8. Incentive Plan

In May 2003, Basic’s board of directors and stockholders approved the Basic Energy Services, Inc. 2003 Incentive Plan (as amended, the “Plan”), which provides for granting of incentive awards in the form of stock options, restricted stock, performance awards, bonus shares, phantom shares, cash awards and other stock-based awards to officers, employees, directors and consultants of Basic. The Plan assumed awards of the plans of Basic’s predecessors that were awarded and remained outstanding prior to adoption of the Plan. The Plan provides for the issuance of 10,350,000 shares. The Plan is administered by the Plan committee, and in the absence of a Plan committee, by the Board of Directors, which determines the awards and the associated terms of the awards and interprets its provisions and adopts policies for implementing the Plan. The number of shares authorized under the Plan and the number of shares subject to an award under the Plan will be adjusted for stock splits, stock dividends, recapitalizations, mergers and other changes affecting the capital stock of Basic.

During the three months ended September 30, 2013 and 2012, compensation expense related to share-based arrangements was approximately $ 2.8 million and $ 2.6 million, respectively. For compensation expense recognized during the three months ended September 30, 2013 and 2012, Basic recognized a tax benefit of approximately $ 1.2 million and $ 1.1 million, respectively. During the nine months ended September 30, 2013 and 2012, compensation expense related to share-based arrangements was approximately $ 9.0 million and $ 10.2 million, respectively. For compensation expense recognized during the nine months ended September 30, 2013 and 2012, Basic recognized a tax benefit of approximately $ 3.1 million and $ 3.0 million, respectively.

As of September 30, 2013, there was approximately $ 19.1 million of total unrecognized compensation related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 2.13 years. The total fair value of share-based awards vested during the nine months ended September 30, 2013 and 2012 was approximately $ 11.7 million and $ 12.7 million, respectively. During the nine months ended September 30, 2013 and 2012, there was no excess tax benefit due to the net operating loss carryforwards (“NOL”). If there was no NOL, the excess tax benefit would have been approximately $ 814,000 and $ 1.5 million at September 30, 2013 and 2012, respectively.

Stock Option Awards

The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option-pricing model. Options granted under the Plan expire 10 years from the date they are granted, and generally vest over a three- to five-year service period.

The following table reflects the summary of stock options outstanding at September 30, 2013 and the changes during the nine months then ended:



				Weighted
				Average
				Remaining	Aggregate
	Number of	Weighted		Contractual	Intrinsic
	Options	Average		Term	Value
	Granted	Exercise Price		(Years)	(000's)
Non-statutory stock options:
Outstanding, beginning of period	642,250	$	16.09
Options granted	—		—
Options forfeited	—		—
Options exercised	(57,175)		5.28
Options expired	—		—
Outstanding, end of period	585,075	$	17.15	1.98	$	1,590
Exercisable, end of period	585,075	$	17.15	1.98	$	1,590
Vested or expected to vest, end of period	585,075	$	17.15	1.98	$	1,590

The total intrinsic value of share options exercised during the nine months ended September 30, 2013 and 2012 was approximately $ 501,000 and $ 874,000, respectively.

Cash received from share option exercises under the Plan was approximately $ 302,000 and $ 666,000 for the nine months ended September 30, 2013 and 2012, respectively. During the nine months ended September 30, 2013 and 2012, there was no excess tax benefit due to the NOL. If there was no NOL, the excess tax benefit would have been $ 53,000 and $ 142,000 at September 30, 2013 and 2012, respectively.

Basic has a history of issuing treasury and newly issued shares to satisfy share option exercises.

Restricted Stock Awards

On March 12, 2013, the Compensation Committee of Basic’s Board of Directors approved grants of performance-based stock awards to certain members of management. The performance-based awards are tied to Basic’s achievement of total stockholder return over the performance period from January 1, 2013 through December 31, 2013, as compared to other members of a defined peer group. The number of shares to be issued will range from 0% to 150% of the 347,084 target number of shares depending on the performance noted above. Any shares earned at the end of the performance period will then remain subject to vesting over a three-year period with the first shares vesting March 15, 2015. As of September 30, 2013, Basic estimated that 100% of the target number of performance-based awards will be earned.

A summary of the status of Basic’s non-vested share grants at September 30, 2013 and changes during the nine months ended September 30, 2013 is presented in the following table:



		Weighted Average
	Number of	Grant Date Fair
Nonvested Shares	Shares	Value Per Share
Nonvested at beginning of period	1,986,059	$	15.10
Granted during period	1,046,281		14.35
Vested during period	(768,194)		14.70
Forfeited during period	(62,763)		14.59
Nonvested at end of period	2,201,383	$	14.91