10.13 Amendment; Modification. This Agreement may be amended, modified or supplemented at any time only by written agreement of the Parties.

Section 10.14 Schedules. Disclosure of any fact or item in any Schedule hereto referenced by a particular Section in this Agreement shall be deemed to have been disclosed with respect to every other Section in this Agreement to the extent that such disclosure is set forth with such specificity that it is readily apparent on the face of such disclosure that such disclosure is applicable to such Sections. The specification of any dollar amount in the representations or warranties contained in this Agreement or the inclusion of any specific item in any Schedules hereto is not intended to imply that such amounts, or higher or lower amounts or the items so included or other items, are or are not material, and no Party shall use the fact of the setting of such amounts or the inclusion of any such item in any dispute or controversy as to whether any obligation, items or matter not described herein or included in a Schedule is or is not material for purposes of this Agreement. Unless this Agreement specifically provides otherwise, neither the specification of any item or matter in any representation or warranty contained in this Agreement nor the inclusion of any specific item in any Schedule hereto is intended to imply that such item or matter, or other items or matters, are or are not in the Ordinary Course, and no Party shall use the fact of the setting forth or the inclusion of any such item or matter in any dispute or controversy between the Parties as to whether any obligation, item or matter not described herein or included in any Schedule is or is not in the Ordinary Course for purposes of this Agreement.

Section 10.15 Time of Essence. With regard to all dates and time periods set forth in this Agreement, time is of the essence.

Section 10.16 Limitation of Liability. In no event shall Buyer be liable for Ascribe’s breach or failure to perform its obligations under this Agreement, in any manner, and Seller and the Company each agree and acknowledge that with respect to any Liabilities arising from any such breach or failure to perform by Ascribe, Seller and the Company’s sole recourse with respect to such Liability shall be to Ascribe.

Section 10.17 Privilege; Counsel. King & Spalding LLP has been engaged by the Group Companies and Seller to represent them in connection with the transactions contemplated by this Agreement. Buyer (on its behalf and on behalf of its Affiliates) hereby (a) agrees that, in the event that a dispute arises after the Closing between Buyer or any of its Affiliates, on the one hand, and Seller, on the other hand, with respect to the transactions contemplated by this Agreement, King & Spalding LLP may represent Seller in such dispute even though the interests of Seller may be directly adverse to Buyer, the Group Companies, or any of their respective Affiliates and even though King & Spalding LLP may have represented the Group Companies in a matter substantially related to such dispute, or may be handling ongoing matters for Buyer or the Group Companies and (b) waives any conflict in connection therewith. Buyer (on its behalf and on behalf of its Affiliates) further understands and agrees that the parties have each undertaken commercially reasonable efforts to prevent the disclosure of confidential or attorney-client privileged information. Notwithstanding those efforts, Buyer (on its behalf and on behalf of its Affiliates) further agrees that, notwithstanding anything in this Agreement to the contrary, as to all communications among any of King & Spalding LLP, the Company, or the Sellers (including any of their respective directors, officers or employees and the Sellers’ Representative) that relate to this Agreement or the transactions contemplated by this Agreement, the attorney-client privilege and the expectation of client confidence belongs to the Sellers and shall be controlled

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by the Sellers and shall not pass to or be claimed by Buyer, the Company, or any of their respective Affiliates. Buyer (on its behalf and on behalf of its Affiliates) further understands and agrees that the consummation of the transactions contemplated by this Agreement may result in the inadvertent disclosure of information that may be confidential or subject to a claim of privilege. Buyer (on its behalf and on behalf of its Affiliates) further understands and agrees that any disclosure of information that may be confidential or subject to a claim of privilege will not prejudice or otherwise constitute a waiver of any claim of privilege. Buyer (on its behalf and on behalf of its Affiliates) agrees to use commercially reasonable efforts to return promptly any inadvertently disclosed information to the appropriate Person upon becoming aware of its existence. Notwithstanding the foregoing, in the event that a dispute arises between Buyer, the Group Companies, or any of their respective Affiliates and a third party other than a party to this Agreement after the Closing, the Group Companies may assert the attorney-client privilege to prevent disclosure of confidential communications by King & Spalding LLP to such third party; provided, however, that the Group Companies may not waive such privilege without the prior written consent of Seller. King & Spalding LLP shall be a third-party beneficiary for purposes of this Section 10.17.

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the date first above written.

BUYER:

BASIC ENERGY SERVICES, INC.


By:			/s/ Keith Schilling
Name:			Keith Schilling
Title:			President & CEO

ASCRIBE:

ASCRIBE III INVESTMENTS LLC


By:			/s/ Lawrence First
Name:			Lawrence First
Title:			Managing Director

COMPANY:

C&J WELL SERVICES, INC.


By:			/s/ Robert W. Drummond
Name:			Robert W. Drummond
Title:			Chief Executive Officer

SELLER:

NEXTIER HOLDING CO.


By:			/s/ Robert W. Drummond
Name:			Robert W. Drummond
Title:			Chief Executive Officer

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Exhibit 4.7

BASIC ENERGY SERVICES, INC.

DESCRIPTION OF SECURITIES

The following summary of each of our capital stock, Second Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”), Certificate of Designations of Series A Participating Preferred Stock (the “Certificate of Designations”) and Second Amended and Restated Bylaws (the “Bylaws”) does not purport to be complete and is qualified in its entirety by reference to the provisions of applicable law, our Certificate of Incorporation, our Certificate of Designations and our Bylaws, which are filed as Exhibits 3.1, 3.2 and 3.3 to this Annual Report on Form 10-K, respectively.

Authorized and Outstanding Capital Stock

Basic Energy Services, Inc., a Delaware corporation (“we”, or the “Company”), has authorized capital stock consisting of 80,000,000 shares of common stock and 5,000,000 shares of preferred stock. As of March 12, 2020, there were 24,983,699 shares of the Company’s common stock and 118,805 shares of the Company’s Series A Preferred Stock (as defined below) outstanding.

Common Stock

Our Certificate of Incorporation authorizes us to issue 80,000,000 shares of common stock, par value $0.01 per share. As of March 12, 2020, there were 24,983,699 shares of the Company’s common stock outstanding, all of which are fully paid and non-assessable. Our common stock is traded on the OTCQX Best Market tier of the OTC Markets Group Inc. under the symbol “BASX”.

Holders of common stock are entitled to one vote per share on all matters to be voted upon by the stockholders. Because holders of common stock do not have cumulative voting rights, the holders of a majority of the shares of the voting shares represented by outstanding common stock and Series A Preferred Stock (as defined below) can elect all of the members of the board of directors (the “Board”) standing for election. Upon our liquidation, dissolution or winding up, and subject to any prior rights of outstanding preferred stock, the holders of our common stock will be entitled to share pro rata in the distribution of all of our assets available for distribution to our stockholders after satisfaction of all of our liabilities and the payment of the liquidation preference of any preferred stock that may be outstanding.

The holders of common stock are entitled to receive dividends as may be declared by the Board in its discretion out of any assets or funds of the Company legally available for the payment of dividends.

Other Rights

The holders of our common stock will have no preemptive or other subscription rights to purchase our common stock. There are no redemption or sinking fund provisions applicable to the common stock.

Preferred Stock

Our Certificate of Incorporation authorizes us to issue 5,000,000 shares of preferred stock, par value $0.01 per share, in one or more series with such voting powers, full or limited, or no voting powers and such designations, preferences and relative participation, optional or other special rights, and the qualifications, limitations or restrictions thereof as shall be stated in the resolutions of the Board providing for their issuance.

Series A Participating Preferred Stock

As of March 12, 2020, there were 118,805 shares of the Company’s Series A Participating Preferred Stock (“Series A Preferred Stock”) outstanding, all of which are fully paid and non-assessable. The rights of the stockholders of Series A Preferred Stock may not be amended by merger, consolidation or otherwise, in any manner which would adversely affect the rights, privileges or powers of the Series A Preferred Stock without, in addition to any other vote of stockholders required by law, the affirmative vote of the holders of two-thirds of the outstanding shares of Series A Preferred Stock, voting separately as a single class.

Ranking

Unless otherwise provided in the Certificate of Incorporation, or a certificate of designations relating to a subsequent series of preferred stock of the Company, the Series A Preferred Stock ranks junior to all other series of our preferred stock as to the payment of dividends and distributions of assets on liquidation, dissolution or winding up and senior to the common stock of the Company.

Liquidation Rights

Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of shares of Series A Preferred Stock are entitled to receive for each share of Series A Preferred Stock an amount equal to the product of the aggregate amount to be distributed per share to holders of the common stock of the Company multiplied by one thousand, hereinafter referred to as the Liquidation Multiple. The Liquidation Multiple is subject to adjustment in the event of any declaration or payment of dividends or distributions on the common stock of the Company payable in shares of common stock, or any subdivision or split or combination, consolidation, reverse split or reclassification of the outstanding shares of common stock into a greater or lesser number of shares of common stock. In each such case, the Liquidation Multiple thereafter applicable is to be the Liquidation Multiple immediately prior to such event multiplied by a fraction the numerator of which is the number of shares of common stock outstanding immediately after such event and the denominator of which is the number of shares of common stock that were outstanding immediately prior to such event.

Consolidation, Merger, Combination or Exchange

Upon any consolidation, merger, combination or other transaction in which the shares of common stock of the Company are exchanged for or changed into other stock or securities, cash and/or any other property, each outstanding share of Series A Preferred Stock is entitled to, at the same time, be similarly exchanged for or changed into the aggregate amount of stock, securities and/or other property for which or into which each share of common stock is changed or exchanged multiplied by the highest of the Vote Multiple (as defined below), the Dividend Multiple (as defined below) or the Liquidation Multiple in effect immediately prior to such event.

Voting Rights

The holders of shares of Series A Preferred Stock are entitled to one thousand votes per share of Series A Preferred Stock on all matters submitted to a vote of the holders of common stock of the Company. The number of votes which a holder of shares of Series A Preferred Stock is entitled to cast, herein referred to as the “Vote Multiple”, is subject to adjustment from time to time. In the event of any declaration or payment of dividends or distributions on the common stock of the Company payable in shares of common stock, or any subdivision or split or combination, consolidation, reverse split or reclassification of the outstanding shares of common stock into a greater or lesser number of shares of common stock, then in each such case, the Voting Multiple thereafter applicable is to be the Vote Multiple immediately prior to such event multiplied by a fraction the numerator of which is the number of shares of common stock

outstanding immediately after such event and the denominator of which is the number of shares of common stock that were outstanding immediately prior to such event.

Except as otherwise provided by law, the holders of shares of Series A Preferred Stock and the holders of common stock vote together as a single class on all matters submitted to a vote of holders of common stock.

Dividends and Distributions

The holders of shares of Series A Preferred Stock are entitled to receive dividends or distributions when, as and if declared by the Board out of funds legally available for that purpose, with respect to each share of Series A Preferred Stock in an amount per share equal to the product of the aggregate per share amount of each cash or non-cash dividend declared on the common stock of the Company multiplied by one thousand, herein referred to as the “Dividend Multiple”. The Dividend Multiple is subject to adjustment in the event of any declaration or payment of dividends or distributions on the common stock of the Company payable in shares of common stock, or any subdivision or split or combination, consolidation, reverse split or reclassification of the outstanding shares of common stock into a greater or lesser number of shares of common stock. In each such case, the Dividend Multiple thereafter applicable is to be the Dividend Multiple immediately prior to such event multiplied by a fraction the numerator of which is the number of shares of common stock outstanding immediately after such event and the denominator of which is the number of shares of common stock that were outstanding immediately prior to such event.

We will declare each dividend or distribution at the same time we declare any cash or non-cash dividend or distribution on the common stock of the Company in respect of which a dividend or distribution is required to be paid, and no cash or non-cash dividend or distribution on the common stock in respect of which a dividend or distribution is required to be paid may be paid or set aside for payment on the common stock unless a full dividend or distribution on the common stock has been simultaneously paid or set aside for payment on the Series A Preferred Stock.

The Board may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of any dividend or distribution declared thereon. The record date may not be more than sixty days prior to the date fixed for the payment thereof. If a record date is fixed for a dividend or distribution on the common stock of the Company in respect of which a dividend or distribution is required to be paid, such record date fixed for the Series A Preferred Stock must be the same date as the record date fixed for such dividend or distribution on the common stock.

Conversion

Upon written notice, subject to certain conversion procedures and the limitations, if any, imposed by Delaware General Corporation Law (the “DGCL”), the Company may elect to convert all or any portion of the outstanding shares of Series A Preferred Stock into shares of authorized but unissued shares of common stock. In addition, upon written notice, subject to certain conversion procedures and the limitations, if any, imposed by the DGCL, each holder of Series A Preferred Stock may elect to convert all or any portion of the outstanding shares of Series A Preferred Stock held by such holder into authorized but unissued shares of common stock available for conversion. In the event that a holder of Series A Preferred Stock elects to convert all or a portion of its shares of Series A Preferred Stock, the Company will set a conversion date that will not be less than three business days or more than twenty business days following receipt of conversion notice.

Upon any election for conversion, the shares of Series A Preferred Stock to be converted will be converted into a number of shares of common stock equal to the product of the number of

shares of Series A Preferred Stock being so converted multiplied by one thousand, herein referred to as the “Conversion Multiple”. The Conversion Multiple is subject to adjustment in the event of any declaration or payment of dividends or distributions on the common stock of the Company payable in shares of common stock, or any subdivision or split or combination, consolidation, reverse split or reclassification of the outstanding shares of common stock into a greater or lesser number of shares of common stock. In each such case, the Conversion Multiple thereafter applicable is to be the Conversion Multiple immediately prior to such event multiplied by a fraction the numerator of which is the number of shares of common stock outstanding immediately after such event and the denominator of which is the number of shares of common stock that were outstanding immediately prior to such event. If the conversion is at the election of the Company and such request includes shares which constitute less than all outstanding shares of Series A Preferred Stock, the conversion of shares will be effectuated by the Company pro rata among all holders of Series A Preferred Stock.

All shares of common stock delivered upon conversion will be duly and validly authorized and issued, fully paid and non-assessable, free from all preemptive rights, taxes, liens, security interests, charges and encumbrances (other than liens, security interests, charges or encumbrances created by or imposed upon the holder thereof or taxes in respect of any transfer occurring contemporaneously therewith involving the issuance or delivery of shares in name other than that of the holder of the shares to be converted). All shares of Series A Preferred Stock that are converted will be automatically cancelled and retired and cease to exist, and will return to the status of authorized but unissued shares of preferred stock undesignated as to series.

Redemption

The shares of Series A Preferred Stock are not redeemable at the option of the Company or any holder thereof. Notwithstanding the foregoing sentence, we may acquire shares of Series A Preferred Stock in any other manner permitted by law, by the provisions of the Series A Preferred Stock Certificate of Designation and by the Certificate of Incorporation.

Reacquired Shares

Any shares of Series A Preferred Stock purchased or otherwise acquired by the Company in any manner whatsoever will be retired and cancelled promptly after the acquisition thereof. All such shares upon their retirement and cancellation will become authorized but unissued shares of preferred stock, without designation as to series.

Other Rights

The holders of our Series A Preferred Stock have no preemptive or other subscription rights to purchase our Series A Preferred Stock or common stock. The Series A Preferred Stock will not have the benefit of any sinking fund.

Stock Options and Warrants

There are currently outstanding warrants held by our former equity holders to purchase up to approximately 2,066,627 shares of our common stock. These warrants are exercisable at a purchase price of $55.25 per share and expire on December 23, 2023. These warrants were issued by us on December 23, 2016 pursuant to the First Amended and Restated Joint Prepackaged Chapter 11 Plan of Basic Energy Services, Inc. and its affiliated debtors.

As of March 12, 2020, we had 226,640 outstanding options to purchase our common stock, issued under the Basic Energy Services, Inc. Management Incentive Plan (“MIP”), and 330,552 shares of unvested restricted stock, issued under the Basic Energy Services, Inc. 2019 Long Term Incentive Plan (“LTIP”). We may in the future issue additional stock options and restricted shares of common stock to certain officers and directors and to third-party consultants pursuant

to the LTIP, the Basic Energy Services, Inc, Non-Employee Director Incentive Plan or other equity incentive plan adopted by the Board.

Anti-Takeover Effects of Provisions of our Certificate of Incorporation, our Bylaws and Delaware Law

Some provisions of Delaware law, our Certificate of Incorporation and our Bylaws described below could make the following transactions more difficult: acquisitions of us by means of a tender offer, a proxy contest or otherwise; or removal of our incumbent officers and directors. These provisions may also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish or could deter transactions that stockholders may otherwise consider to be in their best interest or in our best interests, including transactions that might result in a premium over the market price for our shares.

These provisions, summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with us. We believe that the benefits of increased protection and our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging these proposals because, among other things, negotiation of these proposals could result in an improvement of their terms.

Delaware Law

We are subject to the provisions of Section 203 of the DGCL, regulating corporate takeovers. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a three-year period following the time that such stockholder becomes an interested stockholder, unless the business combination is approved in a prescribed manner. A “business combination” includes, among other things, a merger or consolidation, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. An “interested stockholder” is a person who, together with affiliates and associates, owns, or did own within three years prior to the determination of interested stockholder status, 15% or more of the corporation’s outstanding voting stock. Under Section 203, a business combination between a corporation and an interested stockholder is prohibited unless it satisfies one of the following conditions:

•the transaction is approved by the Board before the date the interested stockholder attained that status;

•upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding, shares owned by persons who are directors and also officers, and employee stock plans, in some instances; or

•on or after such time, the business combination is approved by the Board and authorized at a meeting of stockholders by at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder.

Certificate of Incorporation and Bylaws

Provisions of our Certificate of Incorporation and Bylaws may delay or discourage transactions involving an actual or potential change in control or change in our management, including transactions in which stockholders might otherwise receive a premium for their shares, or transactions that our stockholders might otherwise deem to be in their best interests. Therefore, these provisions could adversely affect the price of our common stock.

Among other things, our Certificate of Incorporation and Bylaws:

•permit the Board to issue up to 5,000,000 shares of preferred stock, with any rights, preferences and privileges as they may designate;

•provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office;

•provide that our Bylaws may only be amended by the affirmative vote of the majority of the Board or the holders of two-thirds of our then outstanding common stock;

•preclude the ability of our stockholders to call special meetings of stockholders;

•preclude the ability of our stockholders to remove directors without cause;

•eliminate the personal liability of our directors for monetary damages resulting from breaches of their fiduciary duty to the extent permitted by the DGCL and indemnify our directors and officers to the fullest extent permitted by the DGCL;

•provide for a classified Board divided into three classes serving staggered three-year terms, making it more difficult for stockholders to change the composition of the Board;

•provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide notice in writing in a timely manner, and also specify requirements as to the form and content of a stockholder’s notice; and

•do not provide for cumulative voting rights, therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election, if they should so choose.

Limitation of Liability and Indemnification Matters

Our Certificate of Incorporation limits the liability of our directors for monetary damages for breach of their fiduciary duty as directors, except for liability that cannot be eliminated under the Delaware law. The DGCL provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duty as directors, except for liabilities:

•for any breach of the director’s duty of loyalty to the corporation or its stockholders;

•for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;

•for unlawful payment of dividend or unlawful stock purchase or redemption; or

•for any transaction from which the director derived an improper personal benefit.

Our Certificate of Incorporation and Bylaws also provide that we will indemnify our directors and officers to the fullest extent permitted by Delaware law. We believe that the limitation of liability provision in our Certificate of Incorporation will facilitate our ability to continue to attract and retain qualified individuals to serve as directors and officers.

Exhibit 21.1

Subsidiaries of Basic Energy Services, Inc.

As of December 31, 2019



Name of Subsidiary			Jurisdiction of Formation
Basic Energy Services GP, LLC			Delaware
Basic Energy Services LP, LLC			Delaware
Basic Energy Services, L.P.			Delaware
Basic ESA, Inc.			Texas
SCH Disposal, L.L.C.			Texas
Taylor Industries, LLC			Texas
Agua Libre Holdco LLC			Delaware
Agua Libre Asset Co LLC			Delaware
Agua Libre Midstream LLC			Delaware
ESA de Mexico S.A. de C.v.			Mexico
Basic Energy Services International, LLC			Delaware

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors

Basic Energy Services, Inc.:

We consent to the incorporation by reference in the registration statements (No. 333-217288 and No. 333-217289) on Form S-3 and (No. 333-231521 and No. 333-231519) on Form S-8 of Basic Energy Services, Inc. and subsidiaries of our report dated March 13, 2020, with respect to the consolidated balance sheets of Basic Energy Services, Inc. and subsidiaries as of December 31, 2019 and 2018, the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively, the “consolidated financial statements”) as of December 31, 2019, which report appears in the December 31, 2019 annual report on Form 10-K of Basic Energy Services, Inc. and subsidiaries.

Our report on the consolidated financial statements refers to a change in the method of accounting for leases as of January 1, 2019 due to the adoption of ASU No. 2016-02, Topic 842 – Leases.

KPMG LLP

Dallas, Texas

March 13, 2020

Exhibit 31.1

CERTIFICATION BY CHIEF EXECUTIVE OFFICER PURSUANT TO

RULE 13a-14(a) AND 15d-14(a) UNDER THE EXCHANGE ACT

I, Keith L. Schilling, certify that:

1. I have reviewed this annual report on Form 10-K of Basic Energy Services, Inc.;

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

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

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

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

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

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

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


			/s/ Keith L. Schilling
			Keith L. Schilling
			Chief Executive Officer

Date: March 13, 2020

Exhibit 31.2

CERTIFICATION BY CHIEF FINANCIAL OFFICER PURSUANT TO

RULE 13a-14(a) AND 15d-14(a) UNDER THE EXCHANGE ACT

I, David S. Schorlemer, certify that:

1. I have reviewed this annual report on Form 10-K of Basic Energy Services, Inc.;

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


			/s/ David S. Shorlemer
			David S. Schorlemer
			Chief Financial Officer

Date: March 13, 2020

Exhibit 32.1

CERTIFICATION BY CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Basic Energy Services, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Keith L. Schilling, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:

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

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


			/s/ Keith L. Schilling
			Keith L. Schilling
			Chief Executive Officer

March 13, 2020

Exhibit 32.2

CERTIFICATION BY CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Basic Energy Services, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David S. Schorlemer, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:

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

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


			/s/ David S. Schorlemer
			David S. Schorlemer
			Chief Financial Officer

March 13, 2020