2017 EXECUTIVE COMPENSATION DECISIONS
The following is a discussion of the specific actions taken by our Compensation Committee in 2017 related to each of our direct compensation elements. Each element is reviewed annually, as well as at the time of a promotion, other change in responsibilities, other significant corporate events or a material change in market conditions.
Base Salary
Base salary is the fixed annual compensation we pay to each Named Executive Officer for performing specific job responsibilities. It represents the minimum income a Named Executive Officer may receive in any year. In setting annual base salary amounts, our Compensation Committee intends to generally target by position the market 50th percentile of our peer group, although the Compensation Committee also takes into consideration factors such as the particular officer’s contribution to our financial performance and condition, the officer’s qualifications, skills, experience and responsibilities, as well as current market and industry conditions.
At its December 2016 meetings, our Compensation Committee reviewed data with respect to our 2017 compensation peer group and approved certain changes to the base salaries of three of our Named Executive Officers. In order to provide our Named Executive Officers with targeted levels of base salary and total compensation opportunities for 2017 relative to our 2017 peer group, as well as to motivate and retain our executive talent and further align their interests with those of our stockholders, we increased the base salaries of Messrs. Reid, Lou, and Lorentzatos for fiscal year 2017.
Mr. Nusz's salary was not increased and has remained unchanged since 2014. His salary will be held flat for 2018, which will be his fifth year at that level.
For 2016, the salaries of our Named Executive Officers were between 95% and 99% of the 2016 peer group 50th percentile. The increase to Mr. Lorentzatos' salary kept it in line with the 50th percentile of the 2017 peer group. With regard to Mr. Reid and Mr. Lou, the Committee approved an increase in their salaries as shown below to account for the crucial strategic leadership and contributions of Messrs. Reid and Lou and to remain competitive and address retention concerns:
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2016 Base Salary
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% Increase
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2017 Base Salary
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Thomas B. Nusz
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$
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820,000
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—
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$
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820,000
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Taylor L. Reid
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$
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500,000
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20
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%
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$
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600,000
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Michael H. Lou
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$
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420,000
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14
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%
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$
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480,000
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Nickolas J. Lorentzatos
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$
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360,000
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5.6
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%
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$
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380,000
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Annual Performance-Based Cash Incentive Awards
We have historically utilized, and expect to continue to utilize, annual performance-based cash incentive awards to reward achievement of our annual Company performance goals. Our annual performance-based cash incentive program for our Named Executive Officers is governed by our Amended and Restated 2010 Annual Incentive Compensation Plan (the “Incentive Plan”).
Annual Cash Incentive Award Opportunity.
In December of each year, the Compensation Committee establishes threshold, target and maximum cash incentive award opportunities for each Named Executive Officer as a percentage of the officer’s base salary for purposes of determining the annual performance-based cash incentive awards for the upcoming year. For 2017, the cash incentive award opportunities for the Named Executive Officers were not changed from the levels in place for 2016 and were set as follows:
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Threshold
(as % of base salary)
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Target
(as % of base salary)
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Maximum
(as % of base salary)
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Thomas B. Nusz
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60
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%
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120
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%
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240
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%
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Taylor L. Reid
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50
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%
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100
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%
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200
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%
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Michael H. Lou
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50
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%
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100
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%
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200
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%
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Nickolas J. Lorentzatos
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40
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%
|
|
80
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%
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160
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%
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Compensation Discussion and Analysis
Also in December of each year, the Company sets threshold, target and maximum levels for a number of established annual performance goals, each with a pre-assigned weighting, to serve as a guideline for determining the actual annual performance-based cash incentive award amounts earned by our executive officers for the upcoming year. In general, our Board of Directors attempts to set rigorous performance objectives such that there will be approximately a 50% probability achieving the target performance metrics and that achievement at the threshold or maximum performance levels will be much less probable. If we achieve the target performance goals, the annual performance-based cash incentive awards to our Named Executive Officers are expected to be paid at target levels. In order to create additional incentive for exceptional Company performance, if we achieve the maximum performance goals and at the discretion of our Compensation Committee, awards can be up to the maximum levels designated for each Named Executive Officer, but it is not expected that payment at this level would occur in most years, and to date, we have not awarded cash incentives at the maximum percentage for any Named Executive Officer in any year since our initial public offering.
The established performance goals selected may vary from year to year and are intended to reflect the most critical operational, financial and strategic goals for the upcoming year, including goals based on financial measures such as returns and revenues as well as operational and strategic goals relevant to our annual operating plan. The Committee believes that setting specific performance goals in advance helps establish important benchmarks and communicates the Company's top priorities to its Named Executive Officers and employees. In addition, we believe that these goals best align the efforts of our executives and employees with growth of stockholder value. Following the end of the applicable year, the Committee determines the amount of the awards earned based on a retrospective evaluation of performance against the established goals. The Compensation Committee may also consider other subjective features, such as extenuating market circumstances, individual performance and safety performance, when determining actual amounts of awards. Performance-based cash incentive awards to our executives are based solely on the performance of the Company, not the performance of the individual.
In addition, following the determination of the amount of the awards earned, the Committee applies a "safety modifier," which may be a positive, negative, or neutral value depending on the Company's safety performance for the year. This "safety modifier" affects the awards received by all employees and so serves to make safety a top priority for every individual.
In addition, in order that the 2017 annual performance-based cash incentive awards, and also the annual restricted stock awards, may qualify as tax deductible “performance-based compensation” under Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), the Compensation Committee established a baseline performance hurdle of $300 million in revenue for 2017, the achievement of which was a condition to the payout of any performance-based cash incentive awards to the Named Executive Officers under the program. Although the achievement of the baseline performance hurdle permits a payout at the maximum cash incentive award level for each Named Executive Officer, the Compensation Committee, in determining actual awards, may apply its subjective judgment to reduce (but not increase) the amount of the award payout, taking into consideration the Company’s performance against other goals and factors (including the established operational, financial and strategic performance goals for the year, as described below for 2017). In January 2018, the Compensation Committee certified that the 2017 baseline performance hurdle was exceeded. Changes to Section 162(m) of the Code made later in 2017 may ultimately affect the deductibility of some of the performance awards. However, no such changes were possible to consider when the Compensation Committee was making these award decisions.
2017 Performance Goals.
Oasis Petroleum is an exploration and production company that generates revenues through the development of oil and gas properties and associated infrastructure. Our revenues are largely generated through the sale of oil and gas at liquid sales points. Our profits are derived from the delta between those revenues and our cost structure. Our goal, therefore, is to optimize production and manage operating and finding costs. Each year, we measure our performance relative to target metrics and Initiatives, or milestones, which are generated through our annual budget and strategic planning processes and approved by our Board of Directors. Set forth below are the performance metrics for 2017, which were approved by the Board, and a description of how each metric helps us achieve our objectives:
Compensation Discussion and Analysis
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Performance Metric
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Description and Rationale
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Production (Boe/day)
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Measured in equivalent average annual volumes;
Target is derived from existing (or PDP) and new (or capital) volumes;
Over or under performance is driven primarily by production optimization, weather impacts, well performance and the timing of tying in new wells from our capital program, and access to take-away capacity for produced fluids.
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Capital Efficiency ($/Boe)
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Measures the investment efficiency of our capital program and is demonstrated by finding and development costs;
Determined by dividing our capital investment in a well by the estimated ultimate recovery of the well in barrels of oil equivalent.
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Cost Structure
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LOE ($/Boe)
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Lease Operating Expense is the routine operating cost on a per barrel of oil equivalent of production basis;
Includes cost elements such as labor, production chemicals, electricity, equipment rentals, equipment replacements, well workover expense, and produced water handling.
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G&A ($MM)
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Total general and administrative expenses;
Includes all administrative costs, such as cash and non-cash employee compensation; facility leasing and operating costs; third party fees such as legal, accounting, and tax; recruiting, travel and office expenses; and information technology and data services expenses;
These costs are net of field labor costs, which are charged to operating expenses, and intercompany eliminations.
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EBITDAX
($MM)
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Earnings before interest, taxes, depreciation, and exploration costs;
This measure is a non-GAAP proxy for cash flow which is routinely used in the exploration and production sector and is driven by our operating margins.
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In addition to the above performance metrics, each year the Board includes an "Initiatives" metric designed to assess achievement by the Company of various strategic and operational goals, which we have identified as key drivers of financial and operational business success in a given year. Initiatives often include information which is proprietary to the Company and do not have numerical targets, but rather performance is measured by accomplishment of stated objectives, the quality of that accomplishment, and associated timing.
Each year, after the Initiatives are selected, management assigns teams of employees to define measurable goals for each Initiative and to develop strategies for meeting them. Management evaluates and approves the goals and strategies, and the Initiative teams meet throughout the year to assess performance and provide progress updates to management. Ultimately Initiative performance is evaluated at the end of the year in connection with the determination of annual performance-based cash incentive awards, with each Initiative given equal weight and together weighted 20%. Set forth below are the 2017 Initiatives, which were approved by the Board, and a description of the objectives of each Initiative:
Compensation Discussion and Analysis
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Initiative
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Objectives
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Environmental, Health and Safety
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Develop communication plans, both internal and external;
Enhance data capture, tracking, and reporting.
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Gas Capture and Infrastructure
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Develop short and long term plans for gas capture, movement, and processing in the Williston Basin, as well as regulatory compliance;
Focus on reducing any potential environmental impact from operations.
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Operations Excellence
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Improve operating efficiencies through planning, communication, automation, and change management.
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Cost Efficient Growth
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Enhance growth within cash flow in an improving commodity price environment through cost management, efficiencies, and service partner relationships and synergies;
Develop specific strategies for critical goods and services.
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Strategic Staffing and Employee Development
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Develop and implement a Company specific strategy for hiring, retaining, and developing employees in a growth within cash flow internal environment and competitive external environment;
Develop a curriculum for core, essential, and optional training in technical, leadership, and human development.
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Enterprise Resource Optimization
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Conduct Company wide investigation and gap analysis on single source quality data access and utilization;
Improve efficiency and scalability of the Oasis people, processes, and systems used to optimize data quality and make business decisions.
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Post-acquisition Integration
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Develop and document a complete, consistent template for acquisition due diligence through post-acquisition integration, performance monitoring, and look-backs.
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In early 2017, the Board established performance targets for the annual cash incentive award amounts that our Named Executive Officers would have the opportunity to earn in 2017; and as shown above under "—Executive Summary—2017 Performance Goals for Annual Cash Incentive Awards," the performance targets set for our 2017 metrics were generally significantly more rigorous than those set in 2015 and 2016. When compared to 2016 results, as in the following table, the performance goals for our Capital Efficiency, and Cost Structure-G&A metrics may appear slightly less rigorous for 2017; however, the Board took care to set the "target" performance at a level at which the Board believed the Company had approximately a 50% chance of achieving in 2017. With respect to our Capital Efficiency metric, the Board did not foresee the team's ability to further reduce costs in an environment of improving oil price and potential escalation in service costs; and early time data on enhanced completion techniques were not yet conclusive on how wells would perform at the time this metric was set. With respect to G&A, the higher target in 2017 was due to an expected increase in headcount during 2017 primarily related to higher levels of both capital and operating activity, the launch of Oasis Well Services LLC's second frac crew, a full year of operations at our natural gas processing plant in Wild Basin, and potential costs for the initial public offering of Oasis Midstream Partners LP.
Compensation Discussion and Analysis
Set forth below are our 2017 established performance goals and weightings used as a guideline to evaluate our 2017 performance for purposes of the 2017 annual performance-based cash incentive awards. The resulting assessment of performance against each goal is also provided below.
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Metric
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2016 Actual
Performance
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2017
Performance Goal
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Weight
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2017 Result
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Actual Performance
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Assessment
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Production
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Volume (Boe/d)
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49,757
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70,901
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20
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%
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66,144
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Below Target
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Capital Efficiency
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Proved Developed finding and development cost ($/Boe)
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$
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6.80
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$
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8.58
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20
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%
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10.26
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Below Target
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Cost Structure
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LOE ($/Boe)
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$
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7.29
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$
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7.00
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10
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%
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7.34
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Below Target
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G&A ($MM)
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$
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93.0
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$
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97.9
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10
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%
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91.8
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Above Target
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EBITDAX
($MM)
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|
$
|
496
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$
|
795
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20
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%
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|
683
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Above Target
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Initiatives
(1)
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20
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%
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|
|
Above Target
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(1)
Upon evaluation at the end of the year, four Initiatives were rated "Above Target" and three were rated "At Target." The Board rated the Company's performance with respect to the Initiative metric as a whole as "Above Target."
At the end of 2017, our Compensation Committee reviewed our overall performance for 2017, including our performance with respect to the established performance goals and the other factors discussed above, with members of management and our full Board of Directors to determine the annual performance-based cash incentive award amounts to be paid to our Named Executive Officers with respect to 2017. The Committee approved awards at 80% of each Named Executive Officer's respective target award opportunity identified above under "—2017 Performance Goals and Annual Cash Incentive Award Opportunity" based on performance relative to the targeted metrics. Specifically, the Named Executive Officers received the following annual performance-based cash incentive award amounts, which are included in the “Non-Equity Incentive Plan Compensation” column of the “Summary Compensation Table” for 2017:
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Named Executive Officer
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2017 Cash Incentive Award
|
Thomas B. Nusz
|
|
$787,200
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Taylor L. Reid
|
|
$480,000
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Michael H. Lou
|
|
$384,000
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Nickolas J. Lorentzatos
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$243,200
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Long-Term Equity-Based Incentives
We believe a formal long-term equity incentive program is essential in creating direct stockholder alignment and consistent with the compensation programs of the companies in our peer group. We maintain our Amended and Restated 2010 Long-Term Incentive Plan (the "LTIP"), which permits the grant of our stock, options, restricted stock, restricted stock units, phantom stock, stock appreciation rights and other awards, any of which may be designated as performance awards or be made subject to other conditions, to our Named Executive Officers and other eligible
Compensation Discussion and Analysis
employees. We believe that long-term equity-based incentive compensation is an important component of our executive compensation program because it:
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•
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balances short and long-term objectives;
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•
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aligns our executives' interests with the long-term interests of our stockholders;
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•
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rewards long-term performance relative to industry peers;
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•
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makes our compensation program competitive and helps us attract and retain the most qualified employees, directors and consultants in the oil and gas industry; and
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•
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gives executives the opportunity to share in our long-term value creation.
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Prior to 2012, our long-term equity-based incentive compensation program consisted solely of restricted stock awards; however, in 2012, the Company began granting PSU awards to increase the amount of compensation directly tied to performance. Since 2012, our Compensation Committee has granted annual awards of both restricted stock awards and PSUs to our Named Executive Officers and key employees. We believe restricted stock awards and PSUs effectively align the interests of our executive officers with the interests of our stockholders on a long-term basis and have retentive attributes. PSUs also have an additional performance-based component that captures variable performance relative to the performance of other oil and gas companies.
For 2017, our Named Executive Officers received 50% of their total annual equity-based incentive compensation in the form of restricted stock awards and 50% of their total annual equity-based incentive compensation in the form of PSUs, except for Mr. Nusz who receives 45% of his total annual equity-based incentive compensation in the form of restricted stock awards and 55% of his total annual equity-based incentive compensation in the form of PSUs. For additional information regarding the LTIP, please see \"Item 4—Approval of the Amended and Restated 2010 Long Term Incentive Plan (effective May 3, 2018), including to Increase the Maximum Number of Shares by 11,250,000."
In December of each year, the Compensation Committee, in consultation with Longnecker, its compensation consultant, establishes long-term incentive award opportunities for each Named Executive Officer with an aggregate value at the time of grant equal to a percentage of the officer’s base salary for the upcoming year. For 2017, the target long-term incentive award opportunities for the Named Executive Officers were not changed from the levels in place for 2016 and were set as follows:
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PSU
(multiple of base salary)
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Value of Target Grant
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Percent of Executive LTI Award
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|
Restricted Stock
(multiple of base salary)
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|
Value of Target Grant
|
|
Percent of Executive LTI Award
|
Thomas B. Nusz
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3.00
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$
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2,460,000
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55
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%
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2.50
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$
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2,050,000
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45
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%
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Taylor L. Reid
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2.00
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$
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1,200,000
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50
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%
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2.00
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$
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1,200,000
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|
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50
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%
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Michael H. Lou
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2.00
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$
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960,000
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50
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%
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2.00
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$
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960,000
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50
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%
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Nickolas J. Lorentzatos
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|
1.50
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$
|
570,000
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50
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%
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|
1.50
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|
$
|
570,000
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|
|
50
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%
|
The Compensation Committee may determine to grant awards above or below the targeted opportunity level taking into account Company performance, current market conditions and any other factors it deems appropriate. For example, in December 2017, the Compensation Committee approved 2018 long-term incentive awards at each executive officer's target award opportunity, but set a floor share price of $9.00 for grants to our Named Executive Officers, thereby reducing the number of shares each such officer would receive if the Company's stock price did not increase above the $9.00 threshold. The floor price applied to grants to be made in January 2018 and was nearly $0.70 higher than the stock price at the time of the Committee's action (for information about target long-term incentive award opportunities, see "Annual Executive Compensation Decisions—Long-Term Equity-Based Incentives").
2017 Restricted Stock Awards.
At its December 2016 meeting, the Compensation Committee again approved annual restricted stock awards which were granted to our Named Executive Officers on January 12, 2017. In 2016, taking into account the uncertain commodity price environment and desiring to minimize dilution of the Company's stockholders, the Compensation Committee approved awards to our Named Executive Officers at approximately
Compensation Discussion and Analysis
60% to 65% of target percentage of base salary. However, in 2017, in recognition of two years in which results attained were significantly above our targeted performance goals, the Committee approved awards at target level. The initial number of shares of restricted stock granted to each Named Executive Officer in 2017 is set forth below:
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Named Executive Officer
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2017 Annual Restricted Stock Grant Received
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Thomas B. Nusz
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134,800
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Taylor L. Reid
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78,900
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Michael H. Lou
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63,100
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Nickolas J. Lorentzatos
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37,500
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These awards will vest over a three-year period, provided the award recipient remains continuously employed through the applicable vesting dates. The first 1/3 tranche vested on January 12, 2018, the second 1/3 tranche will vest on January 12, 2019, and the final 1/3 tranche will vest on January 12, 2020 in each case, subject to the award recipient’s continued employment. The vesting of these awards will accelerate in full if the award recipient’s employment is terminated due to either death or disability, and the awards are subject to the accelerated vesting provisions contained in any existing employment agreement. The accelerated vesting provisions applicable to our Named Executive Officers are described in greater detail below in the section entitled “—Potential Payments upon Termination and Change in Control.” While a Named Executive Officer holds unvested shares of restricted stock, he is entitled to all the rights of ownership with respect to the shares, including the right to vote the shares and to receive dividends thereon, which dividends must be paid within 30 days of the date dividends are distributed to our stockholders generally.
2017 Performance Share Units.
In December 2016, the Compensation Committee also approved annual grants of PSUs to the Named Executive Officers which were granted to our Named Executive Officers on January 12, 2017. The PSUs are awards of restricted stock units subject to certain service and performance conditions, with each PSU that becomes earned representing the right to receive one share of our common stock. As noted above, our Compensation Committee typically makes annual awards of PSUs to our Named Executive Officers with an aggregate value at the time of grant equal to a target percentage of the individual’s base salary for the year.
In 2016, taking into account the uncertain commodity price environment and desiring to minimize dilution of the Company's stockholders, the Compensation Committee approved awards to our Named Executive Officers at approximately 60% to 65% of target percentage of base salary. However, in 2017, in recognition of two years in which results attained were significantly above our targeted performance goals, the Committee approved awards at target level. The initial number of PSUs granted to each Named Executive Officer in 2017 is set forth below:
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Named Executive Officer
|
|
2017 Annual PSU Grant Received
|
Thomas B. Nusz
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|
161,700
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Taylor L. Reid
|
|
78,900
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Michael H. Lou
|
|
63,100
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Nickolas J. Lorentzatos
|
|
37,500
|
2017 Performance Share Units; Elimination of "Re-Testing" Feature.
In connection with the January 2016 PSU awards, the Compensation Committee decided to make certain adjustments to the structure of the performance period applicable to the PSU awards in order to (i) beginning with PSUs granted in February 2016, eliminate the re-testing feature of the extended performance period, which is a feature of the PSUs granted in 2015 and prior years, and (ii) extend the performance period to four years to further align our executives' interest with our stockholders' interest in our long-term price performance. Specifically, the PSU awards for 2017 are subject to three distinct performance periods: (a) a two-year performance period beginning on January 12, 2017 and ending on January 11, 2019 for the first 1/3 tranche of the PSUs; (b) a three-year performance period beginning on January 12, 2017 and ending on January 11, 2020 for the second 1/3 tranche of PSUs; and (c) a four-year performance period beginning on January 12, 2017 and ending on January 11, 2021 for the third 1/3 tranche of PSUs. Depending on the relative
Compensation Discussion and Analysis
TSR achieved by us, a Named Executive Officer may earn between 0% and 200% of the PSUs eligible to vest at the end of each applicable performance period. If less than 200% of the PSUs that are eligible to vest are earned at the end of the applicable performance period, then the unearned PSUs subject to that tranche will be forfeited and the award recipient will not have another opportunity to earn up to an aggregate of 200% of the initial PSUs granted.
Total Shareholder Return Comparator Group.
The PSUs are subject to designated two-year, three-year, and four-year performance periods, each of which began on January 12, 2017. The number of PSUs eligible to be earned for each period is subject to a market performance condition, which is based on a comparison of the TSR achieved with respect to shares of our common stock against the TSR achieved by each company in the PSU comparator group, which consists of the following companies:
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|
|
|
• Carrizo Oil & Gas Inc.
|
|
• Range Resources Corporation
|
• Denbury Resources Inc.
|
|
• RSP Permian, Inc.
|
• Energen Corp.
|
|
• SM Energy Co.
|
• EP Energy Corporation
|
|
• Whiting Petroleum Corporation
|
• Gulfport Energy Corp.
|
|
• WPX Energy, Inc.
|
• Laredo Petroleum Inc.
|
|
• The Standard & Poor’s Oil & Gas Exploration & Production Select Industry Index, weighted as a single company
|
• Newfield Exploration Company
|
|
• PDC Energy, Inc.
|
|
• QEP Resources Inc.
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|
|
Please see "—Benchmarking and Peer Group" for additional information about the Company's 2017 Peer Group.
2017 Performance Share Unit Targets.
Depending on the relative TSR achieved by us for each designated performance period, a Named Executive Officer may earn between 0% and 200% of the initial PSUs granted and allocated to that period. The number of earned PSUs for each performance period will be calculated based on a scale similar to the following, which may change depending on the number of peer companies remaining at the end of the applicable performance period:
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|
|
|
|
|
|
|
Total Shareholder Return Rank
|
|
% Initial PSUs Eligible to Vest for Performance Period that will become Earned Performance Units
|
|
% Initial PSUs Eligible to Vest for Performance Period that will become Earned Performance Units
|
|
% Initial PSUs Eligible to Vest for Performance Period that will become Earned Performance Units
|
1
|
|
200%
|
|
200%
|
|
200%
|
2
|
|
183%
|
|
182%
|
|
180%
|
3
|
|
167%
|
|
164%
|
|
160%
|
4
|
|
150%
|
|
145%
|
|
140%
|
5
|
|
133%
|
|
127%
|
|
120%
|
6
|
|
117%
|
|
109%
|
|
100%
|
7
|
|
100%
|
|
91%
|
|
80%
|
8
|
|
83%
|
|
73%
|
|
60%
|
9
|
|
67%
|
|
55%
|
|
40%
|
10
|
|
50%
|
|
36%
|
|
20%
|
11
|
|
33%
|
|
18%
|
|
—%
|
12
|
|
17%
|
|
—%
|
|
|
13
|
|
—%
|
|
|
|
|
A Named Executive Officer generally must remain employed during the entirety of the performance period to earn the PSUs, although certain accelerated vesting provisions apply in the case of certain events, such as a change in control and certain specified terminations of employment. See “—Potential Payments upon Termination and Change in Control” for additional information regarding these provisions. With respect to each PSU held by a Named Executive Officer (up to the maximum number of PSUs), we will credit an account with an amount equal to
Compensation Discussion and Analysis
any cash dividends paid on one share of stock. Amounts credited to the account will be paid at the same time and on the same terms and conditions applicable to the PSUs, but only with respect to PSUs that become earned.
Total Shareholder Return as a Performance Metric for Performance-Based Pay.
Our PSU awards serve to align the interests of our Named Executive Officers and stockholders by (i) making a portion of the executive's compensation dependent upon the Company's total shareholder return ("TSR") as compared to its peers and (ii) increasing the percentage of the executive's compensation which is directly tied to the Company's performance.
For 2017, our compensation program was structured to have at least 30% of the targeted total compensation granted to our Named Executive Officers each year, and nearly 40% for our Chief Executive Officer, in PSU awards, which means that 30% to 40% of such officers' pay depends on the Company's relative TSR as compared to its peers over a specified performance period; see "—Elements of Our Compensation and Why We Pay Each Element" and "—Total Compensation Opportunities—How Elements of Our Compensation Program are Related to Each Other" above.
The TSR metric does not always reflect operating performance or the quality of our strategic execution since it can be influenced by economic factors outside of the control of the Company, management and the Board, such as, most significantly for our industry, the worldwide collapse of crude oil prices. Nevertheless, TSR is a metric that some stockholders value, and so we continue to base a significant portion of our Named Executive Officers' compensation on TSR through the issuance of PSU awards. Our stockholders have voted to approve each of our four say-on-pay proposals, and we believe our investors continue to support our current philosophy and view our program as well-structured and aligned with performance.
The Committee has considered placing a cap on earned awards at target if absolute TSR is negative for the performance period, regardless of relative TSR. However the Committee determined that placing such a cap on earned awards is not appropriate in our business which is highly dependent on the market-driven prices we receive for our oil and natural gas. The Committee strongly believes that stockholders are best served by a management team that is highly incentivized to deliver differentiating performance in a challenging industry-wide environment, including focusing on items that are within management’s direct control, and that the current design of the long-term incentive awards is achieving the desired results. In addition, the Committee maintains the ability to apply negative discretion to these awards should the Committee deem such discretionary adjustment is necessary. The Board will continue to monitor industry trends, consider investor feedback, and evaluate alternatives with respect to relative TSR as a metric for performance-based pay.
OMP GP LLC Class B Unit Awards
OMP GP, the general partner of OMP, our midstream MLP, holds 100% of the incentive distribution rights of OMP. These incentive distribution rights entitle OMP GP to an increasing share of distributions made by OMP once certain return thresholds have been achieved by OMP. On May 22, 2017, OMP GP issued Class B Units to certain of our employees, including our Named Executive Officers, as consideration for their services to the Company and to facilitate the long-term retention of key management personnel. Consequently, the Class B Units will not become fully vested until the tenth anniversary of the date of grant. Contingent upon continuous service through the second anniversary of the date of grant, holders of Class B Units will be eligible to receive distributions from OMP GP, including distributions paid for periods prior to such anniversary, that result from distributions by OMP on the OMP incentive distribution rights held by OMP GP. As of December 31, 2017, the Class B Units were unvested, and Messrs. Nusz, Reid, Lou, and Lorentzatos were not eligible to receive distributions from OMP GP. The Class B Units are intended to constitute "profits interests" for federal tax purposes and are not traditional options.
The Class B Units represent 10% of the outstanding units of OMP GP, and our Named Executive Officers own, collectively, 45% of the Class B Units as shown in the table below:
Compensation Discussion and Analysis
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|
|
|
|
|
|
|
Named Executive Officer
|
|
Class B Units
Granted May 22, 2017
|
Thomas B. Nusz
|
|
12,000
|
Taylor L. Reid
|
|
11,000
|
Michael H. Lou
|
|
11,000
|
Nickolas J. Lorentzatos
|
|
11,000
|
The potential forfeiture and acceleration events relating to these units are described in greater detail under the heading "Potential Payments Upon Termination or Change of Control—OMP GP LLC Class B Units" below. A description of OMP and its relationship to the Company can be found under "—Performance Highlights and Impact on Compensation Decisions—2017 Company Performance Highlights" and in our Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the SEC on February 28, 2018.
Employee Benefits
In addition to the elements of compensation previously discussed in this section, our Named Executive Officers are eligible for the same health, welfare and other employee benefits as are available to all our employees generally, which include medical and dental insurance, short and long-term disability insurance, a health and/or professional club subsidy and a 401(k) plan with a dollar-for-dollar match on the first 6% of eligible employee compensation contributed to the plan. In addition, the 401(k) plan permits the Board of Directors, in its discretion, to make an employer contribution for a plan year equal to a uniform percentage of eligible compensation for each active participant in the plan, including our Named Executive Officers, subject to applicable IRS limitations. While the Board of Directors has made such contributions in prior years, the Board determined not to make such a contribution in 2017. We do not sponsor any defined benefit pension plan or nonqualified deferred compensation arrangements at this time.
The general benefits offered to all employees (and thus to our Named Executive Officers) are reviewed by our Compensation Committee each year. Currently, we provide our Named Executive Officers with limited perquisites, including certain parking and transportation benefits and payment of health club dues. Benefits offered only to Named Executive Officers are reviewed by our Compensation Committee in conjunction with its annual review of executive officer compensation.
Setting Executive Officer Compensation
Role of the Compensation Committee.
Our Compensation Committee makes all compensation decisions related to our Named Executive Officers and oversees a rigorous process to evaluate progress toward performance goals, monitor external trends, measure competitiveness and determine compensation outcomes. The Committee meets at least once per calendar quarter, with standing agenda items that support a disciplined process and address the responsibilities outlined in the Committee’s charter.
As discussed in greater detail throughout this CD&A, our Compensation Committee met numerous times during 2017 to review and discuss executive compensation matters with respect to 2017. Each year, at its December meeting, the Committee considers a range of information to determine the appropriate performance-based annual cash incentive awards for our Named Executive Officers for the current year, including:
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•
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Company performance relative to the Company's performance goal guidelines established by the Board at the beginning of the year;
|
|
|
•
|
Company performance relative to the Company's operational, financial and strategic initiatives established at the beginning of the year; and
|
|
|
•
|
The current year’s economic environment, commodity price fluctuations and other unforeseen influences (adverse or beneficial) that should be considered in the Committee’s evaluation of company and individual officer performance.
|
Compensation Discussion and Analysis
In addition, at its December meeting, the Committee also evaluates and approves the structure of our compensation program for the following year. For 2017, our compensation structure, including salaries and related annual performance-based cash incentive award and long-term equity-based incentive compensation opportunity targets, remained unchanged from 2016.
Our Compensation Committee generally intends to target approximately the market 50th percentile for base salary and total direct compensation within our peer group and to structure our annual cash and long-term incentives to provide our executive officers with an opportunity to earn up to a maximum of approximately the market 75th percentile for total direct compensation, in recognition of exceptional Company and individual performance. To date, we have not paid the maximum possible cash incentive award which would be necessary to achieve total direct compensation near the 75th percentile, to any executive officer in any year since our initial public offering. See "—Benchmarking and Peer Group" below.
Our Compensation Committee does review survey information as a frame of reference, taking into consideration factors such as the age of the data in the survey, the particular officer’s contribution to our financial performance and condition, as well as such officer’s qualifications, skills, experience and responsibilities. Our Compensation Committee also considers such factors as industry shortages of qualified employees for such positions, recent experience in the marketplace, and the elapsed time between the surveys used and when compensation decisions are made. In light of these qualitative and other considerations, the base salary and total direct compensation of a particular officer may be greater or less than the market 50th percentile and total potential direct compensation may be greater or less than the market 75th percentile and, in any event, our Compensation Committee recognizes that the compensation of certain of our executive officers whose base salary and total direct compensation are currently less than the market 50th percentile may continue to build to these targeted levels.
Role of the Chief Executive Officer and Other Officers.
The Compensation Committee considers input from Mr. Nusz, our Chief Executive Officer, Mr. Reid, our President and Chief Operating Officer, and Mr. Lou, our Chief Financial Officer, regarding our executive compensation structure and the individual compensation levels for each executive officer, including themselves. Our CEO and his officer team also provide information to the Committee regarding the performance of the Company and the attainment of the Company's performance goals for the Committee’s determination of annual performance-based cash incentive awards. The Committee makes the final determination of Named Executive Officer compensation.
Role of the Compensation Consultant
.
Our Compensation Committee’s charter grants the Committee the sole authority to retain, at our expense, outside consultants or experts to assist in its duties. For 2017, our Compensation Committee engaged Longnecker & Associates to advise it with respect to executive compensation matters, including development of the annual compensation peer group and an annual review and evaluation of our executive and director compensation packages generally, based on, among other things, survey data and information regarding general trends. Representatives from Longnecker periodically meet with our Compensation Committee throughout the year and advise our Compensation Committee with regard to general trends in director and executive compensation, including:
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•
|
competitive benchmarking;
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|
|
•
|
peer group selection; and
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|
|
•
|
other trends and developments affecting executive compensation.
|
In addition, Longnecker provides our Compensation Committee and management with survey compensation data regarding our compensation peer group for each fiscal year.
Independence of Compensation Consultant
.
In selecting Longnecker as its independent compensation consultant, the Compensation Committee assessed the independence of Longnecker pursuant to SEC rules and considered, among other things:
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|
•
|
whether Longnecker provides any other services to us;
|
Compensation Discussion and Analysis
|
|
•
|
the policies of Longnecker that are designed to prevent any conflict of interest between Longnecker, the Compensation Committee and us
|
|
|
•
|
any personal or business relationship between Longnecker and a member of the Compensation Committee or one of our executive officers; and
|
|
|
•
|
whether Longnecker owns any shares of our common stock.
|
The terms of Longnecker’s engagement are set forth in an engagement agreement that provides, among other things, that Longnecker is engaged by, and reports only to, the Compensation Committee and will perform the compensation advisory services requested by the Compensation Committee. Longnecker does not provide any other services to the Company, and the Compensation Committee has concluded that we do not have any conflicts of interest with Longnecker.
Among the services Longnecker was asked to perform were:
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|
•
|
assessing the relationship between executive pay and performance;
|
|
|
•
|
apprising the Compensation Committee of compensation-related trends, developments in the marketplace and industry best practices;
|
|
|
•
|
informing the Compensation Committee of compensation-related regulatory developments;
|
|
|
•
|
providing peer group survey data to establish compensation ranges for the various elements of compensation;
|
|
|
•
|
providing an evaluation of the competitiveness of the Company’s executive and director compensation and benefits programs; and
|
|
|
•
|
advising on the design of the Company’s incentive compensation programs.
|
Employment Agreements and Severance and Change in Control Arrangements
General Philosophy.
During 2017, we had employment agreements in effect with Messrs. Nusz, Reid, Lou and Lorentzatos. These employment agreements are designed to ensure an individual understanding of how the employment relationship may be extended or terminated, the compensation and benefits that we provide during the term of employment and the obligations each party has in the event of termination of the officer’s employment. In consultation with our compensation consultant, Longnecker, we determined that, due to the historical roles they have played in our success and growth, Messrs. Nusz and Reid are critical to the ongoing stability and development of the business and, therefore, entering into employment agreements with these individuals was advisable. In addition, in light of Mr. Lou’s promotion to Executive Vice President and Chief Financial Officer in 2011 and Mr. Lorentzatos’s promotion to Executive Vice President, General Counsel and Corporate Secretary in 2014, we determined that it was in our best interest to enter into an employment agreement with each of these officers in recognition of their level of responsibility within our organization; however, we have not entered into employment agreements with any of our other employees, and we expect the remainder of our employees to remain "at will."
Current Employment Agreements
. The term of each of the Named Executive Officers' employment agreements in effect in 2017 were scheduled by their terms to end on March 20, 2018, and in March 2018, the employment agreements were amended and restated, effective March 20, 2018, to provide a term of three years that ends on March 20, 2021 and may be renewed upon agreement between us and the executive prior to the end of the term. None of the amended employment agreements, nor the agreements in effect in 2017, contains an automatic extension provision.
What the employment agreements do.
The employment agreements provide for specified minimum annual base salary rates, which may be increased (but not decreased) by our Board of Directors in its discretion. The employment agreements also provide that the executives are eligible to receive annual performance-based bonuses each year during the employment term. Further, the employment agreements provide the executives with the opportunity to participate in the employee benefit arrangements offered to similarly situated executives and provide that they may periodically receive stock grants pursuant to our long-term incentive compensation plan.
Compensation Discussion and Analysis
The employment agreements also provide for severance and change in control benefits to be paid to Messrs. Nusz, Reid, Lou and Lorentzatos under certain circumstances and certain post-termination non-compete, non-disclosure and similar obligations. We believe that the interests of our stockholders are best served if we provide separation benefits to eliminate, or at least reduce, the reluctance of executive officers and other key employees to pursue potential corporate transactions that may be in the best interests of our stockholders, but that may have resulting adverse consequences to the employment situations of our executive officers and other key employees. Further, these arrangements ensure an understanding of what benefits are to be paid in the event of termination of employment in certain specified circumstances and/or upon the occurrence of a change in control. Severance benefits are provided to reflect the fact that it may be difficult for executive officers to find comparable employment within a short period of time if they are involuntarily terminated. Change in control benefits are provided in order that the executives may objectively assess and pursue aggressively our interests and the interests of our stockholders with respect to a contemplated change in control, free from personal, financial and employment considerations.
The employment agreements also contain “clawback” provisions that enable us to recoup any compensation that is deemed incentive compensation if required by any law, government regulation, stock exchange listing requirement, or Company policy adopted as required by such law, government regulation, or stock exchange listing requirement.
What the employment agreements do not do.
As was the case with the previous employment agreements, the current employment agreements with our Named Executive Officers do not provide for (i) an automatic extension of the term of the agreement or (ii) potential tax gross up payments if a covered executive receives golden parachute payments in connection with a change in control. Instead, the employment agreements include provisions providing that the executive will be required to pay in full any excise taxes associated with any golden parachute payments received, unless reducing the payments to the executive within the Section 280G safe harbor amount would put the executive in a better net after-tax position. In addition, in connection with the 2015 amendments, we removed the provision in the employment agreements providing for the automatic single trigger vesting of unvested equity awards upon the occurrence of a "change in control" (as defined in the LTIP). This provision has been replaced with a double trigger vesting provision, in the event that certain terminations of employment occur within a two-year period following a "change in control," consistent with best market practices.
Severance and Change in Control Arrangements.
As described above, the Employment Agreements provide certain benefits and compensation to Messrs. Nusz, Reid, Lou and Lorentzatos in the event of certain terminations from employment, including in connection with a change in control. In addition, for executive officers and other key employees who do not have employment agreements with us, we maintain the Amended and Restated Executive Change in Control and Severance Benefit Plan (the “Amended CIC Plan”) to provide severance and change in control benefits to participants.
Clawback Policy
Currently, our equity-based incentive compensation awards and the employment agreements with our Named Executive Officers contain the following provisions for the recoupment of incentive compensation:
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|
•
|
Restricted stock and PSU agreements covering grants made to our Named Executive Officers and other service providers in 2011 and later years include language providing that the award may be cancelled and the award recipient may be required to reimburse us for any realized gains to the extent required by applicable law or any clawback policy that we adopt.
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|
•
|
The LTIP and the Incentive Plan include provisions specifying that awards under those arrangements are subject to any clawback policy we adopt.
|
|
|
•
|
The employment agreements described in more detail under "—Employment Agreements" above contain a clawback provision that enables us to recoup any compensation that is deemed incentive compensation if required by any law, government regulation, stock exchange listing requirement, or Company policy adopted as required by such law, government regulation, or stock exchange listing requirement.
|
|
|
•
|
Our Compensation Committee is currently evaluating the practical, administrative and other implications of implementing and enforcing a clawback policy, and intends to adopt a clawback policy in compliance with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 once final rules are promulgated by the SEC.
|
Compensation Discussion and Analysis
Tax and Accounting Considerations
Section 162(m) of the Code, generally imposes a $1 million limit on the amount of compensation paid to certain executive officers that a public corporation may deduct for federal income tax purposes in any year. During 2017, the Code provided an exception to the Section 162(m) deduction limitation for compensation qualifying as “performance-based compensation” within the meaning of the Code and the applicable Treasury Regulations. During 2017, the Compensation Committee designed and administered our executive compensation program with the intent that certain portions of the compensation paid to our Named Executive Officers would qualify as performance-based compensation under Section 162(m).
The “Tax Cuts and Jobs Act,” enacted in 2017, repealed the performance-based compensation exception to the Section 162(m) deduction limitation for tax years beginning after December 31, 2017. While we will continue to monitor our compensation programs in light of the deduction limitation imposed by Section 162(m) of the Code, our Compensation Committee considers it important to retain the flexibility to design compensation programs that are in our best long-term interests and the long-term interests of our shareholders. As a result, the Compensation Committee may conclude that paying compensation at levels that are subject to limits under Section 162(m) of the Code is nevertheless in the best interests of the Company and our stockholders. Given changes made to Section 162(m) by the “Tax Cuts and Jobs Act,” which took effect in 2018, we may not be able to deduct for federal income tax purposes a portion of the compensation paid to our Named Executive Officers in 2018.
If an executive is entitled to nonqualified deferred compensation benefits that are subject to Section 409A of the Internal Revenue Code, and such compensation does not comply with Section 409A, then the benefits are taxable in the first year they are not subject to a substantial risk of forfeiture and are subject to certain additional adverse tax consequences. We intend to design any such arrangements with our Named Executive Officers and other service providers to be exempt from, or to comply with, Section 409A.
All equity awards to our employees, including our Named Executive Officers, and to our directors will be granted and reflected in our consolidated financial statements, based upon the applicable accounting guidance, at fair market value on the grant date in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), Topic 718, “Compensation-Stock Compensation.”
Compensation Practices as They Relate to Risk Management
We believe our compensation programs do not encourage excessive and unnecessary risk taking by our executive officers (or other employees) and are not reasonably likely to have a material adverse effect on us. Because our Compensation Committee retains the ability to apply discretion when determining the actual amount to be paid to executives pursuant to our annual performance-based cash incentive program, our Compensation Committee is able to assess the actual behavior of our executives as it relates to risk taking in awarding cash incentive amounts. Further, our use of long-term equity-based compensation serves our compensation program’s goal of aligning the interests and objectives of our executives with those of our stockholders, thereby reducing the incentives to unnecessary risk taking.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table shows information concerning the annual compensation for services provided to us by our Named Executive Officers during the fiscal years ended December 31, 2015, 2016, and 2017.
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|
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|
Name and
Principal Position
|
|
Year
|
|
Salary
($)(1)
|
|
Bonus ($)
|
|
Stock
Awards
($)(2)
|
|
Option Awards
($)(3)
|
|
Non-Equity Incentive Plan Compensation
($)(4)
|
|
All Other
Compensation
($)(5)
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas B. Nusz
|
|
2017
|
|
$
|
820,000
|
|
|
$
|
—
|
|
|
$
|
4,781,421
|
|
|
$
|
350,400
|
|
|
$
|
787,200
|
|
|
$
|
30,267
|
|
|
$
|
6,769,288
|
|
Chairman and
Chief Executive Officer
|
|
2016
|
|
$
|
820,000
|
|
|
$
|
—
|
|
|
$
|
2,220,528
|
|
|
$
|
—
|
|
|
$
|
1,574,400
|
|
|
$
|
21,189
|
|
|
$
|
4,636,117
|
|
|
2015
|
|
$
|
820,000
|
|
|
$
|
—
|
|
|
$
|
2,916,376
|
|
|
$
|
—
|
|
|
$
|
984,000
|
|
|
$
|
24,594
|
|
|
$
|
4,744,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taylor L. Reid
|
|
2017
|
|
$
|
591,667
|
|
|
$
|
—
|
|
|
$
|
2,532,690
|
|
|
$
|
321,200
|
|
|
$
|
480,000
|
|
|
$
|
24,564
|
|
|
$
|
3,950,121
|
|
President and Chief Operating Officer
|
|
2016
|
|
$
|
500,000
|
|
|
$
|
—
|
|
|
$
|
1,048,956
|
|
|
$
|
—
|
|
|
$
|
800,000
|
|
|
$
|
19,908
|
|
|
$
|
2,368,864
|
|
|
2015
|
|
$
|
500,000
|
|
|
$
|
—
|
|
|
$
|
1,302,067
|
|
|
$
|
—
|
|
|
$
|
500,000
|
|
|
$
|
19,908
|
|
|
$
|
2,321,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael H. Lou
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|
2017
|
|
$
|
475,000
|
|
|
$
|
—
|
|
|
$
|
2,025,510
|
|
|
$
|
321,200
|
|
|
$
|
384,000
|
|
|
$
|
22,967
|
|
|
$
|
3,228,677
|
|
Executive Vice
President and Chief Financial Officer
|
|
2016
|
|
$
|
420,000
|
|
|
$
|
—
|
|
|
$
|
881,328
|
|
|
$
|
—
|
|
|
$
|
672,000
|
|
|
$
|
20,208
|
|
|
$
|
1,993,536
|
|
2015
|
|
$
|
420,000
|
|
|
$
|
—
|
|
|
$
|
1,093,775
|
|
|
$
|
—
|
|
|
$
|
420,000
|
|
|
$
|
19,908
|
|
|
$
|
1,953,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nickolas J. Lorentzatos
|
|
2017
|
|
$
|
378,333
|
|
|
$
|
—
|
|
|
$
|
1,203,750
|
|
|
$
|
321,200
|
|
|
$
|
243,200
|
|
|
$
|
24,564
|
|
|
$
|
2,171,047
|
|
Executive Vice
President, General
Counsel and
Corporate Secretary
|
|
2016
|
|
$
|
360,000
|
|
|
$
|
—
|
|
|
$
|
579,744
|
|
|
$
|
—
|
|
|
$
|
460,800
|
|
|
$
|
19,908
|
|
|
$
|
1,420,452
|
|
2015
|
|
$
|
360,000
|
|
|
$
|
—
|
|
|
$
|
703,107
|
|
|
$
|
—
|
|
|
$
|
288,000
|
|
|
$
|
19,908
|
|
|
$
|
1,371,015
|
|
__________________
|
|
(1)
|
Reflects the base salary earned by each Named Executive Officer during the fiscal year indicated.
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|
|
(2)
|
Reflects the aggregate grant date fair value of restricted stock awards and PSUs under our LTIP granted in the fiscal year indicated, computed in accordance with FASB ASC Topic 718, and does not reflect the actual value that may be realized by the executive. See Note 11 to our consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2017 for additional detail regarding assumptions underlying the value of these equity awards. For fiscal year 2017, the grant date fair value for restricted stock awards is based on the closing price of our common stock on January 12, 2017, the grant date for those awards, which was $15.21 per share. The grant date fair value for the PSUs granted on January 12, 2017 was calculated based on the initial number of PSUs granted at a weighted average grant date fair value price per unit of $16.89, as computed using a Monte Carlo simulation model in accordance with FASB ASC Topic 718. Assuming that the highest level of the performance condition is achieved, the grant date fair value for these awards would have been: for Mr. Nusz – $5,462,226, Mr. Reid – $2,665,242, Mr. Lou – $2,131,518, and Mr. Lorentzatos – $1,266,750.
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|
(3)
|
In May 2017, Messrs. Nusz, Reid, Lou, and Lorentzatos, along with other officers and management employees, were each issued Class B Units in OMP GP LLC, all of which were unvested as of December 31, 2017. We believe that, despite the fact that the Class B Units do not require the payment of an exercise price, they are most similar economically to stock options, and as such, they are properly classified as "options" under the definition provided in Item 402(a)(96)(i) of Regulation S-K as an instrument with an "option-like feature." As discussed under "—OMP GP LLC Class B Unit Awards" and "Executive Compensation-Potential Payments Upon Termination and Change in Control—OMP GP LLC Class B Units" in this proxy statement, the Class B Units in OMP GP LLC are intended to constitute "profits interests" for federal tax purposes and are not traditional options. Amounts included in this column reflect the grant date fair value of the Class B Units, calculated in accordance with FASB ASC Topic 718.
|
|
|
(4)
|
For fiscal year 2017, reflects amounts earned for services performed in 2017 pursuant to the annual performance-based cash incentive awards granted to the Named Executive Officers under the Incentive Plan. The amounts reported in the table were paid to the Named Executive Officers in February 2018. The
|
awards are described in more detail above under "—Compensation Discussion and Analysis—Annual Executive Compensation Decisions—Annual Performance-Based Cash Incentive Awards—2017 Performance Goals and Annual Cash Incentive Award Opportunity."
|
|
(5)
|
The following items are reported in the “All Other Compensation” column for fiscal year 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Health Club
Dues
|
|
Parking
|
|
401(k) Plan
Match
|
|
|
Tax Reimbursement(a)
|
|
Total
|
Thomas B. Nusz
|
|
$
|
—
|
|
|
$
|
4,008
|
|
|
$
|
16,200
|
|
|
|
$
|
10,059
|
|
|
$
|
30,267
|
|
Taylor L. Reid
|
|
$
|
—
|
|
|
$
|
4,008
|
|
|
$
|
16,200
|
|
|
|
$
|
4,356
|
|
|
$
|
24,564
|
|
Michael H. Lou
|
|
$
|
600
|
|
|
$
|
4,008
|
|
|
$
|
16,200
|
|
|
|
$
|
2,159
|
|
|
$
|
22,967
|
|
Nickolas J. Lorentzatos
|
|
$
|
—
|
|
|
$
|
4,008
|
|
|
$
|
16,200
|
|
|
|
$
|
4,356
|
|
|
$
|
24,564
|
|
__________________
(a) Represents tax payments made in respect of imputed income for executives and persons accompanying executives on a Company-contracted aircraft for business entertainment purposes. No incremental cost was incurred by the Company for travel by accompanying persons. The Company does not allow Company-contracted aircraft to be used for personal travel; however, in limited circumstances, we have permitted an executive’s family member to accompany the executive on a flight when the executive is traveling for business.
Grants of Plan-Based Awards
The following table sets forth information concerning grants of plan-based awards to each of our Named Executive Officers under the LTIP during fiscal year 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Grant Date
|
|
Date of
Compen-sation
Committee
Action (if
different from
Grant Date)
|
|
Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(1)
|
|
Estimated Future Payouts Under Equity Incentive Plan Awards(2)
(In Shares)
|
|
All Other
Stock Awards:
Number of
Shares
of
Stock or Units
(#)(3)
|
|
All Other Option Awards: Number of Securities Underlying Options
(#)(4)
|
|
Grant Date
Fair Value
of
Stock and Option
Awards
($)(5)
|
Threshold
|
|
Target
|
|
Maximum
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Thomas B. Nusz
|
|
1/12/2017
|
|
12/15/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
134,800
|
|
|
|
|
$
|
2,050,308
|
|
|
|
1/12/2017
|
|
12/15/2016
|
|
|
|
|
|
|
|
21,021
|
|
|
171,402
|
|
|
323,400
|
|
|
|
|
|
|
$
|
2,731,113
|
|
|
|
5/22/2017
|
|
5/12/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,000
|
|
|
$
|
350,400
|
|
|
|
|
|
|
|
$
|
492,000
|
|
|
$
|
984,000
|
|
|
$
|
1,968,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taylor L. Reid
|
|
1/12/2017
|
|
12/15/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,900
|
|
|
|
|
$
|
1,200,069
|
|
|
|
1/12/2017
|
|
12/15/2016
|
|
|
|
|
|
|
|
10,257
|
|
|
84,423
|
|
|
157,800
|
|
|
|
|
|
|
$
|
1,332,621
|
|
|
|
5/22/2017
|
|
5/12/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,000
|
|
|
$
|
321,200
|
|
|
|
|
|
|
|
$
|
300,000
|
|
|
$
|
600,000
|
|
|
$
|
1,200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael H. Lou
|
|
1/12/2017
|
|
12/15/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,100
|
|
|
|
|
$
|
959,751
|
|
|
|
1/12/2017
|
|
12/15/2016
|
|
|
|
|
|
|
|
8,203
|
|
|
67,517
|
|
|
126,200
|
|
|
|
|
|
|
$
|
1,065,759
|
|
|
|
5/22/2017
|
|
5/12/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,000
|
|
|
$
|
321,200
|
|
|
|
|
|
|
|
$
|
240,000
|
|
|
$
|
480,000
|
|
|
$
|
960,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nickolas J. Lorentzatos
|
|
1/12/2017
|
|
12/15/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,500
|
|
|
|
|
$
|
570,375
|
|
|
|
1/12/2017
|
|
12/15/2016
|
|
|
|
|
|
|
|
4,875
|
|
|
40,125
|
|
|
75,000
|
|
|
|
|
|
|
$
|
633,375
|
|
|
|
5/22/2017
|
|
5/12/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,000
|
|
|
$
|
321,200
|
|
|
|
|
|
|
|
$
|
152,000
|
|
|
$
|
304,000
|
|
|
$
|
608,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
__________________
|
|
(1)
|
Represents annual performance-based cash incentive awards granted under the Incentive Plan during fiscal year 2017 for services performed in 2017. The awards were paid below the "target" level for each Named Executive Officer, based on performance achievement for 2017, as reported in the "Non-Equity Incentive Plan Compensation" column of the Summary Compensation Table for 2017. The awards (including performance goals and targets) are described in more detail above under “—Compensation Discussion and Analysis—Annual Performance-Based Cash Incentive Awards—2017 Performance Goals and Annual Cash Incentive Award Opportunity.”
|
|
|
(2)
|
Reflects PSUs granted under our LTIP in 2017. Amounts reported (a) in the “Threshold” column reflect 13% of the initial number of PSUs granted in 2017, which is the minimum amount payable under the PSU awards (assuming a TSR rank of 15th of 16 peers), (b) in the “Target” column reflect 107% of the initial number of PSUs granted in 2017, which is the target amount payable under the PSU awards (assuming a TSR rank of 8th of 16 peers), and (c) in the “Maximum” column reflect 200% of the initial number of PSUs granted in 2017, which is the maximum amount that may be earned pursuant to the awards (assuming a TSR rank of 1st of 16 peers). If relative TSR is below the 13th percentile, then 0% of the initial number of PSUs granted in 2017 will be earned. The number of our common shares actually received by the Named Executive Officer at the end of each designated performance period may vary from the initial number allocated to that period, based on our relative TSR as compared to the TSR of the other peer group companies. The PSUs are subject to a designated two-year, three-year, and four-year performance periods, each of which began on January 12, 2017. The PSUs (including performance goals and targets) are described in more detail above under “—Compensation Discussion and Analysis—Annual Executive Compensation Decisions—Long-Term Equity-Based Incentives.”
|
|
|
(3)
|
Reflects restricted stock awards granted under our LTIP in 2017. These awards will vest over a three-year period. The first 1/3 tranche vested on January 12, 2018, the second 1/3 tranche will vest on January 12, 2019, and the final 1/3 tranche will vest on January 12, 2020, in each case, subject to the Named Executive Officer's continued employment. The awards are described in more detail above under “—Compensation Discussion and Analysis—Annual Executive Compensation Decisions—Long-Term Equity-Based Incentives.”
|
|
|
(4)
|
In May 2017, Messrs. Nusz, Reid, Lou, and Lorentzatos, along with other officers and management employees, were each issued Class B Units in OMP GP LLC, all of which were unvested as of December 31, 2017. We believe that, despite the fact that the Class B Units do not require the payment of an exercise price, they are most similar economically to stock options, and as such, they are properly classified as "options" under the definition provided in Item 402(a)96)(i) of Regulation S-K as an instrument with an "option-like feature." As discussed under "—OMP GP LLC Class B Unit Awards" and "Executive Compensation-Potential Payments Upon Termination and Change in Control—OMP GP LLC Class B Units" in this proxy statement, the Class B Units in OMP GP LLC are intended to constitute "profits interests" for federal tax purposes and are not traditional options.
|
|
|
(5)
|
Reflects the aggregate grant date fair value of restricted stock awards and PSUs under our LTIP and Class B Units in OMP GP LLC granted in the fiscal year indicated, computed in accordance with FASB ASC Topic 718, and does not reflect the actual value that may be realized by the executive. See Note 13 to our consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2017 for additional detail regarding assumptions underlying the value of these equity awards. For fiscal year 2017, the grant date fair value for restricted stock awards is based on the closing price of our common stock on January 12, 2017, the grant date for those awards, which was $15.21 per share. The grant date fair value for the PSUs granted on January 12, 2017 was calculated based on the initial number of PSUs granted at a weighted average grant date fair value price per unit of $16.89, as computed using a Monte Carlo simulation model in accordance with FASB ASC Topic 718. The grant date fair value of the Class B Units has been calculated in accordance with FASB ASC Topic 718.
|
Outstanding Equity Awards at Fiscal Year End
The following table sets forth information concerning outstanding equity awards held by each of our Named Executive Officers as of December 31, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
Option Awards
|
|
|
Restricted Stock Awards
|
|
PSUs
|
|
GP Unit Awards
|
Name
|
|
Number of Shares of Stock
That Have
Not Vested(1)
|
|
Market Value of
Shares of Stock
That Have
Not Vested(2)
|
|
Equity Incentive Plan Awards:
Number of
Unearned Shares
that Have
Not Vested(3)
|
|
Equity Incentive
Plan Awards: Market or
Payout Value of
Unearned Shares
that Have
Not Vested(4)
|
|
Number of Securities Underlying Unexercised Options Unexercisable(5)
|
|
Option Exercise Price(6)
|
|
Option Expiration Date(6)
|
Thomas B. Nusz
|
|
422,873
|
|
|
$
|
3,556,362
|
|
|
856,524
|
|
|
$
|
7,203,363
|
|
|
12,000
|
|
|
N/A
|
|
N/A
|
Taylor L. Reid
|
|
230,933
|
|
|
$
|
1,942,146
|
|
|
373,197
|
|
|
$
|
3,138,587
|
|
|
11,000
|
|
|
N/A
|
|
N/A
|
Michael H. Lou
|
|
192,560
|
|
|
$
|
1,619,429
|
|
|
306,863
|
|
|
$
|
2,580,718
|
|
|
11,000
|
|
|
N/A
|
|
N/A
|
Nickolas J. Lorentzatos
|
|
117,797
|
|
|
$
|
990,673
|
|
|
199,503
|
|
|
$
|
1,677,816
|
|
|
11,000
|
|
|
N/A
|
|
N/A
|
__________________
(1)
Includes the following outstanding restricted stock awards held by our Named Executive Officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
One-Time
Retention Grant (a)
|
|
2015 Annual Award (b)
|
|
2016 Annual Award (c)
|
|
2017 Annual Award (d)
|
|
Total
|
Thomas B. Nusz
|
|
64,400
|
|
|
36,740
|
|
|
186,933
|
|
|
134,800
|
|
|
422,873
|
|
Taylor L. Reid
|
|
38,580
|
|
|
17,920
|
|
|
95,533
|
|
|
78,900
|
|
|
230,933
|
|
Michael H. Lou
|
|
34,140
|
|
|
15,053
|
|
|
80,267
|
|
|
63,100
|
|
|
192,560
|
|
Nickolas J. Lorentzatos
|
|
17,820
|
|
|
9,677
|
|
|
52,800
|
|
|
37,500
|
|
|
117,797
|
|
|
|
(a)
|
The shares subject to the One-Time Retention Grant vest in full on the earlier to occur of a change in control or the Named Executive Officer’s termination of employment due to death or disability, by us without cause, by the executive for good reason, or upon retirement (upon attaining age 60 and continuous employment from the date of grant until the three year anniversary of the award).
|
|
|
(b)
|
The shares subject to the 2015 Annual Award vest in three substantially equal annual installments. The first 1/3 tranche vested on January 15, 2016. The second tranche vested on January 15, 2017 and the final tranche vested on January 15, 2018. The accelerated vesting provisions applicable to these awards are described below under “—Potential Payments upon Termination and Change in Control.”
|
|
|
(c)
|
The shares subject to the 2016 Annual Award vest in three substantially equal annual installments. The first 1/3 tranche vested on January 20, 2017. The second tranche vested on January 20, 2018 and the final tranche will vest on January 20, 2019. The accelerated vesting provisions applicable to these awards are described below under “—Potential Payments upon Termination and Change in Control.”
|
|
|
(d)
|
The shares subject to the 2017 Annual Award vest in three substantially equal annual installments. The first 1/3 tranche vested on January 12, 2018. The second tranche will vest on January 12, 2019 and the final tranche will vest on January 12, 2020. The accelerated vesting provisions applicable to these awards are described below under “—Potential Payments upon Termination and Change in Control.”
|
|
|
(2)
|
This column reflects the closing price of our common stock on December 29, 2017 (the last trading day of fiscal year 2017), which was $8.41, multiplied by the number of outstanding shares of restricted stock.
|
|
|
(3)
|
For the PSU awards granted in 2014, 2015, 2016, and 2017, reflects the initial number of PSUs granted to each of the Named Executive Officers on the date indicated, multiplied by the performance level percentage indicated, which in accordance with SEC rules is the next higher performance level for each award that exceeds 2017 performance. The number of shares reported in the table above are shown for PSUs granted:
|
|
|
•
|
On February 14, 2014, at a performance level of 75% applied to the following initial number of PSUs: (a) Mr. Nusz—48,290, (b) Mr. Reid—23,560, (c) Mr. Lou—14,840, and (d) Mr. Lorentzatos—12,720. The initial performance period for these awards commenced on February 14, 2014 and ended on February 13, 2017, and no shares were earned. However, pursuant to the terms of the awards, up to
|
200% of the awards can be earned during an extended performance period that will end on February 18, 2018.
|
|
•
|
On January 15, 2015, at a performance level of 125% applied to the following initial number of PSUs: (a) Mr. Nusz—132,260, (b) Mr. Reid—53,760, (c) Mr. Lou—45,160, and (d) Mr. Lorentzatos—29,030. The initial performance period for these awards commenced on January 15, 2015 and ends on January 14, 2018.
|
|
|
•
|
On January 20, 2016, at a performance level of 150% applied to the following initial number of PSUs: (a) Mr. Nusz—336,400, (b) Mr. Reid—143,300, (c) Mr. Lou—120,400, and (d) Mr. Lorentzatos—79,200. The designated performance periods for these awards each commenced on January 20, 2016 and end on January 19, 2018, 2019, and 2020.
|
|
|
•
|
On January 12, 2017, at a performance level of 93% applied to the following initial number of PSUs: (a) Mr. Nusz—161,700, (b) Mr. Reid—78,900, (c) Mr. Lou—63,100, and (d) Mr. Lorentzatos—37,500. The designated performance periods for these awards each commenced on January 12, 2017 and end on January 11, 2019, 2020, and 2021.
|
Vesting of the PSUs is contingent upon continuous active employment with us at the end of the applicable performance period and the level of achievement of the TSR vesting objective. See “—Compensation Discussion and Analysis—Annual Executive Compensation Decisions—Long-Term Equity-Based Incentives” above for more information.
|
|
(4)
|
This column reflects the closing price of our common stock on December 29, 2017 (the last trading day of fiscal year 2017), which was $8.41, multiplied by a number of PSUs based on the performance level percentage indicated in footnote (3) with respect to each PSU award.
|
|
|
(5)
|
We believe that, despite the fact that the Class B Units do not require the payment of an exercise price, they are most similar economically to stock options, and as such, they are properly classified as “options” under the definition provided in Item 402(a)(6)(i) of Regulation S-K as an instrument with an "option-like feature." As of December 31, 2017, these Class B Units were unvested, and Messrs. Nusz, Reid, Lou, and Lorentzatos were not eligible to received distributions from OMP GP. Contingent upon continuous service through each such date, the Class B Units will vest on the tenth anniversary of the date of grant; and such officers will be eligible to receive distributions from OMP GP on the second anniversary of the date of grant, including distributions paid for periods prior to such anniversary (see "—OMP GP LLC Class B Unit Awards").
|
|
|
(6)
|
The Class B Units are not traditional options and, therefore, there is no exercise price or expiration date associated with them.
|
Options Exercised and Stock Vested
The following table sets forth information on the restricted stock awards and PSUs held by our Named Executive Officers that vested during fiscal year 2017. The Company has not granted stock options or stock appreciation rights.
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
Name
|
|
Number of Shares Acquired
on Vesting(1)
|
|
Value Realized on Vesting (2)
|
Thomas B. Nusz
|
|
156,670
|
|
|
$
|
2,277,529
|
|
Taylor L. Reid
|
|
83,923
|
|
|
$
|
1,220,954
|
|
Michael H. Lou
|
|
64,257
|
|
|
$
|
934,035
|
|
Nickolas J. Lorentzatos
|
|
45,416
|
|
|
$
|
660,705
|
|
__________________
|
|
(1)
|
Reflects the following restricted stock awards and PSUs held by our Named Executive Officers that vested during fiscal year 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
2014 Annual
Award (a)
|
|
2015 Annual Award (b)
|
|
2016 Annual
Award (c)
|
|
Promotion Awards (d)
|
|
Total
|
Thomas B. Nusz
|
|
26,463
|
|
|
36,740
|
|
|
93,467
|
|
|
—
|
|
|
156,670
|
|
Taylor L. Reid
|
|
13,153
|
|
|
17,920
|
|
|
47,767
|
|
|
5,083
|
|
|
83,923
|
|
Michael H. Lou
|
|
9,070
|
|
|
15,054
|
|
|
40,133
|
|
|
—
|
|
|
64,257
|
|
Nickolas J. Lorentzatos
|
|
6,597
|
|
|
9,676
|
|
|
26,400
|
|
|
2,743
|
|
|
45,416
|
|
|
|
(a)
|
The final 1/3 tranche of shares subject to the 2014 Annual Award vested on February 14, 2017.
|
|
|
(b)
|
The second 1/3 tranche of shares subject to the 2015 Annual Award vested on January 15, 2017.
|
|
|
(c)
|
The first 1/3 tranche of shares subject to the 2016 Annual Award vested on January 20, 2017.
|
|
|
(d)
|
For Messrs. Reid and Lorentzatos, reflects shares that were awarded to them on January 15, 2014 in connection with their promotions to President and Chief Operating Officer and to Executive Vice President, General Counsel and Corporate Secretary, respectively. The final 1/3 tranche vested on January 15, 2017.
|
|
|
(2)
|
The value realized upon vesting of restricted stock or PSUs, as applicable, is based on the following:
|
•
A closing price per share of our common stock of $14.76 for shares that vested on January 15, 2017;
•
A closing price per share of our common stock of $14.46 for shares that vested on January 20, 2017; and
•
A closing price per share of our common stock of $14.50 for shares that vested on February 14, 2017.
Pension Benefits
Other than our 401(k) plan, we do not have any plan that provides for payments or other benefits at, following, or in connection with, retirement.
Non-Qualified Deferred Compensation
We do not have any plan that provides for the deferral of compensation on a basis that is not tax qualified.
Potential Payments Upon Termination and Change in Control
Employment Agreements.
During 2015, we entered into amended and restated employment agreements with each of Messrs. Nusz, Reid, Lou and Lorentzatos (the “Employment Agreements”) containing provisions regarding payments to be made to such individuals upon termination of their employment in certain circumstances, including in connection with a change in control. These Employment Agreements had a fixed three-year term which expired on March 20, 2018. In March 2018, we entered into amended and restated Employment Agreements for another three-year term and with the same material terms, except as otherwise noted below.
Under the Employment Agreements, upon any termination of employment, the Named Executive Officers are entitled to receive (i) accrued but unpaid salary, (ii) any unpaid annual performance bonus earned for the calendar year prior to the year in which the Named Executive Officer terminates, (iii) reimbursement of eligible expenses and (iv) any employee benefits due pursuant to their terms (collectively, the “Accrued Payments”).
Death or Disability.
If any of Messrs. Nusz, Reid, Lou or Lorentzatos is terminated due to death or “disability,” then the Named Executive Officers will be entitled to receive the following amounts: (i) the Accrued Payments, (ii) a pro-rata portion of the annual performance bonus for the calendar year of termination, (iii) an amount equal to 12 months’ worth of the Named Executive Officer's base salary, payable in a lump sum within 60 days following termination, and (iv) an amount equal to 18 months’ worth of COBRA premiums, if the Named Executive Officer elects and remains eligible for COBRA, payable in a lump sum within 60 days following termination.
Termination Other Than for Cause or Good Reason.
If we terminate the employment of any of Messrs. Nusz, Reid, Lou or Lorentzatos for reasons other than “cause” (including if we do not elect to renew the Employment Agreement with the Named Executive Officer), or if the Named Executive Officer terminates employment for “good reason,” and, in each case, such termination is not on or within two years following a "change in control," then the Named Executive Officer will be entitled to receive the following amounts: (i) the Accrued Payments, (ii) a pro-rata portion of the annual performance bonus for the calendar year of termination; (iii) an amount equal to the sum of (a) the aggregate amount of base salary payable for the remainder of the employment term (or, if greater, an amount equal to 12 months’ worth of the Named Executive Officer's base salary for Messrs. Lou and Lorentzatos and 24 months’ worth of base salary for Messrs. Nusz and Reid), plus (b) the aggregate of the product of (x) the Named Executive Officer's base salary as of the date of termination and (y) the target bonus percentage specified in such Named Executive Officer's Employment Agreement (or such higher percentage specified by the Board with respect to the calendar year in which the date of termination occurs) calculated for each full and partial calendar year remaining in the term of the Employment Agreement (or, if greater, an amount equal to one times the product of (x) and (y) for Messrs. Lou and Lorentzatos and two times the product of (x) and (y) for Messrs. Nusz and Reid), payable in equal monthly installments (with amounts in excess of certain limitations under Section 409A of the Internal Revenue Code payable in a lump sum within 60 days); plus (c) an amount equal to 18 months’ worth of COBRA premiums; and (iv) accelerated vesting of all outstanding equity awards (except as otherwise provided in the applicable award agreements). Severance amounts, other than the pro-rata bonus amount, are subject to the Named Executive Officer's delivery to us (and nonrevocation) of a release of claims within 50 days of his termination date.
Change in Control.
Under the Employment Agreements, in the event that a Named Executive Officer’s employment is terminated by the Company without “cause” (including if we do not elect to renew the Employment Agreement with the Named Executive Officer) or by the Named Executive Officer for “good reason”, in each case, on or within two years following a “change in control,” then the Named Executive Officer will be entitled to receive the following amounts: (i) the Accrued Payments, (ii) an amount equal to 2.99 times the sum of (a) the Named Executive Officer’s annualized base salary, (b) the Named Executive Officer’s target annual performance bonus as of the date of termination, or, if greater, the average performance bonus paid or payable to the Named Executive Officer for the two calendar years preceding the date of termination (or, under the 2018 amended and restated Employment Agreements, preceding the change in control), (iii) an amount equal to 18 months’ worth of COBRA premiums, (iv) full vesting of all outstanding unvested equity awards (except as otherwise provided in the applicable award agreements), and (v) under the 2018 amended and restated Employment Agreements, a pro-rata portion of the Named Executive Officer’s target annual performance bonus as of the date of termination. Additionally, prior to the 2018 amendment and restatement, the Employment Agreements provided that in the event of such a termination, the Named Executive Officer would be entitled to receive the greater of the payments and benefits described in the preceding sentence and the payments and benefits described in the preceding paragraph.
No Gross Up Payments.
In the event any payments made pursuant to the Employment Agreements in connection with a change in control would result in a Named Executive Officer receiving golden parachute payments that are subject to excise tax under Section 280G and 4999 of the Internal Revenue Code, we will not provide any gross-up payment for such excise taxes. Instead, the Employment Agreements provide that any golden parachute payments will be paid to the Named Executive Officer in full (with the Named Executive Officer responsible for paying in full any related excise tax liability), unless reducing the amount of such payments to $1 less than the 280G safe harbor amount would result in a better net after tax position for the Named Executive Officer. Generally, the 280G safe harbor amount is equal to three times the Named Executive Officer's average
annual compensation from us for the preceding five years, or such lesser period during which the Named Executive Officer was employed by us.
Messrs. Nusz, Reid, Lou and Lorentzatos are subject to certain confidentiality, noncompete and nonsolicitation provisions contained in the Employment Agreements. The confidentiality covenants are perpetual, while the noncompete and nonsolicitation covenants apply during the term of the Employment Agreements and for 12 months following the Named Executive Officer's termination date, except that the latter covenants will cease to apply if the Named Executive Officer is terminated for any reason on or after a change in control.
Amended and Restated Annual Incentive Compensation Plan.
Under our Incentive Plan, upon the occurrence of a “change in control,” participants (including our Named Executive Officers) will receive the target annual cash bonus award amount that the participant is eligible to earn for the calendar year in which the “change in control” occurs, payable within 30 days after the date of the “change in control.”
Applicable Definitions.
For purposes of the Employment Agreements and the Incentive Plan, as applicable (in each case, as of December 31, 2017), the terms listed below are defined as follows:
(i) “
cause
” means (a) the Named Executive Officer has been convicted of a misdemeanor involving moral turpitude or a felony, (b) the Named Executive Officer has engaged in grossly negligent or willful misconduct in performing his duties, which has a material detrimental effect on us, (c) the Named Executive Officer has breached a material provision of the Employment Agreement or the Incentive Plan, as applicable, (d) the Named Executive Officer has engaged in conduct that is materially injurious to us or (e) the Named Executive Officer has committed an act of fraud. Under the Employment Agreements, Messrs. Nusz, Reid, Lou and Lorentzatos will have a limited period of 30 days to cure events (except in the case of a cause event described in clause (a) above).
(ii) “
change in control
” means (a) a person acquires 50% or more of our outstanding stock or outstanding voting securities, subject to certain limited exceptions, (b) individuals who serve as board members on the effective date of the Employment Agreements or the Incentive Plan, as applicable (or who are subsequently approved by a majority of such individuals), cease for any reason to constitute at least a majority of our Board of Directors, (c) consummation of a reorganization, merger, consolidation or a sale of all or substantially all of our assets, subject to certain limited exceptions, or (d) approval by our stockholders of a complete liquidation or dissolution.
(iii) “
disability
” means the Named Executive Officer's inability to perform essential functions with or without reasonable accommodation, if required by law, due to physical or mental impairment.
(iv) “
good reason
” means, without the Named Executive Officer's express written consent, (a) a material breach by us of the Employment Agreement or of our obligations under the Incentive Plan, as applicable, (b) a material reduction in the Named Executive Officer’s base salary or target performance bonus opportunity, (c) the failure by the Company to continue to provide the Named Executive Officer with the opportunity to participate in any material equity incentive compensation plan in which the Named Executive Officer was participating as of the effective date of the Employment Agreement (or any comparable successor plan), (d) a material diminution in the Named Executive Officer’s authority, status, title, position, duties or responsibilities, (e) the assignment to the Named Executive Officer of any duties or responsibilities that are materially inconsistent with such status, title, position or responsibilities, (f) a change in the geographic location where the Named Executive Officer must normally perform services by more than 50 miles or (e) a requirement that the Named Executive Officer report to an employee instead of to our Board of Directors (for Mr. Nusz), or a material reduction in the authority, status, title, position, duties or responsibilities of the person to whom the Named Executive Officer reports (for all other Named Executive Officers). The Named Executive Officer must notify us within 60 days of the occurrence of any such event and we have 30 days following notice to cure.
Restricted Stock Awards.
Our Named Executive Officers each hold outstanding awards of restricted stock under our LTIP as previously described in the section above entitled “—Compensation Discussion and Analysis—Annual Executive Compensation Decisions—Long-Term Equity-Based Incentives.” The vesting of the restricted stock awards will accelerate in full if a Named Executive Officer’s employment is terminated due to either death or disability. In addition, the awards are subject to the accelerated vesting provisions contained in the Employment Agreements, which are described above under “—Employment Agreements.”
Certain restricted stock awards granted to the Named Executive Officers vest only upon the earliest to occur of a change in control or termination of employment due to death, disability, termination without cause or for good reason or retirement (after attaining age 60 and completing three years of service with us following the grant date of the award). None of our Named Executive Officers is currently eligible to retire for these purposes.
For purposes of all outstanding restricted stock awards, “disability,” “cause,” “good reason” and “change in control” have generally the same meaning as set forth above with respect to the Employment Agreements.
Performance Share Unit Awards.
Our Named Executive Officers each hold outstanding awards of PSUs under our LTIP as previously described in the section above entitled “—Compensation Discussion and Analysis—Annual Executive Compensation Decisions—Long-Term Equity-Based Incentives.” These PSUs contain certain accelerated vesting provisions in the event certain specified events occur prior to the end of the applicable performance period.
Death or Disability.
If a Named Executive Officer’s employment is terminated due to death or disability, a Named Executive Officer will be deemed to have earned a number of PSUs equal to 200% of the initial number of PSUs awarded.
Without Cause or For Good Reason.
If a Named Executive Officer’s employment is terminated by us without cause or by the Named Executive Officer for good reason, a Named Executive Officer will be deemed to have earned, as of the end of the applicable performance period, the number of PSUs that the Named Executive Officer would have earned if he had remained employed through the end of such performance period.
Change in Control.
If a “change in control” occurs, a Named Executive Officer will be deemed to have earned the number of PSUs he would have earned at the end of the performance period, assuming that the performance period ended on the date the change in control occurs and the determination of the extent to which the TSR vesting objective has been reached will be based on the value per share received in the “change in control” transaction.
For purposes of the PSUs, “disability,” “cause,” “good reason” and “change in control” generally have the same meaning as set forth above with respect to the Employment Agreements.
OMP GP LLC Class B Units.
Our Named Executive Officers each hold Class B Units of OMP GP as previously described in the section above entitled "—Compensation Discussion and Analysis—Annual Executive Compensation Decisions—OMP GP LLC Class B Unit Awards." These awards contain certain forfeiture and accelerated vesting provisions in the event specified events occur prior to the ten year anniversary of the date of grant. As discussed above, the Class B Units in OMP GP LLC issued to our Named Executive Officers on May 22, 2017 are intended to constitute "profits interests" for federal tax purposes and are not traditional options.
Death or Disability.
If a Named Executive Officer’s employment is terminated due to death or disability, all restricted Class B Units will be subject to OMP GP's right to call the restricted Class B Units at their fair market value.
Without Cause or For Good Reason.
If a Named Executive Officer’s employment is terminated without cause or for good reason, all restricted Class B Units will be subject to OMP GP's right to call the restricted Class B Units at their fair market value.
For Cause.
Upon a termination for Cause, all Class B Units, whether or not vested, will be forfeited by the grantee.
Without Good Reason.
If a Named Executive Officer resigns without good reason, the recipient may forfeit a certain number of the restricted Class B Units granted. Those Class B Units not forfeited will be subject to OMPG GP's right to call such units at fair market value. The number of Class B Units forfeited is determined by reference to the number of anniversaries of the date of grant which have occurred and the level of distributions made by OMP to its limited partners, in each case, as of the date of termination.
Change in Control.
If a Named Executive Officer is terminated without cause or resigns for good reason within two years following a “change in control of the Company” or a “change in control of OMP GP,” all restricted Class B Units will become fully vested upon such termination.
For purposes of the Class B Units,
(i) “disability,” “cause,” and “good reason” generally have the same meaning as set forth above with respect to the Employment Agreements;
(ii) “change in control of the Company” means (a) a person acquires 50% or more of the outstanding stock or outstanding voting securities of the Company, subject to certain limited exceptions, (b) individuals who serve as board members of the Company as of the grant date (or who are subsequently approved by a majority of such individuals), cease for any reason to constitute at least a majority of the board of directors of the Company, (c) consummation of a reorganization, merger, consolidation or a sale of all or substantially all of the assets of the Company, subject to certain limited exceptions or (d) approval by the the Company's stockholders of a complete liquidation or dissolution; and
(iii) “change in control of our general partner” means (a) the Company no longer beneficially owns 50% of the outstanding units or voting securities of OMP GP and (b) within one year following the date on which the event described in clause (a) occurs, more than one-half of the members of the board of directors of OMP GP immediately prior to the event described in clause (a) cease to be employee members of the board of directors of OMP GP.
Quantification of Payments
The table below discloses the amount of compensation and/or benefits due to our Named Executive Officers in the event of their termination of employment and/or in the event we undergo a change in control, in either case, on December 31, 2017, and assuming that the price per share of common stock was $8.41, which was the closing price per share of our common stock on December 29, 2017 (the last trading day of fiscal year 2017). The amounts below constitute estimates of the amounts that would be paid to our Named Executive Officers upon their respective terminations and/or upon a change in control under such arrangements, and do not include any amounts accrued through December 31, 2017 that would be paid in the normal course of continued employment, such as accrued but unpaid salary, and benefits generally available to all of our salaried employees. The actual amounts to be paid are dependent on various factors, which may or may not exist at the time a Named Executive Officer is actually terminated and/or a change in control actually occurs. Therefore, such amounts and disclosures should be considered “forward-looking statements.”
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
Termination Due to
Death or Disability
|
|
Termination
Without Cause or
for Good Reason(1)
|
|
Termination
Without Cause or
for Good Reason
Following a Change
in Control
|
|
Change in
Control
|
Thomas B. Nusz
|
|
|
|
|
|
|
|
|
Salary(2)
|
|
$
|
820,000
|
|
|
$
|
1,640,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Bonus Amounts(2)
|
|
$
|
787,200
|
|
|
$
|
2,755,200
|
|
|
$
|
984,000
|
|
|
$
|
984,000
|
|
COBRA Premiums(3)
|
|
$
|
36,118
|
|
|
$
|
36,118
|
|
|
$
|
36,118
|
|
|
$
|
—
|
|
Change in Control Payments(4)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,276,608
|
|
|
$
|
—
|
|
Accelerated Equity Vesting(5)
|
|
$
|
14,971,255
|
|
|
$
|
10,759,725
|
|
|
$
|
10,759,725
|
|
|
$
|
3,556,362
|
|
Class B Units(6)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
350,400
|
|
|
$
|
—
|
|
Total(7)
|
|
$
|
16,614,573
|
|
|
$
|
15,191,043
|
|
|
$
|
18,406,851
|
|
|
$
|
4,540,362
|
|
Taylor L. Reid
|
|
|
|
|
|
|
|
|
Salary(2)
|
|
$
|
600,000
|
|
|
$
|
1,200,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Bonus Amounts(2)
|
|
$
|
480,000
|
|
|
$
|
1,680,000
|
|
|
$
|
600,000
|
|
|
$
|
600,000
|
|
COBRA Premiums(3)
|
|
$
|
36,118
|
|
|
$
|
36,118
|
|
|
$
|
36,118
|
|
|
$
|
—
|
|
Change in Control Payments(4)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,737,500
|
|
|
$
|
—
|
|
Accelerated Equity Vesting(5)
|
|
$
|
6,980,073
|
|
|
$
|
5,080,733
|
|
|
$
|
5,080,733
|
|
|
$
|
1,942,147
|
|
Class B Units(6)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
321,200
|
|
|
$
|
—
|
|
Total(7)
|
|
$
|
8,096,191
|
|
|
$
|
7,996,851
|
|
|
$
|
9,775,551
|
|
|
$
|
2,542,147
|
|
Michael H. Lou
|
|
|
|
|
|
|
|
|
Salary(2)
|
|
$
|
480,000
|
|
|
$
|
480,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Bonus Amounts(2)
|
|
$
|
384,000
|
|
|
$
|
864,000
|
|
|
$
|
480,000
|
|
|
$
|
480,000
|
|
COBRA Premiums(3)
|
|
$
|
36,118
|
|
|
$
|
36,118
|
|
|
$
|
36,118
|
|
|
$
|
—
|
|
Change in Control Payments(4)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,067,740
|
|
|
$
|
—
|
|
Accelerated Equity Vesting(5)
|
|
$
|
5,715,100
|
|
|
$
|
4,200,147
|
|
|
$
|
4,200,147
|
|
|
$
|
1,619,430
|
|
Class B Units(6)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
321,200
|
|
|
$
|
—
|
|
Total(7)
|
|
$
|
6,615,218
|
|
|
$
|
5,580,265
|
|
|
$
|
8,105,205
|
|
|
$
|
2,099,430
|
|
Nickolas J. Lorentzatos
|
|
|
|
|
|
|
|
|
Salary(2)
|
|
$
|
380,000
|
|
|
$
|
380,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Bonus Amounts(2)
|
|
$
|
243,200
|
|
|
$
|
547,200
|
|
|
$
|
304,000
|
|
|
$
|
304,000
|
|
COBRA Premiums(3)
|
|
$
|
36,118
|
|
|
$
|
36,118
|
|
|
$
|
36,118
|
|
|
$
|
—
|
|
Change in Control Payments(4)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,255,656
|
|
|
$
|
—
|
|
Accelerated Equity Vesting(5)
|
|
$
|
3,655,802
|
|
|
$
|
2,668,489
|
|
|
$
|
2,668,489
|
|
|
$
|
990,673
|
|
Class B Units(6)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
321,200
|
|
|
$
|
—
|
|
Total(7)
|
|
$
|
4,315,120
|
|
|
$
|
3,631,807
|
|
|
$
|
5,585,463
|
|
|
$
|
1,294,673
|
|
__________________
|
|
(1)
|
Also reflects amounts for termination due to non-extension of the Employment Agreements.
|
|
|
(2)
|
Based on annualized base salary and target bonus percentage in effect for each Named Executive Officer as of December 31, 2017. For purposes of calculating any pro-rata bonus, the dollar value of the bonus awards actually awarded to each Named Executive Officer by our Compensation Committee for 2017 service was used, without pro-ration, since December 31, 2017 was the last day of the calendar year to which such bonus related. For purposes of quantifying the amount of the severance payments to Messrs. Nusz, Reid, Lou and Lorentzatos in the event of their termination without “cause” or for “good reason,” (a) the “Salary” amount was calculated as the base salary that the Named Executive Officer would have received for a period of 12 months, for Messrs. Lou and Lorentzatos, and 24 months, for Messrs. Nusz and Reid, and (b) the “Bonus Amount” was calculated, for Messrs. Lou and Lorentzatos, as the target bonus in effect for 2017, plus the pro-rata bonus amount, and for Messrs. Nusz and Reid as 2 times the target bonus in effect for 2017, plus the pro-rata bonus amount.
|
|
|
(3)
|
Reflects 18 months’ worth of COBRA premiums at $2,006.56 per month.
|
|
|
(4)
|
Based on annualized base salary and the average bonus paid to each Named Executive Officer for 2015 and 2016.
|
|
|
(5)
|
The value of accelerated equity awards is based upon the closing price per share of our common stock on December 29, 2017 (the last trading day of fiscal year 2017), which was $8.41, multiplied by the number of outstanding shares of restricted stock or PSUs that would vest upon the occurrence of the event indicated. We calculated the number of PSUs that would become earned upon the occurrence of the event indicated according to the provisions of the Notice of Grant of Performance Awards for each PSU award as follows: (i) upon termination due to death or disability, 200% of the initial PSUs; (ii) upon occurrence of a change in control, the percentage of initial PSUs earned depends on which quartile or percentile the Company's TSR percentage falls relative to the other companies in the PSU comparator group, assuming the applicable performance period ended on the date of the change in control; and (iii) upon termination without cause or for good reason, the percentage of initial PSUs earned is determined at the end of the originally stated performance period; however, for purposes of the event indicated in this clause (iii), we have calculated assumed performance at the end of the applicable originally stated performance period using the same formula stated in footnote (3) to the "Outstanding Equity Awards at Fiscal Year End" table above because we believe it represents a reasonable estimate of the Company's TSR performance at the end of each originally stated performance period. The values reported in the table above only take into account awards that were outstanding on December 31, 2017, and do not include the awards granted to our Named Executive Officers in January 2018, which are discussed above in the CD&A.
|
|
|
(6)
|
The Class B Units are intended to constitute “profits interests" for federal tax purposes and as such, the actual value of the Class B Units was not readily quantifiable as of December 31, 2017. For purposes of this table, the value of the accelerated Class B Units is based upon the grant date fair value of the Class B Units, calculated in accordance with FASB ASC Topic 718, multiplied by the number of outstanding Class B Units that would become vested upon the occurrence of the event indicated.
|
|
|
(7)
|
The aggregate total amount of compensation payable in connection with the triggering events has not been reduced to reflect any cut back in benefits or payments that would be made in connection with a change in control pursuant to the terms of the Employment Agreements. The Employment Agreements provide that golden parachute payments will be paid in full or reduced to fall within the 280G safe harbor amount, whichever will provide a better net after-tax position for a Named Executive Officer. For purposes of this disclosure, we have reflected the maximum amount potentially payable to each Named Executive Officer under each given scenario even though such maximum amounts could be reduced pursuant to the cutback language included in the Employment Agreements.
|
PAY RATIO
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, we are providing the following information about the relationship of the annual total compensation of our employees and the annual total compensation of Thomas B. Nusz, our Chief Executive Officer (our “CEO”).
For 2017, our last completed fiscal year:
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The median of the annual total compensation of all employees of our company (other than the CEO) was $121,966; and
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The annual total compensation of our CEO, as reported in the Summary Compensation Table included elsewhere within this Proxy Statement, was $6,769,288.
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Based on this information, for 2017 the ratio of the annual total compensation of our CEO to the median of the annual total compensation of all employees was reasonably estimated to be 56 to 1.
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To identity the median of the annual total compensation of all our employees, as well as to determine the annual total compensation of our median employee and our CEO, we took the following steps:
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We determined that, as of December 31, 2017, our employee population consisted of approximately 585 individuals with all of these individuals located in the United States (as reported in Item 1, Business, in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2018 (our “Annual Report”)). This population consisted of our full-time, part-time, and temporary employees.
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We used a consistently applied compensation measure to identify our median employee of comparing the amount of salary reflected in our payroll records as reported to the Internal Revenue Service on Form W-2 for 2017; the annual cash incentive award granted in respect of 2017 performance; and the annual equity awards granted to our employees in 2017.
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We identified our median employee by consistently applying this compensation measure to all of our employees included in our analysis. Since all of our employees, including our CEO, are located in the United States, we did not make any cost of living adjustments in identifying the median employee.
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After we identified our median employee, we combined all of the elements of such employee’s compensation for the 2017 year in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual total compensation of $121,966. The difference between such employee’s salary, wages and overtime pay and the employee’s annual total compensation represents the value of such employee’s annual equity awards granted in 2017 and contributions in the amount of $4,146 that we made on the employee’s behalf to our 401(k) plan for the 2017 year.
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With respect to the annual total compensation of our CEO, we used the amount reported in the “Total” column of our 2017 Summary Compensation Table included in this Proxy Statement and incorporated by reference under Item 11 of Part III of our Annual Report.
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ITEM 3 - ADVISORY VOTE ON EXECUTIVE COMPENSATION
Introduction
Section 14A(a)(1) of the Exchange Act requires that we provide our stockholders with the opportunity to vote to approve, on an advisory, non-binding basis, the compensation paid to our Named Executive Officers, as described in the “Compensation Discussion and Analysis” section of this proxy statement, beginning on page 25. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our Named Executive Officers and the philosophy, objectives and practices described in this proxy statement.
Philosophy.
Our Board of Directors recognizes that executive compensation is an important matter for our stockholders. As described in detail in the CD&A section of this proxy statement, the Compensation Committee is tasked with the implementation of our executive compensation philosophy and the core of that philosophy is to pay our executives based on performance. Our compensation program is designed to reward performance that supports our long-term strategy and achievement of our short-term goals. We believe that compensation should:
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Be competitive.
Compensation should help to attract and retain the most qualified individuals in the oil and gas industry by being competitive with compensation paid to persons having similar responsibilities and duties in other companies in the same and closely related industries;
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Be aligned with stockholder interests.
Compensation should align the interests of the individual with those of our stockholders with respect to long-term value creation;
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Pay for performance.
Compensation should pay for performance, whereby an individual’s total direct compensation is heavily influenced by company performance and directly tied to the attainment of annual company performance targets; and
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Encourage individual accountability.
Compensation should reflect each individual's contribution to the attainment of annual company performance targets, and the unique qualifications, skills, experience and responsibilities of the individual.
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To accomplish these goals, the Compensation Committee uses a combination of short- and long-term incentive compensation to reward near-term excellent performance and to encourage executives’ commitment to our long-range, strategic business goals. It is the intention of the Compensation Committee that our executive officers be compensated competitively and consistently with our strategy, sound corporate governance principles, other companies in the same and closely related industries, and stockholder interests and concerns.
As described in the CD&A, we believe our compensation program is effective, appropriate, and strongly aligned with the long-term interests of our stockholders and that the total compensation package provided to our Named Executive Officers (including potential payouts upon a termination of employment or change of control) are reasonable and not excessive. As you consider this Item 3, we urge you to read the CD&A section, beginning on page 25 of this proxy statement for additional details on executive compensation, and to review the tabular disclosures regarding Named Executive Officer compensation in the “Executive Compensation” section of this proxy statement.
Program Highlights.
Among the program features incorporated by the Compensation Committee to align with our executive compensation philosophy are the following:
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Equity-based awards generally incorporate a three-year vesting period to emphasize long-term performance and executive officer commitment;
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Our annual performance-based cash incentive awards incorporate numerous financial and/or strategic performance metrics in order to properly balance risk with the incentives to drive our key annual financial and/or strategic initiatives and impose maximum payouts to further manage risk and the possibility of excessive payments;
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We have focused our executives on long-term stockholder value creation through our use of equity-based awards, including PSUs tied to relative TSR performance, and the adoption of stock ownership guidelines that encourage our senior executives to own a significant amount of the Company’s stock; and
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Advisory Vote to Approve
Executive Compensation
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Cash payments under the Change in Control and Severance Benefit Plan and similar provisions of employment agreements, including equity-based award acceleration, require a double trigger (i.e., a termination of employment in connection with a change in control).
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Advisory Vote.
As an advisory vote, Item 3 is not binding on our Board of Directors or the Compensation Committee, will not overrule any decisions made by our Board of Directors or the Compensation Committee, and will not require our Board of Directors or the Compensation Committee to take any specific action. Although the vote is non-binding, our Board of Directors and the Compensation Committee value the opinions of our stockholders, and will carefully consider the outcome of the vote when making future compensation decisions for our Named Executive Officers. In particular, to the extent there is any significant vote against our Named Executive Officers’ compensation as disclosed in this proxy statement, we will consider our stockholders’ concerns, and the Compensation Committee will evaluate whether any actions are necessary to address those concerns.
Text of the Resolution to be Adopted
We are asking stockholders to vote “FOR” the following resolution:
“RESOLVED, that the stockholders approve, on an advisory basis, the compensation philosophy, policies and procedures and the compensation of the Named Executive Officers as disclosed in this proxy statement pursuant to the compensation disclosure rules of the Securities and Exchange Commission (“SEC”), including the CD&A, the 2017 Summary Compensation Table and the other related tables and disclosures.”
Vote Required
The affirmative vote of stockholders holding at least a majority of the shares present and entitled to be voted on the proposal on the record date for determining stockholders entitled to vote at the 2018 Annual Meeting is required for approval of Item 3. If you own shares through a bank, broker or other holder of record, you must instruct your bank, broker or other holder of record how to vote in order for them to vote your shares so that your vote can be counted on this proposal.
Recommendation of our Board of Directors
The Board of Directors unanimously recommends an advisory vote "FOR" the approval of the compensation of our named executive officers, as disclosed in this proxy statement pursuant to the compensation disclosure rules of the SEC.
Amendment to LTIP to Increase
Maximum Number of Shares
ITEM 4 - APPROVAL OF THE AMENDED AND RESTATED 2010 LONG TERM INCENTIVE PLAN (EFFECTIVE AS OF MAY 3, 2018)
At the 2018 Annual Meeting, the stockholders will be asked to approve the Company’s Amended and Restated 2010 Long Term Incentive Plan (Effective as of May 3, 2018) (the “Amended and Restated LTIP”), including an increase in the number of shares of common stock available for issuance under the Amended and Restate LTIP. The 2010 Long Term Incentive Plan was originally approved by the Board on May 17, 2010 and became effective as of the closing of our initial public offering in June 2010. The 2010 Long Term Incentive Plan was amended and restated effective as of January 1, 2014 (the “2014 LTIP”). The 2014 LTIP was subsequently amended effective as of May 4, 2015 and May 4, 2016.
Background and Purpose of the Proposal
The purpose of the Amended and Restated LTIP is to, among other things, increase the number of shares of common stock available for delivery under the Amended and Restated LTIP, make certain revisions to account for amendments to Section 162(m) of the Internal Revenue Code (“Section 162(m)”) by the “Tax Cuts and Jobs Act” and extend the term of the Amended and Restated LTIP to May 4, 2028. If the Amended and Restated LTIP is approved at the 2018 Annual Meeting, it will become effective as of May 4, 2018. We believe approval of the Amended and Restated LTIP is advisable in order to (i) ensure that terms of the Amended and Restated LTIP are easily understood by stockholders and participants in the Amended and Restated LTIP, (ii) ensure that the Company has an adequate number of shares of common stock available to continue to grant meaningful long-term incentive awards to our employees, and (iii) allow the Company to grant long-term incentive awards that better meet the needs of the Company and its stockholders by addressing changes in applicable law. The Board unanimously acted to adopt the Amended and Restated LTIP on February 20, 2018, subject to stockholder approval at the 2018 Annual Meeting. If the Amended and Restated LTIP is approved by stockholders, we intend to file, pursuant to the Securities Act of 1933, as amended, a registration statement on Form S-8 to register the additional shares available for delivery under the Amended and Restated LTIP.
The use of stock-based awards under the 2014 LTIP has been a key component of our compensation program since its original adoption in 2010. The 2010 Long Term Incentive Plan was originally approved by the Board on May 17, 2010 and became effective as of the closing of our initial public offering in June 2010. The 2010 Long Term Incentive Plan was amended and restated, effective on January 1, 2014, and approved by our stockholders at the 2014 Annual Meeting for purposes of complying with the requirements of Section 162(m), but no increase in the maximum number of shares available for delivery under the LTIP was requested at that time. The LTIP was amended (the "First Amendment"), effective May 4, 2015, and approved by our stockholders at the 2015 Annual Meeting for purposes of (i) increasing the number of shares of common stock available under the LTIP by 1,350,000 shares and (ii) providing that certain shares subject to options, stock appreciation rights and similar appreciation-only Awards would not be available for reuse under the LTIP. The LTIP was further amended (the "Second Amendment"), effective May 4, 2016, and approved by our stockholders at the 2016 Annual Meeting for purposes of (i) increasing the number of shares of common stock available under the LTIP by 7,500,000 shares and (ii) extending the term of the LTIP to May 4, 2026. The Amended and Restated LTIP will continue to provide a means through which we and our subsidiaries may:
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attract and retain the most qualified employees, directors and consultants ("participants") in the oil and gas industry by being competitive with compensation paid to persons having similar responsibilities and duties in other companies in the same and closely related industries;
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reflect the unique qualifications, skills, experience and responsibilities of each participant:
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pay for performance, whereby a participant's compensation is influenced by company performance;
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align the interests of the participant with those of our stockholders with respect to long-term value creation; and
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provide participants with additional incentive and reward opportunities designed to enhance the profitable growth of the Company.
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Amendment to LTIP to Increase
Maximum Number of Shares
Our successful operation and our ability to create long-term value for our stockholders depend on the efforts of over 585 employees, including management, directors and consultants, and we believe that it is in the best interest of the Company for all those individuals to have an ownership interest in the Company in recognition of their present and potential contributions. As a result, in 2017, over 69% of our equity awards were granted to employees other than our Named Executive Officers, and for the last three years, our grants to our Chief Executive Officer and Named Executive Officers as a percentage of total grants (the "concentration ratio") have been well below recommended thresholds for such concentration ratios.
We believe that approval of the Amended and Restated LTIP will give us the flexibility to continue to make stock-based grants and other awards as permitted under the Amended and Restated LTIP over the next three years in amounts determined appropriate by the Compensation Committee of the Board of Directors (the “committee”); however, this timeline is simply an estimate used to determine the number of additional shares of common stock requested pursuant to the terms of the Amended and Restated LTIP and future circumstances may require a change to expected equity grant practices. These circumstances include but are not limited to the future price of our common stock, award levels and amounts provided by our competitors and our hiring activity. The closing market price of our common stock as of March 8, 2018 was $8.10 per share, as reported on the NYSE.
To date in 2018, we have awarded 3,651,100 shares of common stock to employees and directors pursuant to awards under the 2014 LTIP. It is our practice to grant awards to employees at the beginning of the year as part of each employee's compensation package, and due to the decline in our stock price largely related to the decline in oil prices over the last three years, we granted a higher number of shares to employees than in years past, although the total value of each award did reflect the current market environment. Furthermore, it has been our consistent practice to grant a mid-year discretionary award to non-executive employees. We believe these grants are retentive and further the objectives of the plan discussed above. However, due to the decline in oil prices and the related decline in our stock price, we did not make mid-year discretionary awards in 2017. If oil prices, and thus our stock price, remain low, we will not be able to maintain these employee grant practices into 2018 without the approval of the Amended and Restated LTIP.
Consequences of Failing to Approve the Proposal
Failure of our stockholders to approve this proposal will mean that we will continue to grant equity awards under the terms of the 2014 LTIP, in its current form, until the shares available thereunder are exhausted, which we estimate will occur in 2019, based on current expected equity grant practices and our current stock price. If the Amended and Restated LTIP is not approved by our stockholders, the 2014 LTIP will remain in effect in its current form.
Summary of the LTIP
A summary of the material features of the Amended and Restated LTIP is provided below but does not purport to be a complete description of all of the provisions of the Amended and Restated LTIP. The summary below should be read in conjunction with, and is qualified in its entirety by reference to the full text of the Amended and Restated LTIP, which is attached to this proxy statement as Annex A.
Key Features of the Amended and Restated LTIP
. Key features of the Amended and Restated LTIP include:
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No discounted options or other awards may be granted;
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Awards are non-transferrable, except to an award recipient’s immediate family member or related family trust, pursuant to a qualified domestic relations order or by will or the laws and descent and distribution;
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No automatic award grants are made to any eligible individual;
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Awards granted prior to January 1, 2018 may be designed to meet the requirements for deductibility as “performance-based compensation” under Section 162(m);
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Limitations on the maximum number or amount of awards that may be granted to certain individuals during any calendar year;
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No repricing of stock options or stock appreciation rights without stockholder approval;
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Amendment to LTIP to Increase
Maximum Number of Shares
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Awards are subject to potential reduction, cancellation, forfeiture or other clawback under certain specified circumstances; and
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No recycling of shares subject to options or stock appreciation rights that are withheld or tendered to pay the exercise price of the Award or to satisfy any tax withholding obligation or that are covered by an option or stock appreciation right that is exercised.
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Purposes of the Amended and Restated LTIP
. The purpose of the Amended and Restated LTIP is to provide incentives to our employees and consultants (and those of our subsidiaries) and to members of our Board who are not employees or consultants to devote their abilities and energies to our success through affording such individuals a means to acquire and maintain stock ownership or awards, the value of which is tied to the performance of our common stock. The Amended and Restated LTIP permits the grant of nonstatutory options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, bonus stock, dividend equivalents, and other stock-based awards, any of which may be further designated as performance awards (collectively referred to as “Awards”).
Administration
. The Amended and Restated LTIP will be administered by the committee pursuant to its terms and all applicable state, federal or other rules or laws. However, our Board of Directors may also take any action designated to the committee, unless it is determined that administration of the Amended and Restated LTIP by “outside directors” is necessary with respect to Awards granted prior to January 1, 2018 that were intended to qualify as “performance-based compensation” under Section 162(m). The committee has the sole discretion to determine the eligible employees, directors and consultants to whom Awards are granted under the Amended and Restated LTIP and the manner in which such Awards will vest. Awards may be granted by the committee to employees, directors and consultants in such amounts (measured in cash, shares of common stock or as otherwise designated), at such times and on such terms and conditions as the committee shall determine. Subject to applicable law and the terms of the Amended and Restated LTIP, the committee is authorized to interpret the Amended and Restated LTIP, to establish, amend and rescind any rules and regulations relating to the Amended and Restated LTIP, to delegate duties under the Amended and Restated LTIP, to terminate, modify or amend the Amended and Restated LTIP (except for certain amendments that require stockholder approval as described below), and to make any other determinations that it deems necessary or desirable for the administration of the Amended and Restated LTIP. The committee may correct any defect, supply any omission or reconcile any inconsistency in the Amended and Restated LTIP in the manner and to the extent the committee deems necessary or desirable. All determinations of the committee shall be final, binding and conclusive upon all parties.
Eligibility to Participate
. The employees eligible to receive Awards under the Amended and Restated LTIP are our employees and those of our subsidiaries. Members of our Board who are not employees or consultants of us or our subsidiaries are eligible to receive Awards and individuals who provide consulting, advisory or other similar services to us or our subsidiaries are also eligible to receive Awards. As of March 8, 2018, we had 605 employees and four non-employee directors who would be eligible to participate in the Amended and Restated LTIP. While we made stock Awards to certain consultants under the Amended and Restated LTIP in connection with our initial public offering, it has not been our practice to make Awards to such individuals since that time. As of March 8, 2018, we had a small number of consultants who would have been eligible to participate in the Amended and Restated LTIP. Eligible employees, directors or consultants who are designated by the committee to receive an Award under the Amended and Restated LTIP are referred to as “participants.”
Maximum Amount of Compensation
. The The Amended and Restated LTIP provides that no participant may receive grants of share-denominated Awards during a calendar year with respect to more than 1,000,000 shares of our common stock (subject to adjustment in accordance with the terms of the Amended and Restated LTIP), and that, for dollar-denominated Awards, the maximum aggregate dollar amount that may be granted to any participant in any calendar year is limited to $10,000,000.
Number of Shares Subject to the LTIP
. The Amended and Restated LTIP would increase the number of shares of common stock available for Awards under the Amended and Restated LTIP from the number previously authorized by 11,250,000 shares. Accordingly, the aggregate maximum number of shares available for delivery under the LTIP, since its inception, would be 27,300,000 shares of common stock, subject to certain adjustments as provided in the Amended and Restated LTIP. The table below sets forth, as of March 8, 2018, the total number of shares issued, outstanding, and available for delivery under the 2014 LTIP, which would remain issued, outstanding
Amendment to LTIP to Increase
Maximum Number of Shares
and available for issuance under the Amended and Restated LTIP, which will be the only Company plan with shares available.
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Total Restricted Stock Awards Outstanding (Unvested)
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5,044,582
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Total Performance Share Unit Awards Outstanding (Unvested)(1)
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2,540,273
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Total Stock Option Awards Outstanding
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None
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Total Shares Available for Grant Under the LTIP
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1,565,978
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Total Common Shares Outstanding
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317,362,842
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(1)
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As of March 8, 2018, represents shares subject to performance share unit, or PSU, awards outstanding, assuming the payout level of 125% of the initial number of PSUs awarded.
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If an Award is surrendered, exchanged, forfeited, settled in cash or otherwise lapses, expires, terminates, or is canceled without the actual delivery of the shares, the shares subject to that Award, including (a) shares forfeited with respect to restricted stock, and (b) the number of shares withheld or surrendered in payment of taxes related to an Award (other than an option, stock appreciation right or similar appreciation-only Award), will again be available under the Amended and Restated LTIP, unless an applicable law or regulation prevents such reuse. However, to date, the Company has not made available for reuse under the Amended and Restated LTIP shares of the type identified in clause (b) above, and the number of "Total Shares Available for Grant Under the 2014 LTIP" reflected in the table above does not include any shares that have been withheld or surrendered in payment of taxes related to any Award under the 2014 LTIP. With respect to options, stock appreciation rights and any similar appreciation only Award, the following shares will not be available for future Awards under the Amended and Restated LTIP: (i) shares tendered or withheld in payment of any exercise or purchase price of such Award or taxes relating to such Award, (ii) shares that were subject to such Award that was exercised, or (iii) shares repurchased on the open market with the proceeds of such Award’s exercise price.
Source of Shares
. Common stock delivered under the Amended and Restated LTIP may come from authorized but unissued shares of our common stock, from treasury stock held by us or from previously issued shares of common stock reacquired by us, including shares purchased on the open market.
Types of Awards
. The Amended and Restated LTIP provides for the granting of restricted stock awards, restricted stock units, bonus stock, dividend equivalents, incentive stock options, nonqualified stock options, stock appreciation rights and other stock-based awards, any of which may be further designated as a performance award. To date, the Compensation Committee has approved only grants of restricted stock and restricted stock units (designated as performance share units) pursuant to the Amended and Restated LTIP.
Restricted Stock
. Restricted stock may be granted under the Amended and Restated LTIP, which means shares of our common stock are granted to an individual subject to transfer limitations, a risk of forfeiture and other restrictions imposed by the committee in its discretion. During the restricted period, the participant may not sell, assign or otherwise dispose of the restricted stock, and any stock certificate will contain an appropriate legend noting the restrictions upon such common stock until such time as all restrictions have been removed. Restrictions may lapse at such times and under such circumstances as determined by the committee. During the restricted period, the holder will have rights as a stockholder, including the right to vote the common stock subject to the Award and to receive cash dividends thereon (which may, if required by the committee be held by us during the restricted period subject to the same “vesting” terms as applicable to the underlying restricted stock Award). Unless otherwise determined by the committee, Common Stock distributed to a holder of a restricted stock Award in connection with a stock split or stock dividend, and other property (other than cash) distributed as a dividend, will be subject to restrictions and a risk of forfeiture to the same extent as the underlying restricted stock Award with respect to which such Common Stock or other property has been distributed. Unless
otherwise noted in an individual Award agreement, the Company shall have the right to repurchase or recover any Restricted Stock if the participant shall terminate employment before the end of the restrictive period or the Restricted Stock is forfeited for any other reason.
Restricted Stock Units
. Restricted stock units (“RSUs”) are rights to receive shares of common stock, cash or a combination thereof at the end of a specified period. The committee may subject RSUs to restrictions (which
Amendment to LTIP to Increase
Maximum Number of Shares
may include a risk of forfeiture) to be specified in the Award agreement and such restrictions may lapse at such times determined by the committee. RSUs granted under the Amended and Restated LTIP subject to certain specified performance conditions are referred to as “performance share units.” RSUs may be satisfied by delivery of shares of common stock, cash equal to the fair market value of the specified number of shares of common stock covered by the RSUs, or any combination thereof determined by the committee at the date of grant or thereafter. Dividend equivalents on the specified number of shares of common stock covered by RSUs will either be paid on the dividend payment date with respect to such RSUs in cash or in shares of unrestricted common stock having a fair market value equal to the amount of such dividends or deferred with respect to such RSUs and the amount or value thereof automatically deemed reinvested in additional RSUs or other Awards, unless otherwise determined by the Committee on the date of grant.
Bonus Stock
. Bonus stock Awards may be granted to eligible individuals. Each bonus stock Award will constitute a transfer of unrestricted shares of common stock on terms and conditions determined by the committee.
Dividend Equivalents
. Dividend equivalents may be granted to eligible individuals, entitling the participant to receive cash, common stock, other Awards or other property equal in value to dividends paid with respect to a specified number of shares of common stock, or other periodic payments at the discretion of the committee. Dividend equivalents may be awarded on a freestanding basis or in connection with another Award. The committee may provide that dividend equivalents will be payable or distributed when accrued, deferred until a later payment date or deemed reinvested in additional common stock, Awards, or other investment vehicles. The committee will specify any restrictions on transferability and risks of forfeiture imposed upon dividend equivalents.
Stock Options
. Stock options to purchase one or more shares of our common stock may be granted under the Amended and Restated LTIP. The committee may determine to grant stock options that are either incentive stock options governed by Section 422 of the Internal Revenue Code, or stock options that are not intended to meet these requirements (called “nonstatutory options”). The committee will determine the specific terms and conditions of any stock option at the time of grant. The exercise price of any stock option will not be less than 100% of the fair market value of our common stock on the date of the grant (other than in limited situations pertaining to substitute Awards), and in the case of an incentive stock option granted to an eligible employee that owns more than 10% of our common stock, the exercise price will not be less than 110% percent of the fair market value of our common stock on the date of grant. The term for a stock option may not exceed 10 years. The committee will determine the methods and form of payment for the exercise price of an Option (including, in the discretion of the committee, payment in common stock, other Awards, or other property) and the methods and forms in which common stock will be delivered to a participant. The committee will determine at the time of a grant whether to require forfeiture of the options upon a termination of employment for any reason.
Stock Appreciation Rights
. The committee may grant stock appreciation rights (or “SARs”) independent of or in connection with a stock option. The exercise price per share of an SAR will be an amount determined by the committee. However, SARs must generally have an exercise price not less than the fair market value of the common stock on the date the SAR is granted. Generally, each SAR will entitle a participant upon exercise to an amount equal to (i) the excess of (a) the fair market value of one share of common stock on the exercise date over (b) the exercise price, times (ii) the number of shares of common stock covered by the SAR. Payment shall be made in common stock or in cash, or partly in common stock and partly in cash, as determined by the committee. The term of an SAR may not exceed 10 years.
Other Stock-Based Awards
. Other stock-based Awards may be granted that consist of a right denominated in or payable in, valued in whole or in part by reference to, or otherwise based on or related to shares of our common stock, subject to applicable legal limitations and the terms of the Amended and Restated LTIP. In the discretion of the committee, other stock-based Awards may be subject to such vesting and other terms as the committee may establish, including performance goals. Cash Awards may be granted as an element of or a supplement to any other stock-based Awards permitted under the Amended and Restated LTIP.
Performance Awards
. The committee may designate that certain Awards granted under the Amended and Restated LTIP constitute “performance” Awards. A performance Award is any Award the grant, vesting, exercise or settlement of which is subject to one or more performance standards. If an Award that was granted prior to January 1, 2018 is held by an eligible person who is a Covered Employee under Section 162(m) of the Code or the regulations thereunder is intended to qualify as “performance-based compensation” under such section, then the
Amendment to LTIP to Increase
Maximum Number of Shares
exercise, vesting and/or settlement of such Award will be contingent upon the achievement of one or more pre-established performance goals based on one or more of the business criteria described in the Amended and Restated LTIP for purposes of complying with the Requirements of Section 162(m) of the Code. With respect to Awards granted prior to January 1, 2018 that were intended to constitute “performance-based compensation,” performance goals were designed to be objective, “substantially uncertain” of achievement at the date of grant and to otherwise meet the requirements of Section 162(m) and regulations thereunder. Performance goals may vary among Award recipients or among Awards to the same recipient. Performance goals will be established not later than 90 days after the beginning of any performance period applicable to such Awards
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The committee may establish an unfunded pool for purposes of measuring performance against performance goals. Settlement of performance pool Awards may be in common stock, cash, or a combination of common stock and cash at the discretion of the committee. For awards granted prior to January 1, 2018, the committee may not increase the amount of a performance Award payable to a Covered Employee for purposes of Section 162(m) of the Code, but may exercise discretion to reduce any such Award. All determinations by the committee as to the establishment, amount and achievement of performance goals will be made in writing. With respect to Awards granted prior to January 1, 2018, the committee may not delegate any responsibility relating to such Awards granted to Covered Employees under Section 162(m) of the Code.
Tax Withholding
. We and our subsidiaries are authorized to withhold from any Award granted, or any payment relating to an Award under the Amended and Restated LTIP, including from a distribution of common stock, amounts of withholding and other taxes due or potentially payable in connection with any transaction involving an Award, and to take any other action the committee may deem advisable to enable us and participants to satisfy obligations for the payment of withholding taxes and other tax obligations related to an Award.
Subdivision or Consolidation
. In the event of certain changes to our capitalization, such as a stock split, stock combination, stock dividend, extraordinary cash dividend, exchange of shares, or other recapitalization, merger or otherwise, that result in an increase or decrease in the number of outstanding shares of common stock, appropriate adjustments will be made by the committee as to the number and price of shares subject to an Award, the number of shares available for delivery under the Amended and Restated LTIP, and the maximum individual limitations applicable to share-based Awards.
Change in Control
. Upon a “change in control” (as defined in the Amended and Restated LTIP), the committee shall have the discretion without the consent or approval of any holder to take any of the following actions: (i) accelerate the time at which Awards may be exercisable or become vested; (ii) require the surrender of an Award with or without a cash payment; or (iii) make any such adjustments as the committee determines appropriate.
Amendment
. The Board may amend, alter, suspend, discontinue or terminate the Amended and Restated LTIP at any time, subject to the approval of our stockholders if required by any state or federal law or regulation or the rules of any stock exchange; provided, that without the consent of an affected participant, no such action by the Board may materially and adversely affect the rights of such participant under any previously granted and outstanding Award. The committee may waive any conditions or rights under, or amend, alter, suspend, discontinue or terminate any Award previously granted, except as otherwise provided in the Amended and Restated LTIP; provided, that without the consent of an affected participant, no such committee action may materially and adversely affect the rights of a participant under such Award.
Term and Termination of the Amended and Restated LTIP
. No further Awards may be granted under the LTIP after May 3, 2028. The Board in its discretion may terminate the Amended and Restated LTIP at any time with respect to any shares of common stock that are not subject to previous Awards. The Amended and Restated LTIP will remain in effect until all Awards granted under the Amended and Restated LTIP have been satisfied or have expired.
Transferability of Awards
. Awards will not generally be transferable other than by will or the laws of descent and distribution, or pursuant to a qualified domestic relations order issued by a court of competent jurisdiction. An incentive stock option will not be transferable other than by will or the laws of descent and distribution. With respect to a specific nonstatutory option or SAR, in accordance with rules and procedures established by the committee from time to time, the participant may transfer, for estate planning purposes, all or part of such Award to one or more immediate family members or related family trusts or partnerships or similar entities, as determined by the
Amendment to LTIP to Increase
Maximum Number of Shares
committee. Any attempt to transfer an Award in violation of the terms of the Amended and Restated LTIP or without proper notification to the committee shall be deemed null and void, and at the discretion of the committee, may result in a forfeiture of that Award.
Clawback Policy
. The Amended and Restated LTIP and Awards issued thereunder will be subject to any written clawback policy we adopt, which policy may subject a participant’s Awards, or amounts paid or realizable under such Awards, under the Amended and Restated LTIP to reduction, cancellation, forfeiture or recoupment if certain events or wrongful conduct specified in the policy occur.
Certain Federal Income Tax Consequences
The following discussion is for general information only and is intended to summarize briefly the U.S. federal income tax consequences of certain transactions contemplated under the Amended and Restated LTIP. This description is based on current laws in effect on March 8, 2018, which are subject to change (possibly retroactively). The tax treatment of participants in the Amended and Restated LTIP may vary depending on each participant’s particular situation and may, therefore, be subject to special rules not discussed below. No attempt has been made to discuss any potential foreign, state or local tax consequences. Participants are advised to consult with a tax advisor concerning the specific tax consequences of participating in the Amended and Restated LTIP.
Tax Consequences to participants under the Amended and Restated LTIP
Stock Options and Stock Appreciation Rights
. Participants will not realize taxable income upon the grant of a stock option or a SAR, so long as the per share exercise price of the stock option or SAR is at least equal to the fair market value of the shares underlying the award on the date of grant. Upon the exercise of a nonstatutory option or a SAR, a participant will recognize ordinary compensation income (subject to withholding if an employee) in an amount equal to the excess of (i) the amount of cash and the fair market value of the common stock received, over (ii) the exercise price of the Award. A participant will generally have a tax basis in any shares of common stock received pursuant to the exercise of a nonstatutory option or SAR that equals the fair market value of such shares on the date of exercise. Subject to the discussion under “Tax Consequences to the Company” below, we will be entitled to a deduction for federal income tax purposes that corresponds as to timing and amount with the compensation income recognized by a participant under the foregoing rules. When a participant sells the common stock acquired as a result of the exercise of a nonstatutory option or SAR, any appreciation (or depreciation) in the value of the common stock after the exercise date is treated as long- or short-term capital gain (or loss) for federal income tax purposes, depending on the holding period. The common stock must be held for more than 12 months to qualify for long-term capital gain treatment.
Participants eligible to receive a stock option intended to qualify as an incentive stock option under Section 422 of the Internal Revenue Code will not recognize taxable income on the grant of an incentive stock option. Upon the exercise of an incentive stock option, a participant will not recognize taxable income, although the excess of the fair market value of the shares of common stock received upon exercise of the incentive stock option (“
ISO Stock
”) over the exercise price will increase the alternative minimum taxable income of the participant, which may cause such participant to incur alternative minimum tax. The payment of any alternative minimum tax attributable to the exercise of an incentive stock option would be allowed as a credit against the participant’s regular tax liability in a later year to the extent the participant’s regular tax liability is in excess of the alternative minimum tax for that year.
Upon the disposition of ISO Stock that has been held for the required holding period (generally, at least two years from the date of grant and one year from the date of exercise of the incentive stock option), a participant will generally recognize capital gain (or loss) equal to the excess (or shortfall) of the amount received in the disposition over the exercise price paid by the participant for the ISO Stock. However, if a participant disposes of ISO Stock that has not been held for the requisite holding period (a “Disqualifying Disposition”), the participant will recognize ordinary compensation income in the year of the Disqualifying Disposition in an amount equal to the amount by which the fair market value of the ISO Stock at the time of exercise of the incentive stock option (or, if less, the amount realized in the case of an arm’s length disposition to an unrelated party) exceeds the exercise price paid by the participant for such ISO Stock. A participant would also recognize capital gain to the extent the amount realized in the Disqualifying Disposition exceeds the fair market value of the ISO Stock on the exercise date. If the exercise price paid for the ISO Stock exceeds the amount realized (in the case of an arm’s-length disposition to an unrelated party), such excess would ordinarily constitute a capital loss.
Amendment to LTIP to Increase
Maximum Number of Shares
We will generally not be entitled to any federal income tax deduction upon the grant or exercise of an incentive stock option, unless a participant makes a Disqualifying Disposition of the ISO Stock. If a participant makes a Disqualifying Disposition, we will then, subject to the discussion below under “Tax Consequences to the Company,” be entitled to a tax deduction that corresponds as to timing and amount with the compensation income recognized by a participant under the rules described in the preceding paragraph.
Under current rulings, if a participant transfers previously held shares of common stock (other than ISO Stock that has not been held for the requisite holding period) in satisfaction of part or all of the exercise price of a stock option, whether a nonstatutory option or an incentive stock option, no additional gain will be recognized on the transfer of such previously held shares in satisfaction of the nonstatutory option or incentive stock option exercise price (although a participant would still recognize ordinary compensation income upon exercise of an nonstatutory option in the manner described above). Moreover, that number of shares of common stock received upon exercise which equals the number of shares of previously held common stock surrendered in satisfaction of the nonstatutory option or incentive stock option exercise price will have a tax basis that equals, and a capital gains holding period that includes, the tax basis and capital gains holding period of the previously held shares of common stock surrendered in satisfaction of the nonstatutory option or incentive stock option exercise price. Any additional shares of common stock received upon exercise will have a tax basis that equals the amount of cash (if any) paid by the participant, plus the amount of compensation income recognized by the participant under the rules described above.
The Amended and Restated LTIP generally prohibits the transfer of Awards other than by will or according to the laws of descent and distribution or pursuant to a qualified domestic relations order, but the LTIP allows the committee to permit the transfer of Awards (other than incentive stock options) in limited circumstances, in its discretion. For income and gift tax purposes, certain transfers of nonstatutory options should generally be treated as completed gifts, subject to gift taxation.
The Internal Revenue Service has not provided formal guidance on the income tax consequences of a transfer of nonstatutory options (other than in the context of divorce) or SARs. However, the Internal Revenue Service has informally indicated that after a transfer of stock options (other than in the context of divorce pursuant to a domestic relations order), the transferor will recognize income, which will be subject to withholding, and FICA/FUTA taxes will be collectible at the time the transferee exercises the stock options. If a nonstatutory option is transferred pursuant to a domestic relations order, the transferee will recognize ordinary income upon exercise by the transferee, which will be subject to withholding, and FICA/FUTA taxes (attributable to and reported with respect to the transferor) will be collectible from the transferee at such time.
In addition, if a participant transfers a vested nonstatutory option to another person and retains no interest in or power over it, the transfer is treated as a completed gift. The amount of the transferor’s gift (or generation-skipping transfer, if the gift is to a grandchild or later generation) equals the value of the nonstatutory option at the time of the gift. The value of the nonstatutory option may be affected by several factors, including the difference between the exercise price and the fair market value of the stock, the potential for future appreciation or depreciation of the stock, the time period of the nonstatutory option and the illiquidity of the nonstatutory option. The transferor will be subject to a federal gift tax, which will be limited by (i) the annual exclusion of $15,000 per donee (for 2018, subject to adjustment in future years), (ii) the transferor’s lifetime unified credit, or (iii) the marital or charitable deductions. The gifted nonstatutory option will not be included in the participant’s gross estate for purposes of the federal estate tax or the generation-skipping transfer tax.
This favorable tax treatment for vested nonstatutory options has not been extended to unvested nonstatutory options. Whether such consequences apply to unvested nonstatutory options or to SARs is uncertain and the gift tax implications of such a transfer is a risk the transferor will bear upon such a disposition.
Other Awards: Cash Awards, Restricted Stock Units, Dividend Equivalents, Restricted Stock and Bonus Stock
. A participant will recognize ordinary compensation income upon receipt of cash pursuant to a cash award or, if earlier, at the time the cash is otherwise made available for the participant to draw upon. Individuals will not have taxable income at the time of grant of a restricted stock unit (including a performance share unit or PSU), but rather, will generally recognize ordinary compensation income at the time he or she receives cash or shares of common stock in settlement of the restricted stock unit award, as applicable, in an amount equal to the cash or the fair
Amendment to LTIP to Increase
Maximum Number of Shares
market value of the common stock received. The dividend equivalents, if any, received with respect to a restricted stock unit or other Award will be taxable as ordinary compensation income, not dividend income, when paid.
A recipient of restricted stock or bonus stock generally will be subject to tax at ordinary income tax rates on the fair market value of the common stock when it is received, reduced by any amount paid by the recipient; however, if the common stock is not transferable and is subject to a substantial risk of forfeiture when received, a participant will recognize ordinary compensation income in an amount equal to the fair market value of the common stock (i) when the common stock first becomes transferable and is no longer subject to a substantial risk of forfeiture, in cases where a participant does not make a valid election under Section 83(b) of the Internal Revenue Code, or (ii) when the Award is received, in cases where a participant makes a valid election under Section 83(b) of the Internal Revenue Code. If a Section 83(b) election is made and the shares are subsequently forfeited, the recipient will not be allowed to take a deduction for the value of the forfeited shares. If a Section 83(b) election has not been made, any dividends received with respect to restricted stock that is subject at that time to a risk of forfeiture or restrictions on transfer generally will be treated as compensation that is taxable as ordinary income to the recipient; otherwise the dividends will be treated as dividends.
A participant who is an employee will be subject to withholding for federal, and generally for state and local, income taxes at the time he recognizes income under the rules described above. The tax basis in the common stock received by a participant will equal the amount recognized by him as compensation income under the rules described in the preceding paragraph, and the participant’s capital gains holding period in those shares will commence on the later of the date the shares are received or the restrictions lapse. Subject to the discussion below under “Tax Consequences to the Company,” we will be entitled to a deduction for federal income tax purposes that corresponds as to timing and amount with the compensation income recognized by a participant under the foregoing rules.
Code Section 409A.
Awards under the Amended and Restated LTIP are intended to be designed, granted and administered in a manner that is either exempt from the application of or complies with the requirements of Section 409A of the Internal Revenue Code in an effort to avoid the imposition of taxes and/or penalties. To the extent that an Award under the Amended and Restated LTIP fails to comply with Section 409A, such Award will to the extent possible be modified to comply with such requirements.
Tax Consequences to the Company
Reasonable Compensation
. In order for the amounts described above to be deductible by the Company (or a subsidiary), such amounts must constitute reasonable compensation for services rendered or to be rendered and must be ordinary and necessary business expenses.
Golden Parachute Payments
. The ability of the Company (or the ability of one of our subsidiaries) to obtain a deduction for future payments under the Amended and Restated LTIP could also be limited by the golden parachute rules of Section 280G of the Internal Revenue Code, which prevent the deductibility of certain excess parachute payments made in connection with a change in control of an employer-corporation.
Performance-Based Compensation
. The ability of the Company (or the ability of one of our subsidiaries) to obtain a deduction for amounts paid under the Amended and Restated LTIP could be limited by Section 162(m). Section 162(m) limits our ability to deduct compensation, for federal income tax purposes, paid during any year to a Covered Employee in excess of $1,000,000. However, for awards granted prior to January 1, 2018, an exception may apply to this limitation in the case of certain “performance-based compensation.” In order to exempt “performance-based compensation” (or “Section 162(m) Awards”) from the $1,000,000 deductibility limitation, the grant, vesting, exercise or settlement of the Award must be based on the satisfaction of one or more performance goals selected by the Committee and certain other requirements must be met, including stockholder approval requirements.
The above summary relates to U.S. federal income tax consequences only and applies to U.S. citizens and foreign persons who are U.S. residents for U.S. federal income tax purposes.
Amendment to LTIP to Increase
Maximum Number of Shares
New Plan Benefits
The future Awards, if any, that will be made to eligible individuals under the Amended and Restated LTIP are subject to the discretion of the committee, and thus we cannot currently determine the benefits or number of shares subject to Awards that may be granted to participants in the future under the Amended and Restated LTIP. Therefore, the New Plan Benefits Table is not provided.
Required Vote for Approval
The affirmative vote of the holders of a majority of the shares cast in respect of the proposal is required for approval of Item 4. For purposes of this Item 4, abstentions are treated as votes cast and will have the same effect as a vote against the proposal (in accordance with applicable NYSE standards). If you own shares through a bank, broker or other holder of record, you must instruct your bank, broker or other holder of record how to vote in order for them to vote your shares so that your vote can be counted on this proposal.
Recommendation of our Board of Directors
The Board of Directors unanimously recommends that stockholders vote "FOR" the approval of the Amended and Restated LTIP.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information regarding the shares of our common stock that may be issued under our existing equity compensation plan, the 2014 LTIP, as of December 31, 2017. The number of securities reported in column (c) as available for future issuance does not include any of the Additional Shares that stockholders are being asked to approve at the 2018 Annual Meeting.
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Equity Compensation Plan Information as of December 31, 2017
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Plan category
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Number of securities to be issued upon exercise of outstanding options, warrants and rights(a)
|
Weighted-average exercise price of outstanding options, warrants and rights(b)
|
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a))(c)
|
Equity compensation plans approved by security holders
|
3,745,420(2)
|
0
|
|
3,788,166(3)
|
Equity compensation plans not approved by security holders (1)
|
0
|
0
|
|
0
|
Total
|
3,745,420(2)
|
$
|
—
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|
3,788,166(3)
|
(1) The 2010 Long Term Incentive Plan, or LTIP, was originally adopted prior to the completion of our initial public offering in June 2010 and was not required to be approved by our public stockholders. On May 4, 2015, at our 2015 Annual Meeting, and on May 4, 2016, at our 2016 Annual Meeting, the stockholders approved increases in the number of shares available under the Amended and Restated 2010 Long Term Incentive Plan and material plan terms for purposes of complying with the requirements of Section 162(m) of the Internal Revenue Code.
(2) Represents shares subject to performance share unit, or PSU, awards granted under the LTIP in 2014, 2015, 2016, and 2017 as of December 31, 2017, assuming the maximum payout level of 200% of the initial number of PSUs awarded. If the PSUs are paid at the target payout level of 125% of the initial number of PSUs awarded, 2,340,888 shares would be issued upon the vesting of such PSUs, and 5,192,698 shares would have been available for future issuance, as of December 31, 2017. There is no weighted-average exercise price with respect to the PSU awards.
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(3)
|
Does not take into account grants under the 2014 LTIP in January 2018. For awards outstanding and shares remaining available for issuance under the 2014LTIP as of the Record Date, please see the chart in this Item above.
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Amendment to Certificate of Incorporation
to Increase Authorized Common Stock
ITEM 5 - APPROVAL OF THE AMENDMENT OF THE COMPANY'S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF THE COMPANY'S COMMON STOCK
Background and Purpose of the Proposal
The Board of Directors has approved a proposal to amend the Company’s Amended and Restated Certificate of Incorporation to increase the number of authorized shares of the Company’s Common Stock from 450 million to 900 million. If adopted by the stockholders, this amendment would become effective upon filing of an appropriate certificate of amendment with the Secretary of State of the State of Delaware. The proposed amendment would replace the first paragraph of Article Fourth of the Amended and Restated Certificate of Incorporation with the following language:
“The total number of shares of stock which the Corporation shall have authority to issue is 950,000,000 shares of capital stock, classified as (i) 50,000,000 shares of preferred stock, par value $0.01 per share (“
Preferred Stock
”), and (ii) 900,000,000 shares of common stock, par value $0.01 per share (“
Common Stock
”).”
The Board of Directors believes it is in the best interest of the Company to increase the number of authorized shares of Common Stock in order to give the Company greater flexibility in considering and planning for future corporate needs, including, but not limited to, financings, potential strategic transactions, including mergers, acquisitions and business combinations, grants under equity compensation plans, stock dividends, and stock splits, as well as other general corporate transactions. The Board of Directors believes that additional authorized shares of Common Stock will enable the Company to take timely advantage of market conditions and favorable financing and acquisition opportunities that become available to the Company without the delay and expense associated with convening a special meeting of the Company’s stockholders.
The Company has no current plan, commitment, arrangement, understanding or agreement regarding the issuance of the additional shares of Common Stock that will result from the Company’s adoption of the proposed amendment. Except as otherwise required by law or by a regulation of the New York Stock Exchange, the newly authorized shares of Common Stock will be available for issuance at the discretion of the Board of Directors (without further action by the stockholders) for various future corporate needs, including those outlined above. While adoption of the proposed amendment would not have any immediate dilutive effect on the proportionate voting power or other rights of the Company’s existing stockholders, any future issuance of additional authorized shares of the Company’s Common Stock may, among other things, dilute the earnings per share of the Common Stock and the equity and voting rights of those holding Common Stock at the time the additional shares are issued.
In addition to the corporate purposes mentioned above, an increase in the number of authorized shares of the Company’s Common Stock may make it more difficult to, or discourage an attempt to, obtain control of the Company by means of a takeover bid that the Board of Directors determines is not in the best interest of the Company and its stockholders. However, the Board of Directors does not intend or view the proposed increase in the number of authorized shares of the Company’s Common Stock as an anti-takeover measure and is not aware of any attempt or plan to obtain control of the Company.
Any newly authorized shares of the Company’s Common Stock will be identical to the shares of Common Stock now authorized and outstanding. The proposed amendment will not affect the rights of current holders of the Company’s Common Stock, none of whom have preemptive or similar rights to acquire the newly authorized shares.
Vote Required for Approval
The affirmative vote of the holders of at least two-thirds in voting power of the outstanding shares of stock of the Corporation is required for approval of Item 5. For purposes of this Item 5, abstentions will have the effect of a vote against the proposal. If you own shares through a bank, broker or other holder of record, you must instruct your bank, broker or other holder of record how to vote in order for them to vote your shares so that your vote can be counted on this proposal.
Recommendation of our Board of Directors
The Board of Directors unanimously recommends a vote “FOR” the proposed amendment to increase the number of authorized shares of the Company’s Common Stock from 450 million to 900 million.
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
When and where is the Annual Meeting?
The Annual Meeting will be held at Hotel Alessandra, 1070 Dallas Street, Houston, Texas 77010, on Thursday, May 3, 2018, at 9:00 a.m. Central Time.
Who may vote?
You may vote if you were a holder of record of the Company's common stock as of the close of business on March 8, 2018, the record date for the Annual Meeting. Each share of the Company's common stock is entitled to one vote at the Annual Meeting. On the record date, there were 317,362,842 shares of common stock outstanding and entitled to vote at the Annual Meeting. There are no cumulative voting rights associated with the Company's common stock.
May I attend the Annual Meeting?
Yes. Cameras, recording devices, cell phones and other electronic devices may not be used during the Annual Meeting.
Why did I receive the proxy materials in the mail?
This year, we are providing all of our stockholders, including those who have previously requested to receive paper copies of the proxy materials, with paper copies of the proxy materials.
How can I access the proxy materials over the Internet?
Your Notice or proxy card will contain instructions on how to view our proxy materials for the Annual Meeting on the Internet. Our proxy materials are also available at http://www.proxyvote.com.
What am I voting on and how does the Board recommend that I vote?
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Proposal
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Board Vote Recommendation
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Item 1 — Election of Directors
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FOR
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Item 2 — Ratification of PricewaterhouseCoopers LLP as the Company's independent registered public accounting firm for 2018
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FOR
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Item 3 — Advisory vote to approve the Company's Named Executive Officer 2017 compensation
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FOR
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Item 4 — Approval of Amended and Restated 2010 Long Term Incentive Plan, including to increase the number of shares available for issuance by 11,250,000 shares
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FOR
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Item 5 — Approval of amendment to the Amended and Restated Certificate of Incorporation to increase the number of authorized common shares
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FOR
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A Proxy that is properly completed and submitted will be voted at the Annual Meeting in accordance with the instructions on the Proxy. If you properly complete and submit a Proxy, but do not indicate any contrary voting instructions, your shares will be voted in accordance with the Board's recommendation. If any other business properly comes before the stockholders for a vote at the meeting, your shares will be voted in accordance with the discretion of the holders of the Proxy. The Board of Directors knows of no matters, other than those previously stated, to be presented for consideration at the Annual Meeting.
What is the effect of an “advisory” vote?
An advisory vote is not binding on our Board of Directors or the Compensation Committee, will not overrule any decisions made by our Board of Directors or the Compensation Committee, and will not require our Board of Directors or the Compensation Committee to take any specific action. Although the vote is non-binding, our Board of Directors and the Compensation Committee value the opinions of our stockholders, and will carefully consider the outcome of the vote when making future compensation decisions for our Named Executive Officers. In particular, to the extent there is any significant vote against our Named Executive Officers’ compensation as disclosed in this
proxy statement, we will consider our stockholders’ concerns, and the Compensation Committee will evaluate whether any actions are necessary to address those concerns.
Why should I vote?
Your vote is very important regardless of the amount of stock you hold. The Board strongly encourages you to exercise your right to vote as a stockholder of the Company.
How do I vote?
You may vote by any of the four methods listed below. If your stock is held in street name (in the name of a bank, broker, or other holder of record), please see "How do beneficial owners vote?" below.
:
Internet
. Vote on the Internet at http://www.proxyvote.com. This website also allows electronic proxy voting using smartphones, tablets and other web-connected mobile devices (additional charges may apply pursuant to your service provider plan). Simply follow the instructions on the proxy card you received by mail and you can confirm that your vote has been properly recorded. If you vote on the Internet, you can request electronic delivery of future proxy materials. Internet voting facilities for stockholders of record will be available 24 hours a day and will close at 11:59 p.m. (Eastern Time) on Wednesday, May 2, 2018.
(
Telephone
. Vote by telephone by following the instructions on the proxy card. Easy-to-follow voice prompts allow you to vote your stock and confirm that your vote has been properly recorded. Telephone voting facilities for stockholders of record will be available 24 hours a day and will close at 11:59 p.m. (Eastern Time) on Wednesday, May 2, 2018.
,
Mail
. If you received a proxy card by mail, vote by mail by completing, signing, dating and returning your proxy card in the pre-addressed, postage-paid envelope provided. If you vote by mail and your proxy card is returned unsigned, then your vote cannot be counted. If you vote by mail and the returned proxy card is signed without indicating how you want to vote, then your proxy will be voted as recommended by the Board. If mailed, your completed and signed proxy card must be received by May 9, 2017.
C
Meeting
. You may attend and vote at the Annual Meeting.
The Board recommends that you vote using one of the first three methods discussed above, as it is not practical for most stockholders to attend and vote at the Annual Meeting. Using one of the first three methods discussed above to vote will not limit your right to vote at the Annual Meeting if you later decide to attend in person.
If I vote by telephone or Internet and received a proxy card in the mail, do I need to return my proxy card?
No.
If I vote by mail, telephone or Internet, may I still attend the Annual Meeting?
Yes.
How do beneficial owners vote?
If your shares are held in a brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in “street name,” and the proxy materials will be forwarded to you by your broker or nominee. The broker or nominee is considered the stockholder of record with respect to those shares. As the beneficial owner, you have the right to direct your broker how to vote. Beneficial owners that receive the proxy materials by mail from the stockholder of record should follow the instructions included in those materials (usually a voting instruction card) to transmit voting instructions.
Can I revoke my proxy?
Yes. You may revoke your proxy before the voting polls are closed at the Annual Meeting, by the following methods:
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•
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voting at a later time by Internet or telephone until 11:59 p.m. (Eastern Time) on Wednesday, May 2, 2018;
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•
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voting in person at the Annual Meeting;
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•
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delivering to the Company's Corporate Secretary a proxy with a later date or a written revocation of your most recent proxy; or
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•
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giving notice to the inspector of elections at the Annual Meeting.
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If you are a street name stockholder (for example, if your shares are held in the name of a bank, broker, or other holder of record) and you vote by proxy, you may later revoke your proxy by informing the holder of record in accordance with that entity’s procedures.
How many votes must be present to hold the Annual Meeting?
Your stock is counted as present at the Annual Meeting if you attend the Annual Meeting and vote in person or if you properly return a proxy by Internet, telephone or mail. In order for us to hold our Annual Meeting, holders of a majority of our common stock entitled to vote must be present in person or by proxy at the Annual Meeting. This is referred to as a quorum. Abstentions and broker non-votes will be counted as present for purposes of determining a quorum.
If a quorum is not present, a majority of the stockholders entitled to vote who are present in person or by Proxy at the Annual Meeting have the power to adjourn the Annual Meeting from time to time, without notice other than an announcement at the Annual Meeting, until a quorum is present. At any adjourned Annual Meeting at which a quorum is present, any business may be transacted that might have been transacted at the Annual Meeting as originally notified.
What is a broker non-vote?
The NYSE permits brokers to vote their customers’ stock held in street name on routine matters ("Discretionary Items") when the brokers have not received voting instructions from their customers. The NYSE does not, however, allow brokers to vote their customers’ stock held in street name on non-routine matters unless they have received voting instructions from their customers. In such cases, the uninstructed shares for which the broker is unable to vote are called broker non-votes.
What routine matters will be voted on at the Annual Meeting?
Item 2, the ratification of the independent auditor, and Item 5, the amendment to the certificate of formation to increase the number of authorized common shares, are the only routine matters on which brokers may vote in their discretion on behalf of customers who have not provided voting instructions.
What non-routine matters will be voted on at the Annual Meeting?
Item 1, the election of directors, Item 3, the advisory vote to approve our NEO compensation, and Item 4, the amendment to the LTIP to increase shares available for issuance, are non-routine matters on which brokers are not allowed to vote unless they have received voting instructions from their customers.
How many votes are needed to approve each of the proposals or, with respect to the advisory vote, to be considered the recommendation of the stockholders?
The Board recommends a vote FOR each of the following five Items:
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Proposal
|
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Vote
Required
|
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Page Number
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|
|
|
|
|
Item 1 — Election of Directors
|
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Plurality of shares cast
Director Resignation Policy - Directors required to submit resignation to the Board if more "withheld" votes than "for" votes are received
Effect of Abstentions - None
Effect of Broker Non-vote - None
|
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2
|
Item 2 — Ratification of PricewaterhouseCoopers LLP as the Company's independent registered public accounting firm for 2018
|
|
Majority of shares present
Effect of Abstentions - vote against
No Broker Non-votes - Discretionary Item
|
|
67
|
Item 3 — Advisory vote to approve the Company's Named Executive Officer 2017 compensation
|
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Majority of shares present
Effect of Abstentions - vote against
Effect of Broker Non-vote - None
|
|
68
|
Item 4 — Item 4 — Approval of Amended and Restated 2010 Long Term Incentive Plan, including to increase the number of shares available for issuance by 11,250,000 shares
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Majority of shares cast
Effect of Abstentions - vote against
Effect of Broker Non-vote - None
|
|
70
|
Item 5 — Approval of amendment to the Amended and Restated Certificate of Incorporation to increase the number of authorized common shares
|
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Two-thirds outstanding shares
Effect of Abstentions - vote against
No Broker Non-votes - Discretionary Item
|
|
80
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Each of Items 2 through 4 will be approved if it receives the affirmative vote of a majority of the stock entitled to vote and present in person or by proxy at the Annual Meeting; Item 5 requires a two-thirds majority of outstanding shares.
Although the advisory vote on our Named Executive Officer compensation is non-binding, the Board will review the results of such votes and, consistent with our record of stockholder engagement, will take the results into account when making decisions going forward. Except as otherwise provided above, abstentions are counted as votes present and entitled to vote and have the same effect as votes against a proposal. Broker non-votes are not counted as either votes for or votes against a proposal. Both abstentions and broker non-votes are counted in determining that a quorum is present for the meeting.
Could other matters be decided at the Annual Meeting?
We are not aware of any matters that will be considered at the Annual Meeting other than those set forth in this proxy statement. However, if any other matters arise at the Annual Meeting, the persons named in your proxy will vote in accordance with their best judgment.
What is the Director Resignation Policy?
The Company’s bylaws provide for the election of directors by a plurality of votes cast; however in 2015, the Board of Directors approved an amendment to the Corporate Governance Guidelines to implement a director resignation policy whereby a director nominee in an uncontested election who receives more votes "withheld" than votes "for" his election is required to tender his resignation to the Board of Directors for its consideration. In such event, the Nominating and Governance Committee would determine whether to accept such director’s resignation, subject to the Board of Directors’ final approval. Promptly following its decision, the Board will publicly disclose its decision together with a description of the process by which the decision was reached. Company believes that this
majority vote standard ensures accountability while preserving the ability of the Board to exercise its judgment in the best interest of all stockholders. Abstentions will not be taken into account in director elections.
Where can I find the voting results of the Annual Meeting?
We will announce the preliminary voting results at the Annual Meeting and disclose the final voting results in a current report on Form 8-K filed with the SEC within four business days of the date of the Annual Meeting unless only preliminary voting results are available at that time. To the extent necessary, we will file an amended report on Form 8-K to disclose the final voting results within four business days after the final voting results are known. You may access or obtain a copy of these and other reports free of charge on the Company’s website at http://www.oasispetrolem.com. Also, the referenced Form 8-K, any amendments thereto and other reports filed with or furnished to the SEC by the Company are available to you over the Internet at the SEC’s website at http://www.sec.gov.
How can I view the stockholder list?
In accordance with Delaware General Corporation Law, a complete list of stockholders of record entitled to vote at the Annual Meeting will be available for viewing, for purposes germane to the Annual Meeting, during ordinary business hours for a period of ten days before the Annual Meeting at our offices at 1001 Fannin Street, Suite 1500, Houston, Texas 77002.
Who pays for the proxy solicitation related to the Annual Meeting?
The Company will bear all costs of solicitation. Solicitation of Proxies may be made via the Internet, by mail, personal interview or telephone by officers, directors and regular employees of the Company. None of our officers or employees will receive any extra compensation for soliciting you. The Company may also request banking institutions, brokerage firms, custodians, nominees and fiduciaries to forward solicitation material to the beneficial owners of the common stock that those companies or persons hold of record, and the Company will reimburse the forwarding expenses. In addition, the Company has retained Broadridge Financial Solutions, Inc. (“Broadridge”) to tabulate votes for a fee estimated not to exceed $10,000. The Company will bear all costs of solicitation.
Who will tabulate and certify the vote?
Broadridge Financial Solutions, Inc., an independent third party, will tabulate and certify the vote, and will have a representative to act as the independent inspector of elections for the Annual Meeting.
If I want to submit a stockholder proposal for the 2019 Annual Meeting, when is that proposal due?
If you are an eligible stockholder and want to submit a proposal for possible inclusion in the proxy statement relating to the 2019 Annual Meeting, your proposal must be delivered to the attention of our Corporate Secretary and must be received at our principal executive office, 1001 Fannin Street, Suite 1500, Houston, Texas 77002, no later than December , 2018, unless the Company notifies the stockholders otherwise. We will only consider proposals that are timely and meet the requirements of the applicable rules of the SEC and our Amended and Restated Bylaws.
Any stockholder of the Company who desires to submit a proposal for action at the 2019 Annual Meeting, but does not wish to have such proposal included in the Company's proxy materials, must submit such proposal to the Company at its principal executive offices so that it is received between January 4, 2019 and February 3, 2019, unless the Company notifies the stockholders otherwise. In addition to being proper for stockholder action and in compliance with applicable law, such proposal must be submitted in accordance with, and include the information and materials required by, the Company's Amended and Restated Bylaws and, to the extent applicable, Certificate of Incorporation.
If I want to nominate a director for the 2019 Annual Meeting, when is that nomination due?
The Nominating and Governance Committee will consider any nominee recommended by stockholders for election at the annual meeting of stockholders to be held in 2019 if that nomination is submitted in writing, between January 4, 2019 and February 3, 2019, to the Corporate Secretary at Company's principal executive office. With respect to each such nominee, the following information must be provided to the Company with the written nomination: (i) information about the nominee which is required to be disclosed pursuant to the rules and
regulations of the Securities and Exchange Commission, including Regulation 14A of the Securities Exchange Act of 1934; and (ii) information and materials required by, the Company's Amended and Restated Bylaws and, to the extent applicable, Certificate of Incorporation.
How can I obtain a copy of the Annual Report on Form 10-K?
Stockholders may request a free copy of our Annual Report on Form 10-K by submitting such request to Investor Relations, Oasis Petroleum Inc., 1001 Fannin Street, Suite 1500, Houston, Texas, 77002, or by calling (281) 404-9600. Alternatively, stockholders can access our Annual Report on Form 10-K on the Company's website at www.oasispetroleum.com. Also, our Annual Report on Form 10-K and other reports filed by the Company with the SEC are available to you over the Internet at the SEC’s website at www.sec.gov.
Will I get more than one copy of the proxy statement and annual report if there are multiple stockholders at my address?
One copy of this proxy statement and our Annual Report on Form 10-K (the “Proxy Materials”) will be sent to stockholders who share an address, unless they have notified the Company that they want to continue receiving multiple packages. A copy of the Proxy Materials will also be sent upon written or oral request to any stockholder of a shared address to which a single copy of the Proxy Materials was delivered. If two or more stockholders with a shared address are currently receiving only one copy of the Proxy Materials, then the stockholders may request to receive multiple packages in the future, or if a stockholder is currently receiving multiple packages of the Proxy Materials, then the stockholder may request to receive a single copy in the future. Such requests may be made by writing to Investor Relations, Oasis Petroleum Inc., 1001 Fannin Street, Suite 1500, Houston, Texas 77002 or by calling (281) 404-9600.
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IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO VOTE BY INTERNET, BY PHONE OR IF YOU HAVE RECEIVED PAPER COPIES OF THE PROXY MATERIAL, BY COMPLETING, SIGNING AND RETURNING THE PROXY IN THE ENCLOSED POSTAGE-PAID, ADDRESSED ENVELOPE.
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By Order of the Board of Directors
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Nickolas J. Lorentzatos
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Corporate Secretary
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Houston, Texas
April , 2018
OASIS PETROLEUM INC.
Amended and Restated
2010 Long Term Incentive Plan
1.
Purpose
. The purpose of the Oasis Petroleum Inc. Amended and Restated 2010 Long Term Incentive Plan (the “
Plan
”) is to provide a means through which Oasis Petroleum Inc., a Delaware corporation (the “
Company
”), and its Subsidiaries may attract and retain able persons as employees, directors and consultants and provide a means whereby those persons, upon whom the responsibilities of the successful administration and management rest and whose present and potential contributions to the welfare of the Company and its Subsidiaries are of importance, can acquire and maintain stock ownership or awards, the value of which is tied to the performance of the Company, thereby strengthening their concern for the welfare of the Company and its Subsidiaries and their desire to remain employed. A further purpose of this Plan is to provide such employees, directors and consultants with additional incentive and reward opportunities designed to enhance the profitable growth of the Company. Accordingly, this Plan primarily provides for the granting of Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Restricted Stock Units, Bonus Stock, Dividend Equivalents, and Other Stock-Based Awards, any of which may be further designated as Performance Awards.
2.
Definitions
. For purposes of this Plan, the following terms shall be defined as set forth below, in addition to such terms defined in Section 1 hereof:
(a)
“
Award
” means any Option, SAR (including Limited SAR), Restricted Stock Award, Restricted Stock Unit, Bonus Stock, Dividend Equivalent or Other Stock-Based Award, including any of the foregoing that is designated as a Performance Award, together with any other right or interest granted to a Participant under this Plan.
(b)
“
Beneficiary
” means one or more persons, trusts or other entities which have been designated by a Participant, in his or her most recent written beneficiary designation filed with the Committee, to receive the benefits specified under this Plan upon such Participant’s death or to which Awards or other rights are transferred if and to the extent permitted under Section 10(a) hereof. If, upon a Participant’s death, there is no designated Beneficiary or surviving designated Beneficiary, then the term Beneficiary means the persons, trusts or other entities entitled by will or the laws of descent and distribution to receive such benefits.
(c)
“
Board
” means the Company’s Board of Directors.
(d)
“
Bonus Stock
” means Stock granted as a bonus pursuant to Section 6(f).
(e)
“
Business Day
” means any day other than a Saturday, a Sunday, or a day on which banking institutions in the state of Texas are authorized or obligated by law or executive order to close.
(f)
“
Change in Control
” means the occurrence of any of the following events:
(i)
The consummation of an agreement to acquire or a tender offer for beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act by any Person, of 50% or more of either (x) the then outstanding shares of Stock (the “
Outstanding Stock
”) or (y) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “
Outstanding Company Voting Securities
”); provided, however, that for purposes of this paragraph (i), the following acquisitions shall not constitute a Change in Control: (A) any acquisition directly from the Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the Company or (D) any acquisition by any entity pursuant to a transaction that complies with clauses (A), (B) and (C) of paragraph (iii) below;
(ii)
Individuals who constitute the Incumbent Board cease for any reason to constitute at least a majority of the Board;
(iii)
Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or an acquisition of assets of another entity (a “
Business Combination
”), in each case, unless, following such Business Combination, (A) the Outstanding Stock and Outstanding Company Voting Securities immediately prior to such Business Combination represent or are converted into or exchanged for securities which represent or are convertible into more than 50% of, respectively, the then outstanding shares of common stock or common equity interests and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors or other governing body, as the case may be, of the
entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Company, or all or substantially all of the Company’s assets either directly or through one or more subsidiaries), (B) no Person (excluding any employee benefit plan (or related trust) of the Company or the entity resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock or common equity interests of the entity resulting from such Business Combination or the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors or other governing body of such entity except to the extent that such ownership results solely from ownership of the Company that existed prior to the Business Combination, and (C) at least a majority of the members of the board of directors or similar governing body of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or
(iv)
Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.
For purposes of an Award that provides for a deferral of compensation under the Nonqualified Deferred Compensation Rules, to the extent the impact of a Change in Control on such Award would subject a Participant to additional taxes under the Nonqualified Deferred Compensation Rules, a Change in Control for purposes of such Award will mean both a Change in Control and a “change in the ownership or effective control of a corporation, or a change in the ownership of a substantial portion of the assets of a corporation” within the meaning of the Nonqualified Deferred Compensation Rules.
(g)
“
Code
” means the Internal Revenue Code of 1986, as amended from time to time, including regulations thereunder and successor provisions and regulations thereto.
(h)
“
Committee
” means a committee of two or more directors designated by the Board to administer this Plan; provided, however, that, unless otherwise determined by the Board, the Committee shall consist solely of two or more directors, each of whom shall be a Qualified Member (except to the extent administration of this Plan by “outside directors” is not then required in order to qualify for tax deductibility under section 162(m) of the Code).
(i)
“
Covered Employee
” means an Eligible Person who is a Covered Employee as specified in Section 8(d) of this Plan.
(j)
“
Dividend Equivalent
” means a right, granted to an Eligible Person under Section 6(g), to receive cash, Stock, other Awards or other property equal in value to dividends paid with respect to a specified number of shares of Stock, or other periodic payments.
(k)
“
Effective Date
” means May 3, 2018. The 2010 Long Term Incentive Plan was originally approved by the Board on May 17, 2010 and became effective as of the closing of the Company’s initial public offering on June 16, 2010. The Plan was subsequently amended and restated effective January 1, 2014.
(l)
“
Eligible Person
” means all officers and employees of the Company or of any of its Subsidiaries, and other persons who provide services to the Company or any of its Subsidiaries, including directors of the Company. An employee on leave of absence may be considered as still in the employ of the Company or any of its Subsidiaries for purposes of eligibility for participation in this Plan.
(m)
“
Exchange Act
” means the Securities Exchange Act of 1934, as amended from time to time, including rules thereunder and successor provisions and rules thereto.
(n)
“
Fair Market Value
” means, as of any specified date, (i) if the Stock is listed on a national securities exchange, the closing sales price of the Stock, as reported on the stock exchange composite tape on that date (or if no sales occur on that date, on the last preceding date on which such sales of the Stock are so reported); (ii) if the Stock is not traded on a national securities exchange but is traded over the counter at the time a determination of its fair market value is required to be made under the Plan, the average between the reported high and low bid and asked prices of Stock on the most recent date on which Stock was publicly traded; (iii) in the event Stock is not publicly traded at the time a determination of its value is required to be made under the Plan, the amount determined by the Committee in its discretion in such manner as it deems appropriate, taking into account all factors the Committee deems appropriate including, without limitation, the Nonqualified Deferred Compensation Rules; or (iv) on the date of a Qualifying Public Offering of Stock, the offering price under such Qualifying Public Offering. Notwithstanding this definition of Fair Market Value, with respect to one or more Award types, or for any other purpose for which the Committee must determine the Fair Market Value under the Plan, the Committee may elect to choose a different measurement
date or methodology for determining Fair Market Value so long as the determination is consistent with the Nonqualified Deferred Compensation Rules and all other applicable laws and regulations.
(o)
“
Full Value Award
” shall mean any Award other than an (i) Option, (ii) Stock Appreciation Right or (iii) other Award for which the Participant pays (or the value or amount payable under the Award is reduced by) an amount equal to or exceeding the Fair Market Value of the Shares determined as of the date of grant.
(p)
“
Incentive Stock Option
” or “
ISO
” means any Option intended to be and designated as an incentive stock option within the meaning of section 422 of the Code or any successor provision thereto.
(q)
“
Incumbent Board
” means the portion of the Board constituted of the individuals who are members of the Board as of the Effective Date, and any individual who becomes a director of the Company after the Effective Date and whose election or appointment by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least a majority of the directors then comprising the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Incumbent Board.
(r)
“
Nonqualified Deferred Compensation Rules
” means the limitations or requirements of section 409A of the Code and the guidance and regulations promulgated thereunder.
(s)
“
Nonqualified Stock Option
” means any Option that is not intended to be and that is not designated as an Incentive Stock Option.
(t)
“
Option
” means a right, granted to an Eligible Person under Section 6(b) hereof, to purchase Stock or other Awards at a specified price during specified time periods.
(u)
“
Other Stock-Based Awards
” means Awards granted to an Eligible Person under Section 6(h) hereof.
(v)
“
Participant
” means a person who has been granted an Award under this Plan which remains outstanding, including a person who is no longer an Eligible Person.
(w)
“
Performance Award
” means a right, granted to an Eligible Person under Section 8 hereof, to receive Awards based upon performance criteria specified by the Committee.
(x)
“
Performance Share Unit
” means a Restricted Stock Unit that has been designated hereunder as a Performance Award.
(y)
“
Person
” means any person or entity of any nature whatsoever, specifically including an individual, a firm, a company, a corporation, a partnership, a limited liability company, a trust or other entity; a Person, together with that Person’s Affiliates and Associates (as those terms are defined in Rule 12b-2 under the Exchange Act, provided that “registrant” as used in Rule 12b-2 shall mean the Company), and any Persons acting as a partnership, limited partnership, joint venture, association, syndicate or other group (whether or not formally organized), or otherwise acting jointly or in concert or in a coordinated or consciously parallel manner (whether or not pursuant to any express agreement), for the purpose of acquiring, holding, voting or disposing of securities of the Company with such Person, shall be deemed a single “Person.”
(z)
“
Qualifying Public Offering
” means a firm commitment underwritten public offering of Stock for cash where the shares of Stock registered under the Securities Act are listed on a national securities exchange.
(aa)
“
Qualified Member
” means a member of the Committee who is a “nonemployee director” within the meaning of Rule 16b-3(b)(3) and an “outside director” within the meaning of Treasury Regulation §1.162-27 under section 162(m) of the Code.
(ab)
“
Restricted Stock
” means Stock granted to an Eligible Person under Section 6(d) hereof, that is subject to certain restrictions and to a risk of forfeiture.
(ac)
“
Restricted Stock Unit
” means a right, granted to an Eligible Person under Section 6(e) hereof, to receive Stock, cash or a combination thereof at the end of a specified vesting or deferral period.
(ad)
“
Rule 16b-3
” means Rule 16b-3, promulgated by the Securities and Exchange Commission under section 16 of the Exchange Act, as from time to time in effect and applicable to this Plan and Participants.
(ae)
“
Section 162(m) Award
” shall mean a Performance Award granted prior to January 1, 2018 under Section 8(b) hereof to Persons who are designated by the Committee as likely to be Covered Employees within the meaning of section 162(m) of the Code and the regulations thereunder (including Treasury Regulation §1.162-27 and successor regulations thereto) that are designated by the Committee to constitute “performance-based compensation” within the meaning of section 162(m) of the Code and regulations thereunder.
(af)
“
Securities Act
” means the Securities Act of 1933 and the rules and regulations promulgated thereunder, or any successor law, as it may be amended from time to time.
(ag)
“
Stock
” means the Company’s Common Stock, par value $0.001 per share, and such other securities as may be substituted (or resubstituted) for Stock pursuant to Section 9.
(ah)
“
Stock Appreciation Rights
” or “
SAR
” means a right granted to an Eligible Person under Section 6(c) hereof.
(ai)
“
Subsidiary
” means, with respect to the Company, any corporation or other entity of which a majority of the voting power of the voting equity securities or equity interest is owned, directly or indirectly, by the Company.
3.
Administration
.
(a)
Authority of the Committee
. This Plan shall be administered by the Committee except to the extent the Board elects to administer this Plan, in which case references herein to the “Committee” shall be deemed to include references to the “Board.” Subject to the express provisions of the Plan and Rule 16b-3, the Committee shall have the authority, in its sole and absolute discretion, to (i) adopt, amend, and rescind administrative and interpretive rules and regulations relating to the Plan; (ii) determine the Eligible Persons to whom, and the time or times at which, Awards shall be granted; (iii) determine the amount of cash and/or the number of Options, Stock Appreciation Rights, Restricted Stock Awards, Restricted Stock Units, Bonus Stock, Dividend Equivalents, or Other Stock-Based Awards, including any of the foregoing that are designated as Performance Awards, as applicable, or any combination thereof, that shall be the subject of each Award; (iv) determine the terms and provisions of each Award agreement (which need not be identical), including provisions defining or otherwise relating to (A) the term and the period or periods and extent of exercisability of the Options, (B) the extent to which the transferability of shares of Stock issued or transferred pursuant to any Award is restricted, (C) except as otherwise provided herein, the effect of termination of employment, or termination of the service relationship with the Company, of a Participant on the Award, and (D) the effect of approved leaves of absence (consistent with any applicable regulations of the Internal Revenue Service); (v) accelerate the time of exercisability of any Award that has been granted; (vi) construe the respective Award agreements and the Plan; (vii) make determinations of the Fair Market Value of the Stock pursuant to the Plan; (viii) delegate its duties under the Plan to such agents as it may appoint from time to time, provided that the Committee may not delegate its duties where such delegation would violate state corporate law, or with respect to making Awards to, or otherwise with respect to Awards granted to, Eligible Persons who are subject to section 16(b) of the Exchange Act or with respect to Section 162(m) Awards; (ix) subject to Section 10(c), terminate, modify or amend the Plan; and (x) make all other determinations, perform all other acts, and exercise all other powers and authority necessary or advisable for administering the Plan, including the delegation of those ministerial acts and responsibilities as the Committee deems appropriate. Subject to Rule 16b-3 and section 162(m) of the Code, the Committee may correct any defect, supply any omission, or reconcile any inconsistency in the Plan, in any Award, or in any Award agreement in the manner and to the extent it deems necessary or desirable to carry the Plan into effect, and the Committee shall be the sole and final judge of that necessity or desirability. The determinations of the Committee on the matters referred to in this Section 3(a) shall be final and conclusive.
(b)
Manner of Exercise of Committee Authority
. At any time that a member of the Committee is not a Qualified Member, any action of the Committee relating to an Award granted or to be granted to an Eligible Person who is then subject to section 16 of the Exchange Act in respect of the Company, or relating to a Section 162(m) Award, may be taken either (i) by a subcommittee, designated by the Committee, composed solely of two or more Qualified Members, or (ii) by the Committee but with each such member who is not a Qualified Member abstaining or recusing himself or herself from such action; provided, however, that, upon such abstention or recusal, the Committee remains composed solely of two or more Qualified Members. Such action, authorized by such a subcommittee or by the Committee upon the abstention or recusal of such non-Qualified Member(s), shall be the action of the Committee for purposes of this Plan. Any action of the Committee shall be final, conclusive and binding on all Persons, including the Company, its Subsidiaries, stockholders, Participants, Beneficiaries, and transferees under Section 10(a) hereof or other persons claiming rights from or through a Participant. The express grant of any specific power to the Committee,
and the taking of any action by the Committee, shall not be construed as limiting any power or authority of the Committee. The Committee may delegate to officers or managers of the Company or any of its Subsidiaries, or committees thereof, the authority, subject to such terms as the Committee shall determine, to perform such functions, including administrative functions, as the Committee may determine, to the extent that such delegation will not result in the loss of an exemption under Rule 16b-3 for Awards granted to Participants subject to section 16 of the Exchange Act in respect of the Company and will not cause Section 162(m) Awards to fail to so qualify. The Committee may appoint agents to assist it in administering the Plan.
(c)
Limitation of Liability
. The Committee and each member thereof shall be entitled to, in good faith, rely or act upon any report or other information furnished to him or her by any officer or employee of the Company or any of its Subsidiaries, the Company’s legal counsel, independent auditors, consultants or any other agents assisting in the administration of this Plan. Members of the Committee and any officer or employee of the Company or any of its Subsidiaries acting at the direction or on behalf of the Committee shall not be personally liable for any action or determination taken or made in good faith with respect to this Plan, and shall, to the fullest extent permitted by law, be indemnified and held harmless by the Company with respect to any such action or determination.
4.
Stock Subject to Plan
.
(a)
Overall Number of Shares Available for Delivery
. Subject to adjustment in a manner consistent with any adjustment made pursuant to Section 9, the total number of shares of Stock that may be delivered with respect to Awards under this Plan, since its original inception, shall not exceed 27,300,000 shares, and such total will be available for the issuance of Incentive Stock Options.
(b)
Application of Limitation to Grants of Awards
. The number of shares of Stock actually delivered with respect to Awards under this Plan may not exceed the number of shares of Stock available under this Plan pursuant to Section 4(a) (subject to any adjustment made pursuant to Section 9). The Committee may adopt reasonable counting procedures to ensure appropriate counting, avoid double counting (as, for example, in the case of tandem or substitute awards) and make adjustments if the number of shares of Stock actually delivered with respect to an Award differs from the number of shares previously counted in connection with such Award.
(c)
Availability of Shares Not Issued under Awards
. Shares of Stock subject to an Award under the Plan that expires or is canceled, forfeited, exchanged, settled in cash or otherwise terminated without the actual delivery of Stock pursuant to such Award, including (i) shares forfeited with respect to Restricted Stock, and (ii) the number of shares withheld or surrendered in payment of any taxes related to a Full Value Award, in each case, will again be available for Awards under the Plan, except that if any such shares could not again be available for Awards to a particular Participant under any applicable law or regulation, such shares shall be available exclusively for Awards to Participants who are not subject to such limitation. Notwithstanding the foregoing, with respect to any Option, Stock Appreciation Right, or other Award for which a Participant pays (or the value or amount payable under the Award is reduced by) an amount equal to or exceeding the Fair Market Value of the Stock determined as of the date of grant, the following shares will not, in each case, be available for delivery in connection with future Awards under the Plan: (i) shares tendered or withheld in payment of any exercise or purchase price of such Award or taxes relating to such Award, (ii) shares that were subject to such Award that was exercised, or (iii) shares repurchased on the open market with the proceeds of such Award’s exercise price. If an Award may be settled only in cash, such Award shall not be counted against any of the share limits under this Section 4 but shall remain subject to the limitations in Section 5 to the extent required to preserve the status of such Award as a Section 162(m) Award.
(d)
Source of Stock Deliverable Under Awards
. The shares to be delivered under the Plan pursuant to an Award shall consist, in whole or in part, of (i) authorized but unissued shares of Stock, (ii) Stock held in the treasury of the Company, or (iii) previously issued shares of Stock reacquired by the Company, including shares purchased on the open market, or (iv) any combination of the foregoing, as determined by the Committee in its discretion.
5.
Eligibility; Per Person Award Limitations
. Awards may be granted under this Plan only to Persons who are Eligible Persons at the time of grant thereof. In each calendar year, during any part of which the Plan is in effect, an Eligible Person may not be granted (a) Awards (other than Awards designated to be paid only in cash or the settlement of which is not based on a number of shares of Stock) relating to more than 1,000,000 shares of Stock, subject to adjustment in a manner consistent with any adjustment made pursuant to Section 9 and (b) Awards designated to be paid only in cash, or the settlement of which is not based on a number of shares of Stock, having a value determined on the date of grant in excess of $10,000,000.
6.
Specific Terms of Awards
.
(a)
General
. Awards may be granted on the terms and conditions set forth in this Section 6. In addition, the Committee may impose on any Award or the exercise thereof, at the date of grant or thereafter (subject to Section 10(c)), such additional terms and conditions, not inconsistent with the provisions of this Plan, as the Committee shall determine, including terms requiring forfeiture of Awards in the event of termination of employment by the Participant, or termination of the Participant’s service relationship with the Company, and terms permitting a Participant to make elections relating to his or her Award. The Committee shall retain full power and discretion to accelerate, waive or modify, at any time, any term or condition of an Award that is not mandatory under this Plan; provided, however, that the Committee shall not have any discretion to accelerate, waive or modify any term or condition of a Section 162(m) Award if such discretion would cause the Award to not so qualify or to accelerate the terms of payment of any Award that provides for deferral of compensation under the Nonqualified Deferred Compensation Rules if such acceleration would subject a Participant to additional taxes under the Nonqualified Deferred Compensation Rules.
(b)
Options
. The Committee is authorized to grant Options, which may be designated as either Incentive Stock Options or Nonqualified Stock Options, to Eligible Persons on the following terms and conditions:
(i)
Exercise Price
. Each Option agreement shall state the exercise price per share of Stock (the “
Exercise Price
”); provided, however, that the Exercise Price per share of Stock subject to an Option shall not be less than the greater of (A) the par value per share of the Stock or (B) 100% of the Fair Market Value per share of the Stock as of the date of grant of the Option (or in the case of the grant of an ISO to an individual who owns stock possessing more than 10 percent of the total combined voting power of all classes of stock of the Company or its parent or any subsidiary, 110% of the Fair Market Value per share of the Stock on the date of grant).
(ii)
Time and Method of Exercise
. The Committee shall determine the time or times at which or the circumstances under which an Option may be exercised in whole or in part (including based on achievement of performance goals and/or future service requirements), the methods by which such Exercise Price may be paid or deemed to be paid, the form of such payment, including without limitation cash, Stock, other Awards or awards granted under other plans of the Company or any Subsidiary, or other property (including notes or other contractual obligations of Participants to make payment on a deferred basis), and the methods by or forms in which Stock will be delivered or deemed to be delivered to Participants, including, but not limited to, the delivery of Restricted Stock subject to Section 6(d). In the case of an exercise whereby the Exercise Price is paid with Stock, such Stock shall be valued as of the date of exercise.
(iii)
ISOs
. The terms of any ISO granted under this Plan shall comply in all respects with the provisions of section 422 of the Code. Except as otherwise provided in Section 9, no term of this Plan relating to ISOs (including any SAR in tandem therewith) shall be interpreted, amended or altered, nor shall any discretion or authority granted under this Plan be exercised, so as to disqualify either this Plan or any ISO under section 422 of the Code, unless the Participant has first requested the change that will result in such disqualification. ISOs shall not be granted more than ten years after the earlier of the adoption of this Plan or the approval of this Plan by the Company’s stockholders. Notwithstanding the foregoing, the Fair Market Value of shares of Stock subject to an ISO and the aggregate Fair Market Value of shares of stock of any parent or subsidiary corporation (within the meaning of sections 424(e) and (f) of the Code) subject to any other ISO (within the meaning of section 422 of the Code) of the Company or a parent or subsidiary corporation (within the meaning of sections 424(e) and (f) of the Code) that first becomes purchasable by a Participant in any calendar year may not (with respect to that Participant) exceed $100,000, or such other amount as may be prescribed under section 422 of the Code or applicable regulations or rulings from time to time. As used in the previous sentence, Fair Market Value shall be determined as of the date the ISOs are granted. Failure to comply with this provision shall not impair the enforceability or exercisability of any Option, but shall cause the excess amount of shares to be reclassified in accordance with the Code.
(c)
Stock Appreciation Rights
. The Committee is authorized to grant SARs to Eligible Persons on the following terms and conditions:
(i)
Right to Payment
. An SAR shall confer on the Participant to whom it is granted a right to receive, upon exercise thereof, the excess of (A) the Fair Market Value of one share of Stock on the date of exercise over (B) the grant price of the SAR as determined by the Committee.
(ii)
Rights Related to Options
. An SAR granted pursuant to an Option shall entitle a Participant, upon exercise, to surrender that Option or any portion thereof, to the extent unexercised, and to receive payment of an amount computed pursuant to Section 6(c)(ii)(B). That Option shall then cease to be exercisable to the
extent surrendered. SARs granted in connection with an Option shall be subject to the terms of the Award agreement governing the Option, which shall comply with the following provisions in addition to those applicable to Options:
(A)
An SAR granted in connection with an Option shall be exercisable only at such time or times and only to the extent that the related Option is exercisable and shall not be transferable except to the extent that the related Option is transferable.
(B)
Upon the exercise of an SAR related to an Option, a Participant shall be entitled to receive payment from the Company of an amount determined by multiplying:
(1)
the difference obtained by subtracting the Exercise Price with respect to a share of Stock specified in the related Option from the Fair Market Value of a share of Stock on the date of exercise of the SAR, by
(2)
the number of shares as to which that SAR has been exercised.
(iii)
Right Without Option
. An SAR granted independent of an Option shall be exercisable as determined by the Committee and set forth in the Award agreement governing the SAR, which Award agreement shall comply with the following provisions:
(A)
Each Award agreement shall state the total number of shares of Stock to which the SAR relates.
(B)
Each Award agreement shall state the time or periods in which the right to exercise the SAR or a portion thereof shall vest and the number of shares of Stock for which the right to exercise the SAR shall vest at each such time or period.
(C)
Each Award agreement shall state the date at which the SARs shall expire if not previously exercised.
(D)
Each SAR shall entitle a Participant, upon exercise thereof, to receive payment of an amount determined by multiplying:
(1)
the difference obtained by subtracting the Fair Market Value of a share of Stock on the date of grant of the SAR from the Fair Market Value of a share of Stock on the date of exercise of that SAR, by
(2)
the number of shares as to which the SAR has been exercised.
(iv)
Terms
. Except as otherwise provided herein, the Committee shall determine at the date of grant or thereafter, the time or times at which and the circumstances under which an SAR may be exercised in whole or in part (including based on achievement of performance goals and/or future service requirements), the method of exercise, method of settlement, form of consideration payable in settlement, method by or forms in which Stock will be delivered or deemed to be delivered to Participants, whether or not an SAR shall be in tandem or in combination with any other Award, and any other terms and conditions of any SAR. SARs may be either freestanding or in tandem with other Awards.
(d)
Restricted Stock
. The Committee is authorized to grant Restricted Stock to Eligible Persons on the following terms and conditions:
(i)
Grant and Restrictions
. Restricted Stock shall be subject to such restrictions on transferability, risk of forfeiture and other restrictions, if any, as the Committee may impose, which restrictions may lapse separately or in combination at such times, under such circumstances (including based on achievement of performance goals and/or future service requirements), in such installments or otherwise, as the Committee may determine at the date of grant or thereafter. During the restricted period applicable to the Restricted Stock, the Restricted Stock may not be sold, transferred, pledged, hypothecated, margined or otherwise encumbered by the Participant.
(ii)
Certificates for Stock
. Restricted Stock granted under this Plan may be evidenced in such manner as the Committee shall determine. If certificates representing Restricted Stock are registered in the name of the Participant, the Committee may require that such certificates bear an appropriate legend referring to the terms, conditions and restrictions applicable to such Restricted Stock, that the Company retain physical possession of the certificates, and that the Participant deliver a stock power to the Company, endorsed in blank, relating to the Restricted Stock.
(iii)
Dividends and Splits
. As a condition to the grant of an Award of Restricted Stock, the Committee may require or permit a Participant to elect that any cash dividends paid on a share of Restricted Stock be automatically reinvested in additional shares of Restricted Stock, applied to the purchase of additional Awards under this Plan or deferred without interest to the date of vesting of the associated Award of Restricted Stock; provided, that, to the extent applicable, any such election shall comply with the Nonqualified Deferred Compensation Rules. Unless otherwise determined by the Committee, Stock distributed in connection with a Stock split or Stock dividend, and other property (other than cash) distributed as a dividend, shall be subject to restrictions and a risk of forfeiture to the same extent as the Restricted Stock with respect to which such Stock or other property has been distributed.
(e)
Restricted Stock Units
. The Committee is authorized to grant Restricted Stock Units (including Performance Share Units), which are rights to receive Stock or cash (or a combination thereof) at the end of a specified deferral period (which may or may not be coterminous with the vesting schedule of the Award), to Eligible Persons, subject to the following terms and conditions:
(i)
Award and Restrictions
. Settlement of an Award of Restricted Stock Units shall occur upon expiration of the deferral period specified for such Restricted Stock Unit by the Committee (or, if permitted by the Committee, as elected by the Participant). In addition, Restricted Stock Units shall be subject to such restrictions (which may include a risk of forfeiture) as the Committee may impose, if any, which restrictions may lapse at the expiration of the deferral period or at earlier specified times (including based on achievement of performance goals and/or future service requirements), separately or in combination, in installments or otherwise, as the Committee may determine. Restricted Stock Units shall be satisfied by the delivery of cash or Stock in the amount equal to the Fair Market Value of the specified number of shares of Stock covered by the Restricted Stock Units, or a combination thereof, as determined by the Committee at the date of grant or thereafter.
(ii)
Dividend Equivalents
. Unless otherwise determined by the Committee at date of grant, Dividend Equivalents on the specified number of shares of Stock covered by an Award of Restricted Stock Units shall be either (A) paid with respect to such Restricted Stock Units on the dividend payment date in cash or in shares of unrestricted Stock having a Fair Market Value equal to the amount of such dividends, or (B) deferred with respect to such Restricted Stock Units and the amount or value thereof automatically deemed reinvested in additional Restricted Stock Units, other Awards or other investment vehicles, as the Committee shall determine or permit the Participant to elect.
(f)
Bonus Stock and Awards in Lieu of Obligations
. The Committee is authorized to grant Bonus Stock, or to grant Stock or other Awards in lieu of obligations to pay cash or deliver other property under this Plan or under other plans or compensatory arrangements; provided, that, in the case of Participants subject to section 16 of the Exchange Act, the amount of such grants remains within the discretion of the Committee to the extent necessary to ensure that acquisitions of Stock or other Awards are exempt from liability under section 16(b) of the Exchange Act. Stock or Awards granted hereunder shall be subject to such other terms as shall be determined by the Committee. In the case of any grant of Stock to an officer of the Company or any of its Subsidiaries in lieu of salary or other cash compensation, the number of shares granted in place of such compensation shall be reasonable, as determined by the Committee.
(g)
Dividend Equivalents
. The Committee is authorized to grant Dividend Equivalents to an Eligible Person, entitling a Participant to receive cash, Stock, other Awards, or other property equal in value to dividends paid with respect to a specified number of shares of Stock, or other periodic payments. Dividend Equivalents may be awarded on a free-standing basis or in connection with another Award. The Committee may provide that Dividend Equivalents shall be paid or distributed when accrued or shall be deemed to have been reinvested in additional Stock, Awards, or other investment vehicles, and subject to such restrictions on transferability and risks of forfeiture, as the Committee may specify.
(h)
Other Stock-Based Awards
. The Committee is authorized, subject to limitations under applicable law, to grant to Eligible Persons such other Awards that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, Stock, as deemed by the Committee to be consistent with the purposes of this Plan, including without limitation convertible or exchangeable debt securities, other rights convertible or exchangeable into Stock, purchase rights for Stock, Awards with value and payment contingent upon performance of the Company or any other factors designated by the Committee, and Awards valued by reference to the book value of Stock or the value of securities of, or the performance of, specified Subsidiaries of the Company. The Committee shall determine the terms and conditions of such Other Stock-Based Awards. Stock delivered pursuant to an Award in the nature of a purchase right granted under this Section 6(h) shall be purchased for such consideration,
paid for at such times, by such methods, and in such forms, including, without limitation, cash, Stock, other Awards, or other property, as the Committee shall determine. Cash awards, as an element of or supplement to any other Award under this Plan, may also be granted pursuant to this Section 6(h).
7.
Certain Provisions Applicable to Awards
.
(a)
Termination of Employment
. Except as provided herein, the treatment of an Award upon a termination of employment or any other service relationship by and between a Participant and the Company or any Subsidiary shall be specified in the agreement controlling such Award.
(b)
Stand-Alone, Additional, Tandem, and Substitute Awards
. Awards granted under this Plan may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with, or in substitution or exchange for, any other Award or any award granted under another plan of the Company, or any of its Subsidiaries, or of any business entity to be acquired by the Company or any of its Subsidiaries, or any other right of an Eligible Person to receive payment from the Company or any of its Subsidiaries. Such additional, tandem and substitute or exchange Awards may be granted at any time. If an Award is granted in substitution or exchange for another Award, the Committee shall require the surrender of such other Award in consideration for the grant of the new Award. Notwithstanding the foregoing, but subject to Section 9 of the Plan, without the approval of stockholders, the terms of outstanding Awards may not be amended to reduce the Exercise Price of outstanding Options or SARs or to cancel outstanding Options and SARs in exchange for cash, other Awards, or Options or SARs with an Exercise Price that is less than the Exercise Price of the original Options or SARs. Awards under this Plan may be granted in lieu of cash compensation, including in lieu of cash amounts payable under other plans of the Company or any of its Subsidiaries, in which the value of Stock subject to the Award is equivalent in value to the cash compensation. Awards granted pursuant to the preceding sentence shall be designed, awarded and settled in a manner that does not result in additional taxes under the Nonqualified Deferred Compensation Rules.
(c)
Term of Awards
. Except as specified herein, the term of each Award shall be for such period as may be determined by the Committee; provided, that in no event shall the term of any Option or SAR exceed a period of ten years (or such shorter term as may be required in respect of an ISO under section 422 of the Code).
(d)
Form and Timing of Payment under Awards
. Subject to the terms of this Plan and any applicable Award agreement, payments to be made by the Company or any of its Subsidiaries upon the exercise of an Option or other Award or settlement of an Award may be made in such forms as the Committee shall determine, including without limitation cash, Stock, other Awards or other property, and may be made in a single payment or transfer, in installments, or on a deferred basis; provided, however, that any such deferred payment will be set forth in the agreement evidencing such Award and/or otherwise made in a manner that will not result in additional taxes under the Nonqualified Deferred Compensation Rules. Except as otherwise provided herein, the settlement of any Award may be accelerated, and cash paid in lieu of Stock in connection with such settlement, in the discretion of the Committee or upon occurrence of one or more specified events (in addition to a Change in Control). Installment or deferred payments may be required by the Committee (subject to Section 10(c) of this Plan, including the consent provisions thereof in the case of any deferral of an outstanding Award not provided for in the original Award agreement) or permitted at the election of the Participant on terms and conditions established by the Committee and in compliance with the Nonqualified Deferred Compensation Rules. Payments may include, without limitation, provisions for the payment or crediting of reasonable interest on installment or deferred payments or the grant or crediting of Dividend Equivalents or other amounts in respect of installment or deferred payments denominated in Stock. Any deferral shall only be allowed as is provided in a separate deferred compensation plan adopted by the Company and shall be made pursuant to the Nonqualified Deferred Compensation Rules. This Plan shall not constitute an “employee benefit plan” for purposes of section 3(3) of the Employee Retirement Income Security Act of 1974, as amended.
(e)
Exemptions from Section 16(b) Liability
. It is the intent of the Company that the grant of any Awards to or other transaction by a Participant who is subject to section 16 of the Exchange Act shall be exempt from such section pursuant to an applicable exemption (except for transactions acknowledged in writing to be non-exempt by such Participant). Accordingly, if any provision of this Plan or any Award agreement does not comply with the requirements of Rule 16b-3 as then applicable to any such transaction, such provision shall be construed or deemed amended to the extent necessary to conform to the applicable requirements of Rule 16b-3 so that such Participant shall avoid liability under section 16(b) of the Exchange Act.
(f)
Non-Competition Agreement
. Each Participant to whom an Award is granted under this Plan may be required to agree in writing as a condition to the granting of such Award not to engage in conduct in competition
with the Company or any of its Subsidiaries for a period after the termination of such Participant’s employment with the Company and its Subsidiaries as determined by the Committee.
8.
Performance Awards
.
(a)
Performance Conditions
. The right of an Eligible Person to receive a grant, and the right of a Participant to exercise or receive settlement of any Award, and the timing thereof, may be subject to such performance conditions as may be specified by the Committee. The Committee may use such business criteria and other measures of performance as it may deem appropriate in establishing any performance conditions.
(b)
Section 162(m) Awards
. The exercise and/or settlement of Section 162(m) Awards may be contingent upon achievement of preestablished performance goals and other terms set forth in this Section 8(b); provided, however, that nothing in this Section 8(b) or elsewhere in the Plan shall be interpreted as preventing the Committee from determining that it is no longer necessary or appropriate for any Section 162(m) Award to qualify as “performance-based compensation” within the meaning of section 162(m) of the Code.
(i)
Performance Goals Generally
. The performance goals for Section 162(m) Awards shall consist of one or more business criteria or individual performance criteria and a targeted level or levels of performance with respect to each of such criteria, as specified by the Committee consistent with this Section 8(b). Performance goals shall be objective and shall otherwise meet the requirements of section 162(m) of the Code and regulations thereunder (including Treasury Regulation §1.162-27 and successor regulations thereto), including the requirement that the level or levels of performance targeted by the Committee result in the achievement of performance goals being “substantially uncertain” at the time the Committee actually establishes the performance goal or goals. The Committee may determine that Section 162(m) Awards shall be granted, exercised, and/or settled upon achievement of any one performance goal or that two or more of the performance goals must be achieved as a condition to grant, exercise, and/or settlement of such Section 162(m) Awards. Performance goals may differ for Section 162(m) Awards granted to any one Participant or to different Participants. In establishing or adjusting a performance goal, the Committee may exclude the impact of any of the following events or occurrences which the Committee determines should appropriately be excluded: (a) any amounts accrued by the Company or its Subsidiaries pursuant to management bonus plans or cash profit sharing plans and related employer payroll taxes for the fiscal year; (b) any discretionary or matching contributions made to a savings and deferred profit-sharing plan or deferred compensation plan for the fiscal year; (c) asset write-downs; (d) litigation, claims, judgments or settlements; (e) the effect of changes in tax law or other such laws or regulations affecting reported results; (f) accruals for reorganization and restructuring programs; (g) any extraordinary, unusual or nonrecurring items as described in the Accounting Standards Codification Topic 225, as the same may be amended or superseded from time to time; (h) any change in accounting principle as defined in the Accounting Standards Codification Topic 250, as the same may be amended or superseded from time to time; (i) any loss from a discontinued operation as described in the Accounting Standards Codification Topic 360, as the same may be amended or superseded from time to time; (j) goodwill impairment charges; (k) operating results for any business acquired during the applicable performance period; (l) third party expenses associated with any acquisition by the Company or any Subsidiary; (m) items that the Board has determined do not represent core operations of the Company, specifically including but not limited to interest, expenses, taxes, depreciation and depletion, amortization and accretion charges; (n) marked-to-market adjustments for financial instruments; (o) impairment to assets; and (p) any other extraordinary events or occurrences identified by the Committee, including but not limited to, such items described in management’s discussion and analysis of financial condition and results of operations or the financial statements and notes thereto appearing in the Company’s annual report to stockholders for the applicable year.
(ii)
Business and Individual Performance Criteria
.
(A)
Business Criteria
. One or more of the following business criteria for the Company, on a consolidated basis, and/or for specified Subsidiaries or business or geographical units of the Company (except with respect to the total stockholder return and earnings per share criteria), shall be used by the Committee in establishing performance goals for Section 162(m) Awards: (1) earnings per share (diluted or basic); (2) revenues; (3) cash flow; (4) cash flow from operations; (5) cash flow return on investment; (6) return on net assets; (7) return on assets; (8) return on investment; (9) return on capital; (10) return on equity; (11) economic value added; (12) operating margin; (13) contribution margin; (14) net income; (15) net income per share; (16) pretax earnings; (17) pretax earnings before interest, depreciation and amortization; (18) pretax operating earnings after interest expense and before incentives, service fees, and extraordinary or special items; (19) total stockholder return; (20) debt reduction or management; (21) market share; (22) stock price; (23) operating income; (24) reserve growth; (25) reserve replacement; (26) production growth; (27) finding/ development costs; (28) lease operating expense; (29) sales; (30) expense
reduction or management; (31) stockholder value added; (32) net operating profit; (33) net operating profit after tax; (34) effective equipment utilization; (35) achievement of savings from business improvement projects; (36) capital project deliverables; (37) performance against environmental targets; (38) safety performance and/or incident rate; (39) human resources management targets, including medical cost reductions and time to hire; (40) leverage ratios including debt to equity and debt to total capital; (41) new or expanded market penetration; (42) satisfactory internal or external audits; (43) inventory or reserves growth; and (44) any of the above goals determined on an absolute or relative basis or as compared to the performance of a published or special index deemed applicable by the Committee including, but not limited to, the Standard & Poor’s 500 Stock Index or a group of comparable companies.
(B)
Individual Performance Criteria
. The grant, exercise and/or settlement of Performance Awards may also be contingent upon individual performance goals established by the Committee, including individual business objectives and criteria specific to an individual’s position and responsibility with the Company or its Subsidiaries. If required for compliance with section 162(m) of the Code, such criteria shall be approved by the stockholders of the Company.
(iii)
Performance Period; Timing for Establishing Performance Goals
. Achievement of performance goals in respect of Section 162(m) Awards shall be measured over a performance period of up to ten years, as specified by the Committee. Performance goals shall be established not later than 90 days after the beginning of any performance period applicable to such Section 162(m) Awards, or at such other date as may be required or permitted for “performance-based compensation” under section 162(m) of the Code.
(iv)
Performance Award Pool
. The Committee may establish a Performance Award pool, which shall be an unfunded pool, for purposes of measuring performance of the Company in connection with Section 162(m) Awards. The amount of such Performance Award pool shall be based upon the achievement of a performance goal or goals based on one or more of the criteria set forth in Section 8(b)(i) hereof during the given performance period, as specified by the Committee in accordance with Section 8(b)(iii) hereof. The Committee may, in its discretion, adjust the amount of such Performance Award pool to reflect the events or occurrences set forth in Section 8(b)(i). The Committee may specify the amount of the Performance Award pool as a percentage of any such criteria, a percentage thereof in excess of a threshold amount, or as another amount which need not bear a strictly mathematical relationship to such criteria.
(v)
Settlement of Section 162(m) Awards; Other Terms
. After the end of each performance period, the Committee shall determine (A) the amount, if any, of the Performance Award pool, and the maximum amount of the potential Section 162(m) Award payable to each Participant who is designated to participate in the Performance Award pool, or (B) the amount of the potential Section 162(m) Award otherwise payable to each Participant. Settlement of such Section 162(m) Awards shall be in cash, Stock, other Awards or other property, in the discretion of the Committee. The Committee may, in its discretion, reduce the amount of a settlement otherwise to be made in connection with such Section 162(m) Awards, and/or adjust the amount of a settlement otherwise to be made in connection with such Section 162(m) Awards to reflect the events or occurrences set forth in Section 8(b)(i), but may not exercise discretion to increase any such amount payable to a Covered Employee in respect of a Section 162(m) Award. For purposes of clarity, in the event that an adjustment made solely pursuant to Section 8(b)(i) above results in an increase in a payment under a Section 162(m) Award, the Committee will not be deemed to have made an impermissible increase to the amount payable pursuant to that Award. The Committee shall specify the circumstances in which such Performance Awards shall be paid or forfeited in the event of termination of employment by the Participant prior to the end of a performance period or settlement of Performance Awards.
(c)
Written Determinations
. All determinations by the Committee as to the establishment of performance goals, the amount of any Performance Award pool or potential individual Performance Awards, and the achievement of performance goals relating to and final settlement of Performance Awards under Section 8(b) shall be made in writing in the case of any Award intended to qualify under section 162(m) of the Code. The Committee may not delegate any responsibility relating to such Performance Awards.
(d)
Status of Section 8(b) Performance Awards under Section 162(m) of the Code
. It is the intent of the Company that Section 162(m) Awards constitute “performance-based compensation” within the meaning of section 162(m) of the Code and regulations thereunder. Accordingly, the terms of Sections 8(b), (c), and (d), including the definitions of Covered Employee and other terms used therein shall, for Section 162(m) Awards, be interpreted in a manner consistent with section 162(m) of the Code and regulations thereunder. The foregoing notwithstanding, because the Committee cannot determine with certainty whether a given Eligible Person will be a Covered Employee with respect to a fiscal year that has not yet been completed, the term “Covered Employee” as used herein shall mean
only a Person designated by the Committee, at the time of grant of a Performance Award, who is likely to be a Covered Employee with respect to that fiscal year. If any provision of this Plan applicable to Section 162(m) Awards does not comply or is inconsistent with the requirements of section 162(m) of the Code or regulations thereunder, such provision shall be construed or deemed amended to the extent necessary to conform to such requirements with respect to such Section 162(m) Awards.
9.
Subdivision or Consolidation; Recapitalization; Change in Control; Reorganization
.
(a)
Existence of Plans and Awards
. The existence of this Plan and the Awards granted hereunder shall not affect in any way the right or power of the Board or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company’s capital structure or its business, any merger or consolidation of the Company, any issue of debt or equity securities ahead of or affecting Stock or the rights thereof, the dissolution or liquidation of the Company or any sale, lease, exchange or other disposition of all or any part of its assets or business or any other corporate act or proceeding. In no event will any action taken by the Committee pursuant to this Section 9 result in the creation of deferred compensation within the meaning of the Nonqualified Deferred Compensation Rules.
(b)
Subdivision or Consolidation of Shares
. The terms of an Award and the number of shares of Stock authorized pursuant to Section 4 for issuance under the Plan shall be subject to adjustment from time to time, in accordance with the following provisions:
(i)
If at any time, or from time to time, the Company shall subdivide as a whole (by reclassification, by a Stock split, by the issuance of a distribution on Stock payable in Stock, or otherwise) the number of shares of Stock then outstanding into a greater number of shares of Stock or in the event the Company distributes an extraordinary cash dividend, then, as appropriate, (A) the maximum number of shares of Stock available for the Plan or in connection with Awards as provided in Sections 4 and 5 shall be increased proportionately, and the kind of shares or other securities available for the Plan shall be appropriately adjusted, (B) the number of shares of Stock (or other kind of shares or securities) that may be acquired under any then outstanding Award shall be increased proportionately, and (C) the price (including the exercise price) for each share of Stock (or other kind of shares or securities) subject to then outstanding Awards shall be reduced proportionately, without changing the aggregate purchase price or value as to which outstanding Awards remain exercisable or subject to restrictions.
(ii)
If at any time, or from time to time, the Company shall consolidate as a whole (by reclassification, by reverse Stock split, or otherwise) the number of shares of Stock then outstanding into a lesser number of shares of Stock, (A) the maximum number of shares of Stock for the Plan or available in connection with Awards as provided in Sections 4 and 5 shall be decreased proportionately, and the kind of shares or other securities available for the Plan shall be appropriately adjusted, (B) the number of shares of Stock (or other kind of shares or securities) that may be acquired under any then outstanding Award shall be decreased proportionately, and (C) the price (including the exercise price) for each share of Stock (or other kind of shares or securities) subject to then outstanding Awards shall be increased proportionately, without changing the aggregate purchase price or value as to which outstanding Awards remain exercisable or subject to restrictions.
(iii)
Whenever the number of shares of Stock subject to outstanding Awards and the price for each share of Stock subject to outstanding Awards are required to be adjusted as provided in this Section 9(b), the Committee shall promptly prepare a notice setting forth, in reasonable detail, the event requiring adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the change in price and the number of shares of Stock, other securities, cash, or property purchasable subject to each Award after giving effect to the adjustments. The Committee shall promptly provide each affected Participant with such notice.
(iv)
Adjustments under Sections 9(b)(i) and (ii) shall be made by the Committee, and its determination as to what adjustments shall be made and the extent thereof shall be final, binding, and conclusive. No fractional interest shall be issued under the Plan on account of any such adjustments.
(c)
Corporate Recapitalization
. If the Company recapitalizes, reclassifies its capital stock, or otherwise changes its capital structure (a “recapitalization”) without the occurrence of a Change in Control, the number and class of shares of Stock covered by an Option or an SAR theretofore granted shall be adjusted so that such Option or SAR shall thereafter cover the number and class of shares of stock and securities to which the holder would have been entitled pursuant to the terms of the recapitalization if, immediately prior to the recapitalization, the holder had been the holder of record of the number of shares of Stock then covered by such Option or SAR and the share limitations provided in Sections 4 and 5 shall be adjusted in a manner consistent with the recapitalization.
(d)
Additional Issuances
. Except as hereinbefore expressly provided, the issuance by the Company of shares of stock of any class or securities convertible into shares of stock of any class, for cash, property, labor or services, upon direct sale, upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, and in any case whether or not for fair value, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of shares of Stock subject to Awards theretofore granted or the purchase price per share, if applicable.
(e)
Change in Control
. Upon a Change in Control, the Committee, acting in its sole discretion without the consent or approval of any holder, shall affect one or more of the following alternatives, which may vary among individual holders and which may vary among Options or SARs (collectively “
Grants
”) held by any individual holder: (i) accelerate the time at which Grants then outstanding may be exercised so that such Grants may be exercised in full for a limited period of time on or before a specified date (before or after such Change in Control) fixed by the Committee, after which specified date all unexercised Grants and all rights of holders thereunder shall terminate, (ii) require the mandatory surrender to the Company by selected holders of some or all of the outstanding Grants held by such holders (irrespective of whether such Grants are then exercisable under the provisions of this Plan) as of a date, before or after such Change in Control, specified by the Committee, in which event the Committee shall thereupon cancel such Grants and pay to each holder an amount of cash per share equal to the excess, if any, of the amount calculated in Section 9(f) (the “
Change in Control Price
”) of the shares subject to such Grants over the Exercise Price(s) under such Grants for such shares (except to the extent the Exercise Price under any such Grant is equal to or exceeds the Change in Control Price, in which case no amount shall be payable with respect to such Grant), or (iii) make such adjustments to Grants then outstanding as the Committee deems appropriate to reflect such Change in Control; provided, however, that the Committee may determine in its sole discretion that no adjustment is necessary to Grants then outstanding; provided, further, however, that the right to make such adjustments shall include, but not require or be limited to, the modification of Grants such that the holder of the Grant shall be entitled to purchase or receive (in lieu of the total number of shares of Stock as to which an Option or SAR is exercisable (the “
Total Shares
”) or other consideration that the holder would otherwise be entitled to purchase or receive under the Grant (the “
Total Consideration
”)), the number of shares of stock, other securities, cash or property to which the Total Shares or Total Consideration would have been entitled to in connection with the Change in Control (A) (in the case of Options), at an aggregate exercise price equal to the Exercise Price that would have been payable if the Total Shares had been purchased upon the exercise of the Grant immediately before the occurrence of the Change in Control, and (B) in the case of SARs, if the SARs had been exercised immediately before the occurrence of the Change in Control.
(f)
Change in Control Price
. The “Change in Control Price” shall equal the amount determined in the following clause (i), (ii), (iii), (iv) or (v), whichever is applicable, as follows: (i) the price per share offered to holders of Stock in any merger or consolidation, (ii) the per share Fair Market Value of the Stock immediately before the Change in Control without regard to assets sold in the Change in Control and assuming the Company has received the consideration paid for the assets in the case of a sale of the assets, (iii) the amount distributed per share of Stock in a dissolution transaction, (iv) the price per share offered to holders of Stock in any tender offer or exchange offer whereby a Change in Control takes place, or (v) if such Change in Control occurs other than pursuant to a transaction described in clauses (i), (ii), (iii), or (iv) of this Section 9(f), the Fair Market Value per share of the Stock that may otherwise be obtained with respect to such Grants or to which such Grants track, as determined by the Committee as of the date determined by the Committee to be the date of cancellation and surrender of such Grants. In the event that the consideration offered to stockholders of the Company in any transaction described in this Section 9(f) or in Section 9(e) consists of anything other than cash, the Committee shall determine the fair cash equivalent of the portion of the consideration offered which is other than cash and such determination shall be binding on all affected Participants to the extent applicable to Awards held by such Participants.
(g)
Impact of Corporate Events on Awards Generally
. In the event of changes in the outstanding Stock by reason of a recapitalization, reorganization, merger, consolidation, combination, exchange or other relevant change in capitalization occurring after the date of the grant of any Award and not otherwise provided for by this Section 9, any outstanding Awards and any Award agreements evidencing such Awards shall be subject to adjustment by the Committee at its discretion, which adjustment may, in the Committee’s discretion, be described in the Award agreement and may include, but not be limited to, adjustments as to the number and price of shares of Stock or other consideration subject to such Awards, accelerated vesting (in full or in part) of such Awards, conversion of such Awards into awards denominated in the securities or other interests of any successor Person, or the cash settlement of such Awards in exchange for the cancellation thereof. In the event of any such change in the outstanding Stock, the aggregate number of shares of Stock available under this Plan may be appropriately adjusted by the Committee, whose determination shall be conclusive.
10.
General Provisions
.
(a)
Transferability
.
(i)
Permitted Transferees
. The Committee may, in its discretion, permit a Participant to transfer all or any portion of an Option or SAR, or authorize all or a portion of an Option or SAR to be granted to an Eligible Person to be on terms which permit transfer by such Participant; provided that, in either case, the transferee or transferees must be a child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, in each case with respect to the Participant, an individual sharing the Participant’s household (other than a tenant or employee of the Company), a trust in which any of the foregoing individuals have more than fifty percent of the beneficial interest, a foundation in which any of the foregoing individuals (or the Participant) control the management of assets, or any other entity in which any of the foregoing individuals (or the Participant) own more than fifty percent of the voting interests (collectively, “Permitted Transferees”); provided further that, (A) there may be no consideration for any such transfer and (B) subsequent transfers of Options or SARs transferred as provided above shall be prohibited except subsequent transfers back to the original holder of the Option or SAR and transfers to other Permitted Transferees of the original holder. Agreements evidencing Options or SARs with respect to which such transferability is authorized at the time of grant must be approved by the Committee, and must expressly provide for transferability in a manner consistent with this Section 10(a)(i).
(ii)
Qualified Domestic Relations Orders
. An Option, Stock Appreciation Right, Restricted Stock Unit Award, Restricted Stock Award or other Award may be transferred, to a Permitted Transferee, pursuant to a domestic relations order entered or approved by a court of competent jurisdiction upon delivery to the Company of written notice of such transfer and a certified copy of such order.
(iii)
Other Transfers
. Except as expressly permitted by Sections 10(a)(i) and 10(a)(ii), Awards shall not be transferable other than by will or the laws of descent and distribution. Notwithstanding anything to the contrary in this Section 10, an Incentive Stock Option shall not be transferable other than by will or the laws of descent and distribution.
(iv)
Effect of Transfer
. Following the transfer of any Award as contemplated by Sections 10(a)(i), 10(a)(ii) and 10(a)(iii), (A) such Award shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, provided that the term “Participant” shall be deemed to refer to the Permitted Transferee, the recipient under a qualified domestic relations order, or the estate or heirs of a deceased Participant or other transferee, as applicable, to the extent appropriate to enable the Participant to exercise the transferred Award in accordance with the terms of this Plan and applicable law and (B) the provisions of the Award relating to exercisability shall continue to be applied with respect to the original Participant and, following the occurrence of any applicable events described therein the Awards shall be exercisable by the Permitted Transferee, the recipient under a qualified domestic relations order, or the estate or heirs of a deceased Participant, as applicable, only to the extent and for the periods that would have been applicable in the absence of the transfer.
(v)
Procedures and Restrictions
. Any Participant desiring to transfer an Award as permitted under Sections 10(a)(i), 10(a)(ii) or 10(a)(iii) shall make application therefor in the manner and time specified by the Committee and shall comply with such other requirements as the Committee may require to assure compliance with all applicable securities laws. The Committee shall not give permission for such a transfer if (A) it would give rise to short swing liability under section 16(b) of the Exchange Act or (B) it may not be made in compliance with all applicable federal, state and foreign securities laws.
(vi)
Registration
. To the extent the issuance to any Permitted Transferee of any shares of Stock issuable pursuant to Awards transferred as permitted in this Section 10(a) is not registered pursuant to the effective registration statement of the Company generally covering the shares to be issued pursuant to this Plan to initial holders of Awards, the Company shall not have any obligation to register the issuance of any such shares of Stock to any such transferee.
(b)
Taxes
. The Company and any of its Subsidiaries are authorized to withhold from any Award granted, or any payment relating to an Award under this Plan, including from a distribution of Stock, amounts of withholding and other taxes due or potentially payable in connection with any transaction involving an Award, and to take such other action as the Committee may deem advisable to enable the Company and Participants to satisfy obligations for the payment of withholding taxes and other tax obligations relating to any Award. This authority shall include authority to withhold or receive Stock or other property and to make cash payments in respect thereof in
satisfaction of a Participant’s tax obligations, either on a mandatory or elective basis in the discretion of the Committee; provided, that if such tax obligations are satisfied through the withholding of shares of Stock that are otherwise issuable to the Participant pursuant to an Award (or through the surrender of shares of Stock by the Participant to the Company), the number of shares of Stock that may be so withheld (or surrendered) shall be limited to the number of shares of Stock that have an aggregate Fair Market Value on the date of withholding or surrender equal to the aggregate amount of such tax liabilities determined based on the applicable minimum statutory withholding rates for U.S. federal, state and/or local tax purposes, including payroll taxes, as determined by the Committee.
(c)
Changes to this Plan and Awards
. The Board may amend, alter, suspend, discontinue or terminate this Plan or the Committee’s authority to grant Awards under this Plan without the consent of stockholders or Participants, except that any amendment or alteration to this Plan, including any increase in any share limitation, shall be subject to the approval of the Company’s stockholders not later than the annual meeting next following such Board action if such stockholder approval is required by any federal or state law or regulation or the rules of any stock exchange or automated quotation system on which the Stock may then be listed or quoted, and the Board may otherwise, in its discretion, determine to submit other such changes to this Plan to stockholders for approval; provided, that, without the consent of an affected Participant, no such Board action may materially and adversely affect the rights of such Participant under any previously granted and outstanding Award. The Committee may waive any conditions or rights under, or amend, alter, suspend, discontinue or terminate any Award theretofore granted and any Award agreement relating thereto, except as otherwise provided in this Plan; provided, however, that, without the consent of an affected Participant, no such Committee action may materially and adversely affect the rights of such Participant under such Award. For purposes of clarity, any adjustments made to Awards pursuant to Section 9 will be deemed not to materially or adversely affect the rights of any Participant under any previously granted and outstanding Award and therefore may be made without the consent of affected Participants.
(d)
Limitation on Rights Conferred under Plan
. Neither this Plan nor any action taken hereunder shall be construed as (i) giving any Eligible Person or Participant the right to continue as an Eligible Person or Participant or in the employ or service of the Company or any of its Subsidiaries, (ii) interfering in any way with the right of the Company or any of its Subsidiaries to terminate any Eligible Person’s or Participant’s employment or service relationship at any time, (iii) giving an Eligible Person or Participant any claim to be granted any Award under this Plan or to be treated uniformly with other Participants and/or employees and/or other service providers, or (iv) conferring on a Participant any of the rights of a stockholder of the Company unless and until the Participant is duly issued or transferred shares of Stock in accordance with the terms of an Award.
(e)
Unfunded Status of Awards
. To the extent applicable, Awards under this Plan are unfunded and unsecured.
(f)
Nonexclusivity of this Plan
. Neither the adoption of this Plan by the Board nor its submission to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board or a committee thereof to adopt such other incentive arrangements as it may deem desirable, including incentive arrangements and awards which do not qualify under section 162(m) of the Code. Nothing contained in this Plan shall be construed to prevent the Company or any of its Subsidiaries from taking any corporate action which is deemed by the Company or such Subsidiary to be appropriate or in its best interest, whether or not such action would have an adverse effect on this Plan or any Award made under this Plan. No employee, beneficiary or other person shall have any claim against the Company or any of its Subsidiaries as a result of any such action.
(g)
Fractional Shares
. No fractional shares of Stock shall be issued or delivered pursuant to this Plan or any Award. The Committee shall determine whether cash, other Awards or other property shall be issued or paid in lieu of such fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated.
(h)
Severability
. If any provision of this Plan is held to be illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions hereof, but such provision shall be fully severable and the Plan shall be construed and enforced as if the illegal or invalid provision had never been included herein. If any of the terms or provisions of this Plan or any Award agreement conflict with the requirements of Rule 16b-3 (as those terms or provisions are applied to Eligible Persons who are subject to section 16(b) of the Exchange Act) or section 422 of the Code (with respect to Incentive Stock Options), then those conflicting terms or provisions shall be deemed inoperative to the extent they so conflict with the requirements of Rule 16b-3 (unless the Board or Committee, as appropriate, has expressly determined that the Plan or such Award should not comply with Rule 16b-3) or section 422 of the Code. With respect to Incentive Stock Options, if this Plan does not contain any provision required to be included
herein under section 422 of the Code, that provision shall be deemed to be incorporated herein with the same force and effect as if that provision had been set out at length herein; provided, further, that, to the extent any Option that is intended to qualify as an Incentive Stock Option cannot so qualify, that Option (to that extent) shall be deemed an Option not subject to section 422 of the Code for all purposes of the Plan.
(i)
Governing Law
. All questions arising with respect to the provisions of the Plan and Awards shall be determined by application of the laws of the State of Texas, without giving effect to any conflict of law provisions thereof, except to the extent Texas state law is preempted by federal law. The obligation of the Company to sell and deliver Stock hereunder is subject to applicable federal and state laws and to the approval of any governmental authority required in connection with the authorization, issuance, sale, or delivery of such Stock.
(j)
Conditions to Delivery of Stock
. Nothing herein or in any Award granted hereunder or any Award agreement shall require the Company to issue any shares with respect to any Award if that issuance would, in the opinion of counsel for the Company, constitute a violation of the Securities Act or any similar or superseding statute or statutes, any other applicable statute or regulation, or the rules of any applicable securities exchange or securities association, as then in effect. At the time of any exercise of an Option or Stock Appreciation Right, or at the time of any grant of a Restricted Stock Award, Restricted Stock Unit, or other Award the Company may, as a condition precedent to the exercise of such Option or Stock Appreciation Right or settlement of any Restricted Stock Award, Restricted Stock Unit or other Award, require from the Participant (or in the event of his or her death, his or her legal representatives, heirs, legatees, or distributees) such written representations, if any, concerning the holder’s intentions with regard to the retention or disposition of the shares of Stock being acquired pursuant to the Award and such written covenants and agreements, if any, as to the manner of disposal of such shares as, in the opinion of counsel to the Company, may be necessary to ensure that any disposition by that holder (or in the event of the holder’s death, his or her legal representatives, heirs, legatees, or distributees) will not involve a violation of the Securities Act or any similar or superseding statute or statutes, any other applicable state or federal statute or regulation, or any rule of any applicable securities exchange or securities association, as then in effect. No Option or Stock Appreciation Right shall be exercisable and no settlement of any Restricted Stock Award or Restricted Stock Unit shall occur with respect to a Participant unless and until the holder thereof shall have paid cash or property to, or performed services for, the Company or any of its Subsidiaries that the Committee believes is equal to or greater in value than the par value of the Stock subject to such Award.
(k)
Section 409A of the Code
. In the event that any Award granted pursuant to this Plan provides for a deferral of compensation within the meaning of the Nonqualified Deferred Compensation Rules, it is the general intention, but not the obligation, of the Company to design such Award to comply with the Nonqualified Deferred Compensation Rules and such Award shall be interpreted accordingly. Subject to any other restrictions or limitations contained herein, in the event that a “specified employee” (as defined under the Nonqualified Deferred Compensation Rules) becomes entitled to a payment under an Award that provides for a deferral of compensation under the Nonqualified Deferred Compensation Rules on account of a “separation from service” (as defined under the Nonqualified Deferred Compensation Rules), to the extent required by the Code, such payment shall not occur until the date that is six months plus one day from the date of such separation from service. Any amount that is otherwise payable within the six-month period described herein will be aggregated and paid in a lump sum without interest.
(l)
Clawback
. This Plan is subject to any written clawback policies the Company, with the approval of the Board, may adopt. Any such policy may subject a Participant’s Awards and amounts paid or realized with respect to Awards under this Plan to reduction, cancellation, forfeiture or recoupment if certain specified events or wrongful conduct occur, including but not limited to an accounting restatement due to the Company’s material noncompliance with financial reporting regulations or other events or wrongful conduct specified in any such clawback policy adopted to conform to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and rules promulgated thereunder by the Securities and Exchange Commission and that the Company determines should apply to this Plan.
(m)
Plan Effective Date and Term
. This Plan was adopted by the Board on February 20, 2018, to be effective as of the Effective Date, subject to approval by the stockholders of the Company. No Awards may be granted under this Plan on and after May 3, 2028.