Item 5.02Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
Executive Officer Role and Title Changes
On September 26, 2019, the Board of Directors (the “Board”) of Approach Resources Inc. (the “Company”) approved certain role and title changes among the Company’s executive management team, effective immediately. Mr. Sergei Krylov, previously serving as Chief Financial Officer in addition to Chief Executive Officer, relinquished his duties as Chief Financial Officer in connection with the appointment of Mr. Ian Shaw as described below on September 26, 2019 and now serves as President and Chief Executive Officer of the Company. Mr. Troy Hoefer, whose title previously was Senior Vice President – Engineering, now serves as Executive Vice President – Operations. Mr. Joshua Dazey, whose title previously was Vice President, General Counsel and Secretary, now serves as Executive Vice President – Legal and Secretary.
On September 26, 2019, the Board appointed Mr. Shaw to serve as Executive Vice President – Finance and Accounting, effective immediately. Mr. Shaw will continue to perform the functions of the Company’s principal accounting officer and will also assume the additional functions and duties of the Company’s principal financial officer. Mr. Shaw will receive an annual base salary of $300,000. Mr. Shaw, 36, previously worked in the accounting department of the Company since October 2014, serving as Director of Financial Reporting and most recently as Chief Accounting Officer. Previously, Mr. Shaw was with Ernst & Young LLP beginning in 2006, including as Senior Manager, serving a wide range of clients, including oil and gas industry clients. Mr. Shaw holds a Bachelor of Business Administration degree from Texas Christian University and a Masters of Accounting degree from Texas Christian University. He is also a Certified Public Accountant (CPA) in the State of Texas.
Mr. Shaw has no family relationships with any director, executive officer, or person nominated or chosen by the Company to become a director or executive officer of the Company. Mr. Shaw is not a party to any transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K.
Executive Retention Plan
On September 26, 2019, each of the compensation committee (the “Committee”) of the Board and the Board approved the Key Employee Retention Plan (Eligible Executives) (the “Executive Retention Plan”) to enact a retention program for certain senior level employees. The Committee and the Board approved the Executive Retention Plan in recognition of the significant benefits to the Company in retaining such employees to continue assisting the Company in its evaluation of deleveraging and restructuring alternatives.
On September 26, 2019, the Company entered into Participation Agreements under the Executive Retention Plan, which bind the parties thereto to the terms and conditions of the Executive Retention Plan, with each member of the Company’s executive management team (the “Executives” and each an “Executive”): (i) Mr. Sergei Krylov, President and Chief Executive Officer; (ii) Mr. Troy Hoefer, Executive Vice President – Operations; (iii) Mr. Joshua Dazey, Executive Vice President – Legal and Secretary; and (iv) Mr. Ian Shaw, Executive Vice President – Finance and Accounting.
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The Executive Retention Plan provides for a lump sum, one-time cash retention payment, less applicable tax withholdings, as soon as practicable in the following amounts: 180% of the annualized base salary for Mr. Krylov; 130% of the annualized base salary for Mr. Hoefer; 105% of the annualized base salary for Mr. Dazey; and 105% of the annualized base salary for Mr. Shaw.
In order to receive such retention payments, an Executive must be employed by the Company or an affiliate on the payment date and must sign and return a release of claims and not revoke his acceptance of the release, among other requirements. If an Executive ceases to be an employee of the Company or an affiliate at any time prior to the expiration of the retention period for any reason other than a “qualifying termination” (as such term is defined in the Executive Retention Plan), the Executive will be required to repay the amount received under the Executive Retention Plan to the Company. The retention period for each Executive will commence on the cash retention payment date and will end 12 months from such payment date; provided, however, that in the event of a change in control, such period will end instead on the earlier of (i) six months from the effective date of the change in control or (ii) 15 months after the cash retention payment date.
The payments pursuant to the Executive Retention Plan and the associated terms of the Executive Retention Plan constitute all of the Company’s and its affiliates’ obligations to the Executives with respect to retention bonuses, retention payments, or similar compensation or remuneration or bonuses, payments, or similar compensation or remuneration upon or after a potential change in control or change in control. The Executive Retention Plan supersedes all oral or written plans, programs, agreements and policies of the Company and its affiliates with respect to the subject matter of the Executive Retention Plan, including any employment agreement or other plan providing for payments upon a change in control.
The foregoing does not constitute a complete summary of the terms of the Executive Retention Plan. A copy of the Executive Retention Plan is attached hereto as Exhibit 10.1.