Equity accumulation by our non-executive directors is encouraged, and we have share ownership guidelines, which are included in the Corporate Governance Policy. The guidelines require that each non-executive director, within five years of appointment to the Board, hold a number of vested and unvested shares of the Company having a value of at least five times the annual retainer. Each director was in compliance with these guidelines at the end of 2019.2021.
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Shares authorised* | 10,685,566 |
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Fungible Ratio | 2.00 |
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Net shares counted against shares available under the LTIP as of 1 March 2020* | 8,946,189 |
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Remaining shares available for grant under the LTIP as of 1 March 2020 | 1,739,377 |
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Additional shares being requested | 8,150,000 |
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Total shares available for grant under the LTIP after giving effect to the proposed amendment (excluding forfeitures from Prior Plans) | 9,889,377 |
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* As adjusted to reflect the Company's 1:4 reverse stock split.
Note: As of 1 March 2020, Valaris had total outstanding awards under all of its equity compensation plans of 904,124 share options and share appreciation rights with a weighted average exercise price of $51.27 and a weighted average life of 2.32 years, and 6,783,981 outstanding full value awards.
Dilution and Burn Rate
Our equity plan share usage over 2017, 2018, and 2019 represented a three-year average burn rate of 2.23% of our weighted average common shares outstanding for each such year. This rate assumes that our performance-based awards are settled at maximum in Valaris Class A ordinary shares .
Dilution is commonly measured by “overhang,” which generally refers to the amount of potential dilution to current shareholders that could result from the future issuance of the shares reserved under an equity compensation plan. Overhang is typically expressed as a percentage (equal to a fraction where the numerator is the sum of the number
of shares reserved but not issued under equity compensation plans plus the number of shares subject to outstanding awards and the denominator is the sum of the numerator plus the total number of shares outstanding). If the amendment to the LTIP is approved, our potential voting power dilution will be approximately 8.5% (based on shares and awards outstanding as of 1 March 2020.
Key Features of the LTIP
Repricing of stock options without shareholder approval is prohibited.
Stock options must be granted with an exercise price that is not less than 100% of the fair market value on the date of grant.
Every stock option award from the LTIP counts as one share against the reserve.
Shares that are subject to awards other than stock options granted under the LTIP will be counted as two shares for every one share granted in order to reflect the greater impact of full value share awards on dilution of shareholder value.
Liberal share counting or recycling is prohibited, meaning that the following types of share awards may not be added back to the pool of shares available for future grant:
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◦ | Shares tendered or withheld in payment of an exercise price, |
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◦ | Shares tendered or withheld to satisfy tax withholding obligations, and |
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◦ | Shares that are not issued due to a net settlement of an award. |
No single-trigger vesting of equity awards upon a change in control is allowed.
There is no "evergreen" provision pursuant to which shares authorised for issuance may be automatically replenished.
Share awards require a minimum one-year vesting period, with limited exceptions.
The following is a summary of the principal provisions of the LTIP, but is not intended to be a complete description of all its terms and provisions. This description is qualified in its entirety by reference to the LTIP attached as Annex 2 to this proxy statement and is incorporated herein by reference.
General
The LTIP is designed to promote the interests of the Company and its shareholders by establishing a relationship between the awards under the LTIP and the long-term accomplishments of the participants, including utilising competitive targets based on competitive industry data. The LTIP provides for awards of stock options, stock appreciation rights, restricted shares, restricted share units, performance awards, and other cash or equity based awards to incentivise participants and to help retain them through potential appreciation in the value of their shares and equity accumulation.
The primary purposes of the LTIP are to:
offer directors, officers, key employees and consultants an equity ownership interest and opportunity to participate in the Company's growth and financial success and to accumulate capital for retirement on a competitive basis;
provide the Company an opportunity to attract and retain the best available personnel for positions of substantial responsibility;
create long-term value and encourage equity participation in the Company by participants by making available to them the benefits of a larger equity ownership through stock options, stock appreciation rights, restricted share awards, restricted share unit awards, performance awards, and other cash or equity based awards;
provide to participants market-driven and performance-related incentives to achieve long-term performance goals and measures; and
promote the growth and success of the Company's business by aligning the financial interests of the participants with those of the shareholders or other holders of equity in the Company.
The LTIP will be administered by the Board with respect to awards to non-employee directors, and will be otherwise administered by the Compensation Committee to the extent permitted by applicable law. Non-employee participants,
such as non-employee directors and consultants, are only entitled to participate in the LTIP through awards granted under Annex 1 to the LTIP. The Compensation Committee will at all times consist solely of directors who are independent within the meaning of applicable rules of the SEC and the NYSE. The Compensation Committee currently consists of Chairman Nimocks, Messrs. Albrecht, Pilenko, Rowsey and Weitzman, all of whom meet the independence criteria prescribed by the NYSE for service on a compensation committee. References in this Summary to the Compensation Committee refer to the Board with respect to awards for non-employee directors and the Compensation Committee for all other participants. To the extent permitted by applicable law, the Compensation Committee may delegate its authority under the LTIP to selected officers or employees.
The Compensation Committee is authorised to, among other things:
select participants in the LTIP;
determine the size, duration and type of awards;
determine the terms and conditions of awards and award agreements;
determine whether any shares subject to awards will be subject to any transfer restrictions;
construe and interpret the LTIP and agreements thereunder;
establish, amend or waive rules for the LTIP's administration; and
make all other determinations necessary or advisable for the LTIP's administration.
The Compensation Committee may make grants of awards on an individual or group basis. Subject to shareholder approval in certain circumstances, the Compensation Committee generally may accelerate vesting, waive or eliminate restrictions or otherwise amend or modify outstanding awards.
All decisions, determinations and interpretations of the Compensation Committee are final and binding on all participants. To the extent permitted by applicable law, and subject to the provisions of the LTIP, no member of the Compensation Committee shall be liable for any action that is taken or omitted to be taken under the LTIP if such action or omission was done in good faith.
Shares Subject to the LTIP
A maximum of 18,835,566 shares are reserved under the LTIP for issuance of awards to participants, plus any Released Prior Plan Shares (defined below).
Any shares that are subject to awards of stock options granted under the LTIP will be counted against this maximum as one share for every one share granted. Any shares that are subject to awards other than stock options granted under the LTIP will be counted against this maximum as two shares for every one share granted. Shares subject to awards that lapse, or are forfeited or cancelled, will not count against this limit and can be regranted as new awards under the LTIP. This limit is subject to adjustment for certain transactions affecting the Company's capitalisation.
Any shares available under the LTIP may be granted to any employee, non-employee director or consultant during the term of the LTIP. The shares issued under the LTIP may come from existing or newly issued shares (i) held in the treasury of the Company, (ii) authorised but unissued shares, or (iii) shares to be purchased or acquired by the Company or an employee benefit trust.
The term "Prior Plans" means (i) the 2012 LTIP and (ii) the Ensco International Incorporated 2005 Long-Term Incentive Plan, as revised and restated on 22 December 2009 and as assumed by Ensco plc as of 23 December 2009 (the "2005 LTIP"), each as amended. The terms and conditions of the 2012 LTIP and the 2005 LTIP will continue to apply to and govern the determination, exercise and payment of the stock options and other awards granted under either the 2012 LTIP or the 2005 LTIP, as applicable, prior to the effective date of the LTIP.
The term "Released Prior Plan Share" means any share under a Prior Plan that is the subject of an outstanding award granted under the Prior Plan, which award, on or after the effective date of the LTIP, is forfeited or terminated, expires unexercised, or in any other manner causes the share covered by such award to be returned to the reserved share pool under the Prior Plan.
On and after the effective date of the LTIP, any Released Prior Plan Share will be credited to the share reserve under the LTIP when it becomes a Released Prior Plan Share, and will then be available for grants of awards under the LTIP, subject to the terms and conditions of the LTIP and not any Prior Plan.
Participants
The Company's directors, officers, employees and consultants, in addition to those of its subsidiaries, are eligible to be selected to participate in the LTIP. Incentive stock options (options which meet the requirements of Section 422 of the Internal Revenue Code) may be granted only to employees. Non-employee participants are only entitled to participate in the LTIP through awards granted under Annex 1 to the LTIP.
A total of approximately 400 persons are currently eligible to participate in the LTIP; however, the Compensation Committee has the discretion to select participants from among the eligible persons and anticipates that it will designate approximately 400 participants for the LTIP. Actual participation in the LTIP will be determined in the discretion of the Compensation Committee. As a result, the number of participants in the LTIP cannot be precisely determined. Similarly, neither the benefits nor amounts that will be received by or allocated to each of the participants, including executive officers (or that would have been received by or allocated to any participant for the last fiscal year if the LTIP had been in effect), can be determined at this time.
Types of Awards
The LTIP provides for the grant of the following types of incentive awards:
nonstatutory stock options (NSOs);
incentive stock options (ISOs);
restricted share awards;
restricted share unit awards;
share appreciation rights;
other share-based awards;
dividend equivalent rights; and
cash awards.
Award Terms and Provisions
Any award granted to a participant under the LTIP will be set forth in an award agreement, which may be in the form of an award agreement, as determined by the Compensation Committee. Awards will be effective on the date of grant unless the Compensation Committee specifies otherwise. Subject to shareholder approval in certain circumstances, the Compensation Committee generally may accelerate vesting, waive or eliminate restrictions, or otherwise amend or modify outstanding awards.
Except as set forth below and unless otherwise provided by the Compensation Committee in an award agreement, any unvested portion of an award will expire immediately upon termination, and any vested but unexercised award, including stock options, will expire (i) immediately upon termination for cause; or (ii) on the earlier of (a) the expiration date set forth in the applicable award agreement or (b) (1) one year after termination of employment (or other covered service) due to the participant's death or permanent disability; or (2) 90 days after termination for any other reason.
As used in the LTIP, "cause" is defined as and limited to:
the occurrence of any act or omission by the participant that results in the participant's conviction, plea of no contest, plea of nolo contendere, or imposition of unadjudicated probation for any felony or crime involving moral turpitude, or, where such participant is a resident outside the U.S., the conviction of the participant by a court of competent jurisdiction as to which no further appeal can be taken of any crime by the participant (other than a road traffic offence for which no custodial sentence is given);
the breach by the participant of any policy or written agreement with the Company or any of its subsidiaries, including, without limitation, the Company's Code of Business Conduct Policy and any employment or non-disclosure agreement;
the Compensation Committee's determination that the participant failed to substantially perform the participant's material duties (other than a failure resulting from the participant's illness or incapacity);
the participant's commission of an act of fraud, embezzlement, misappropriation, intentional misconduct or gross negligence, or breach of fiduciary duty against the Company or any of its subsidiaries; or
the Compensation Committee's determination that the participant willfully failed to carry out or comply with any lawful and reasonable material directive of the Board or the participant's immediate supervisor.
Option Grants and Provisions
Stock options granted under the LTIP may be:
ISOs which meet the requirements of Section 422 of the Internal Revenue Code pursuant to which the optionee may receive favourable tax treatment upon qualifying exercise of the option and disposition of the shares acquired upon exercise; or
NSOs which do not meet the requirements of Section 422 of the Internal Revenue Code and, therefore, do not qualify for the tax treatment available to ISOs.
The Compensation Committee selects the recipients of stock options and sets the terms and conditions of such option grants, including the number of shares for which an option is granted, the term of the option, and the time(s) when the option can be exercised. Stock options will normally terminate ten years from the date of grant if not exercised by then.
The exercise price of all stock options will be at least equal to the fair market value of the shares on the date of grant. The fair market value is determined to be the closing price of a share as quoted on the NYSE on the date of grant, with limited exceptions. The LTIP prohibits the repricing of outstanding stock options without shareholder approval.
The status of each stock option granted to an employee as either an ISO or a NSO will be designated by the Compensation Committee at the time of grant. If the aggregate fair market value (determined as of the date of grant) of shares with respect to which ISOs become exercisable for the first time by an employee exceeds $100,000 in any calendar year, the portion of the options that exceeds such limitation will be deemed NSOs.
If an ISO is granted to an employee who then owns, directly or by attribution under the Internal Revenue Code, securities possessing more than 10% of the total combined voting power of all classes of shares of the Company, then the term of that option may not exceed five years, and the option exercise price must be at least 110% of the fair market value of the shares on the date of grant.
The option exercise price will generally be paid by an optionee upon exercise in cash or check although the Compensation Committee may approve different payment methods under the LTIP.
Restricted Share Grants and Provisions
The Compensation Committee has discretion to make grants of restricted shares. A restricted share grant entitles the recipient to receive shares at no cost or for nominal value, subject to such restrictions and conditions as the Compensation Committee may determine at the time of the grant. The recipient may have all the rights of a holder of shares with respect to the restricted shares, such as voting and dividend rights. These rights are effective as soon as restricted shares are granted and issuance of such shares is recorded by the Company's transfer agent.
A grant of restricted shares to a participant will be subject to non-transferability restrictions, forfeiture provisions and such other conditions (including conditions on voting and dividends) as the Compensation Committee, in its discretion, may impose at the time of grant and as set forth in the award agreement.
Restricted shares will vest after lapse of the applicable restrictions. The Compensation Committee may, in its discretion, waive any condition or restriction related to a grant of restricted shares or accelerate the date on which a restricted share vests.
All restricted shares will be granted by way of an award agreement, as determined by the Compensation Committee. A restricted share award will be effective on the date of grant unless the Compensation Committee otherwise specifies.
Restricted Share Unit Grants and Provisions
The Compensation Committee has discretion to make grants of restricted share units. A restricted share unit grant entitles the recipient to receive, at no cost or for nominal value, one share for each unit upon satisfaction of the applicable vesting requirements. The recipient may have rights to dividend equivalents. Restricted share unit awards may be paid in cash, shares or in a combination of cash and shares.
A grant of restricted share units will be subject to non-transferability restrictions, forfeiture provisions and such other conditions (including conditions on dividend equivalents) as the Compensation Committee, in its discretion, may impose at the time of grant and as set forth in the award agreement.
Any restricted share units will vest after the lapse of the applicable restrictions. The Compensation Committee may, in its discretion, waive any condition or restriction related to outstanding restricted share units or accelerate the dates on which a restricted share unit vests.
All restricted share units will be granted by way of an award agreement, as determined by the Compensation Committee. A restricted share unit award will be effective on the date of grant unless the Compensation Committee otherwise specifies.
Performance-Based Awards and Provisions
The Compensation Committee has discretion to make grants of performance-based awards, which are rights to receive cash or shares upon satisfaction of pre-established performance goals, and such other conditions and restrictions as the Compensation Committee determines at the time of grant as set forth in the award agreement. At the time of the grant, the Compensation Committee will also establish the maximum number of shares subject to the performance-based award and the performance period over which the performance criteria applicable to the award will be measured.
The performance measures may be based upon:
earnings (including, without limitation, total shareholder return, earnings per share or earnings before or after taxes);
return measures (including, without limitation, return on invested capital, return on assets, capital, equity, investment or sales);
cash flow (including, without limitation, operating cash flow, free cash flow or cash flow return on capital or investments);
share price (including, without limitation, growth measures and total shareholder return);
operating metrics (including, without limitation, operational downtime, rig utilisation, days sales outstanding, project completion time, budget goals and similar matters);
safety performance and/or incident rate;
technology, efficiency, corporate responsibility or human resources management targets;
strategic team goals; and
any other performance criteria, objective or goal that has been approved by the Compensation Committee in its discretion.
Performance measures and targets may also relate to and be determined in terms of subsidiary, division or individual performance, and the Company's performance when compared to comparable companies, peer or industry groups, or other indexes. Awards may be subject to adjustment for specified events or circumstances or at the Compensation Committee's discretion.
Provisions Relating to Recapitalisations, Mergers, Consolidations and Other Changes in Our Capital Structure or Change in Control
In the event of specified changes in the Company's capital structure, such as a stock dividend, stock split, combination of shares, recapitalisation or other increase or reduction in the number of shares outstanding where the Company receives no compensation, the Compensation Committee will have the power to adjust the number and kind of shares authorised by the LTIP (including any limitations on individual awards), and the number, option exercise price or kinds of shares covered by outstanding awards. The Compensation Committee will also have the power to make other appropriate equitable adjustments to outstanding awards.
In the event of any corporate transaction, the Compensation Committee may authorise the assumption of awards granted by other entities that are acquired by the Company, or otherwise.
If there is a change in control of the Company, unless provided otherwise in the participant's award agreement, the participant's outstanding awards will become fully vested, free of all restrictions, immediately and fully exercisable, and deemed earned in full at the target level, but only if the participant's employment (or other covered service) is
involuntarily terminated without cause, or by the participant for good reason, within the two year period following the change in control.
A "change in control" shall mean the occurrence of any of the following events:
a change in the ownership of the Company, which occurs on the date that any one person, or more than one person acting as a group, acquires ownership of shares that, together with shares held by such person or group, constitutes more than 50% of the total voting power of the shares;
a majority of the members of the Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election; or
a sale of all or substantially all of the Company's assets.
However, a change in control of the Company will not be deemed to have occurred by virtue of the consummation of any transaction or series of related transactions immediately following which the beneficial owners of the voting shares immediately before such transaction or series of transactions continue to have a majority of the direct or indirect ownership in one or more entities which, singly or together, immediately following such transaction or series of transactions, either (i) own all or substantially all of the assets of the Company as constituted immediately prior to such transaction or series of transactions, or (ii) are the ultimate parent with direct or indirect ownership of all of the voting shares after such transaction or series of transactions.
For the purposes of the LTIP, the following events constitute "good reason" for resignation by an employee, unless a different definition is provided in the participant's applicable award agreement:
a material diminution in the participant's authority, duties or responsibilities within the Company and its subsidiaries immediately prior to a change in control;
a material (at least ten percent (10%)) reduction in the participant's base salary or bonus compensation formula as in effect immediately prior to a change in control;
a material reduction in employee benefits, on an aggregated basis, as compared to the coverage or benefits to which the participant was entitled immediately prior to a change in control under the same or similar plans, programmes or policies after the change in control; or
for any shore-based, non-expatriate participant, a geographical relocation of the participant's principal office location by more than 50 miles.
Other Provisions Applicable to Awards
The awards granted under the LTIP are not assignable or transferable by a participant other than by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order (as defined in Section 414(p) of the Internal Revenue Code). However, the Compensation Committee may, in its discretion, authorise in the applicable award agreement the transfer, without consideration, of NSOs by a participant to immediate family members and to entities owned by or for the benefit of immediate family members, subject to certain restrictions.
If permitted under the applicable award agreement, a participant may designate a primary and contingent beneficiary who will, in the event of the participant's death, (i) succeed to the participant's right to exercise outstanding vested stock options and (ii) become entitled to any settlement of the participant's other outstanding types of awards.
Clawback or Forfeiture
All awards (including any proceeds, gains or other economic benefit the participant actually or constructively receives upon receipt or exercise of any award or other receipt or resale of any shares underlying the award) will be subject to any Company clawback policy as may be notified to the participant from time to time as set forth in such clawback policy or in the award agreement. Any such clawback policy may subject a participant's awards, and the amounts paid or realised with respect to such awards, under the LTIP to reduction, cancellation, forfeiture or recoupment if certain specified events or wrongful conduct should occur.
Term and Amendment of LTIP
No awards may be granted under the LTIP after 20 May 2028. The LTIP terminates after all awards have been satisfied, exercised or expire. The Compensation Committee, in its discretion, may terminate the LTIP at any time with respect to any reserved shares that are not allocated to outstanding awards.
The Compensation Committee may amend the LTIP at any time; however, any change that would negatively impact the rights of a participant with respect to an outstanding award generally must be agreed to by the participant. The Compensation Committee must receive shareholder approval of any change in the class of eligible individuals, increase in the number of shares that may be issued under the LTIP (other than in connection with a recapitalisation or other equity adjustment as described above) or other material revision determined under the rules of the NYSE.
Fair Market Value of Stock
For purposes of determining the fair market value with respect to any award granted under the LTIP, unless otherwise specified in an award agreement, the fair market value on any date and in respect to any share of common stock is the closing price of the share on the NYSE or other principal securities exchange on the date as of which fair market value is to be determined or, if no sales were made on such date, the closing sales price on the immediately preceding business day. As of 20 April 2020, the closing price of a share of our Class A ordinary shares on the NYSE was $0.42.
United States Federal Income Tax Consequences
The following is a brief summary of certain U.S. federal income tax consequences relating to the transactions described under the LTIP as set forth below. This summary does not purport to address all aspects of U.S. federal income taxation and does not describe state, local, or foreign tax consequences. This discussion is based upon provisions of the Internal Revenue Code and the Treasury Regulations issued thereunder, and judicial and administrative interpretations under the Internal Revenue Code and Treasury Regulations, all as in effect as of the date hereof, and all of which are subject to change (possibly on a retroactive basis) or different interpretation. This information is not applicable to participants who are not subject to U.S. federal income taxation.
Nonstatutory Stock Options. A participant receiving a NSO that has been issued with an exercise price not less than the fair market value of the Company's common stock on the grant date will not recognise income and the Company will not be allowed a tax deduction at the time that the NSO is granted. When a participant exercises a NSO, the difference between the option price and any higher market value of the stock on the date of exercise will be ordinary income to the participant and will be claimed as a deduction for federal income tax purposes by the Company. When a participant disposes of shares acquired by the exercise of the NSO, any amount received in excess of the fair market value of the shares on the date of exercise will be treated as short-term or long-term capital gain, depending upon whether the participant held the shares for more than one year following the exercise date of the option. If the amount received upon subsequent disposition of the shares is less than the fair market value of the shares on the date of exercise, the loss will be treated as short-term or long-term capital loss, depending upon whether the participant held the shares for more than one year following the exercise date of the option.
Incentive Stock Options. ISOs granted under the LTIP are intended to meet the requirements of Section 422 of the Internal Revenue Code. A participant receiving a grant of an ISO will not recognise income and the Company will not be allowed a deduction at the time the ISO is granted. When a participant exercises an ISO while employed by the Company or its subsidiary, or within the three-month period (one year period following termination due to disability) after termination of employment, no ordinary income will be recognised by the participant at that time (and no tax deduction will be allowed to the Company) but the excess of the fair market value of the shares acquired through such exercise over the option price will be taken into account in determining the participant's alternative minimum taxable income for purposes of the federal alternative minimum tax applicable to individuals. If the shares acquired upon exercise are not disposed of before (i) two years after the date of grant and (ii) one year after the date of transfer of the shares to the participant (the statutory holding periods for ISOs), the excess of the sale proceeds over the aggregate option price of such shares will be long-term capital gain, and the Company will not be entitled to any federal income tax deduction. Except in the event of death, if the shares are disposed of prior to the expiration of the statutory holding periods for ISOs (referred to as a "Disqualifying Disposition"), the excess of the fair market value of such shares at the time of exercise over the aggregate option price (but not more than the gain on the disposition if the disposition is a transaction on which a loss, if sustained, would be recognised) will be ordinary income at the time of such Disqualifying Disposition (and the Company will be entitled to a federal income tax deduction in a like amount), and the balance of the gain, if any, will be capital gain (short-term or long-term depending upon whether the participant held the shares for more than one year following the exercise date of the ISO). To the extent that the aggregate fair market value of
stock (determined on the date of grant) with respect to which ISOs become exercisable for the first time during any calendar year exceeds $100,000, the portion of the options that exceeds such limitation will be treated as NSOs.
Special rule if option price is paid for in common stock. If a participant pays the exercise price of a NSO or an ISO with previously-owned common stock of the Company and the transaction is not a Disqualifying Disposition, the shares received equal to the number of shares surrendered are treated as having been received in a tax-free exchange. The shares received in excess of the number surrendered will not be taxable income if an ISO is being exercised, but will be taxable as ordinary income to the extent of their fair market value if a NSO is being exercised. The participant does not recognise income and the Company receives no tax deduction in connection with the tax-free portion of the exchange transaction.
If the use of previously acquired ISO shares to pay the exercise price of another ISO constitutes a Disqualifying Disposition, the tax results described in the preceding paragraph will apply. The income tax treatment will apply to the shares disposed of, but will not affect the favourable tax treatment of the shares received.
Stock Appreciation Rights and Restricted Stock. A participant receiving a grant of a stock appreciation right or a restricted stock award will not recognise income, and the Company will not be allowed a deduction at the time such award is granted, unless the participant makes a Section 83(b) election, as described below, with respect to a restricted stock award. While an award remains unvested or otherwise subject to a substantial risk of forfeiture, a participant will recognise compensation income equal to the amount of any dividends received and the Company will be allowed a tax deduction in a like amount. When an award vests or otherwise ceases to be subject to a substantial risk of forfeiture, the excess of the fair market value of the award on the date of vesting or the cessation of the substantial risk of forfeiture over the amount paid, if any, by the participant for the award will be ordinary income to the participant and will be claimed as a tax deduction for federal income tax purposes by the Company. Upon disposition of the shares received, the gain or loss recognised by the participant will be treated as capital gain or loss, and the capital gain or loss will be short-term or long-term depending upon whether the participant held the shares for more than one year following the vesting or cessation of the substantial risk of forfeiture. However, if the participant files a Section 83(b) election with the Internal Revenue Service within 30 days after the date of grant of restricted stock, the participant's ordinary income and commencement of holding period and the tax deduction will be determined as of the date of grant. In such a case, the amount of ordinary income recognised by such participant and deductible by the Company will be equal to the excess of the fair market value of the award as of the date of grant over the amount paid, if any, by the participant for the award. If a Section 83(b) election is made and the participant thereafter forfeits such award, no refund or deduction will be allowed for the amount previously included in the participant's income.
Other Awards. In the case of another stock-based award, a participant will generally recognise ordinary income in an amount equal to any cash received and the fair market value of any common stock received on the date of payment or delivery, provided that the award is either exempt from or complies with applicable requirements under Section 409A of the Internal Revenue Code. In that taxable year, the Company will receive a federal income tax deduction in an amount equal to the ordinary income amount recognised by the participant.
Parachute Payments. Under the "golden parachute" provisions of Section 280G of the Internal Revenue Code, the accelerated vesting of stock options and benefits paid under other incentive awards granted under the LTIP in connection with a change in control of the Company, as described under Section 280G, may be required to be valued and taken into account in determining whether participants have received compensatory payments, contingent on the change in control, in excess of certain limits under Section 280G. If these limits are exceeded, a portion of the amounts payable to the participant may be subject to an additional 20% federal tax imposed on the participant and be nondeductible to the Company. If a participant's rights under the LTIP are accelerated as a result of a change in control and the participant is a "disqualified individual" under Section 280G, the then present value of any accelerated rights received by such participant may be included in determining whether the participant received an "excess parachute payment" under Section 280G.
Section 409A of the Internal Revenue Code. Section 409A of the Internal Revenue Code applies to certain plans providing deferred compensation to employees, non-employee directors, consultants and other service providers. Section 409A could potentially apply to different types of incentive awards available under the LTIP. Generally, to the extent that the tax deferral of an award granted under the LTIP fails to meet either an exemption from the application of Section 409A, or the requirements for compliance with Section 409A, such award may be subject to taxation and tax penalties under Section 409A. The Company intends to structure awards granted under the LTIP and administer the LTIP in a manner that either complies with or is exempt from the requirements of Section 409A. If any provision in the LTIP or any award thereunder would result in the imposition of a tax or penalty under Section 409A, the Company may reform that LTIP provision or award (to the extent permitted by Section 409A) to avoid imposition of the tax or
penalty, and no such action taken to comply with Section 409A, or an exemption thereunder, will be deemed to adversely affect the participant's rights to the award.
Federal Tax Withholding. Income realised by an employee upon the exercise of a NSO or the receipt of shares under another type of award is generally subject to withholding of federal, state, and local income tax, as well as to withholding of the participant's share of tax under the Federal Insurance Contribution Act. Because the withholding requirement applies only to employees, a non-employee participant who receives an award under the LTIP is not subject to tax withholding by the Company.
To satisfy federal income tax withholding requirements, the Company has the right to require that, as a condition to delivery of any certificate for common stock, the participant remit to the Company an amount sufficient to satisfy the withholding requirements. Alternatively, the Company may withhold a portion of the shares (valued at fair market value) that otherwise would be issued to the participant to satisfy all or part of the withholding tax obligations. Tax withholding does not represent an increase in the participant's total income tax obligation since it is fully credited toward the participant's tax liability for the year. Additionally, withholding does not affect the participant's basis in shares of common stock received under the LTIP.
ERISA. The LTIP is not subject to any of the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"). The LTIP is not a qualified plan under Section 401(a) of the Internal Revenue Code.
Plan Benefits
The Company cannot currently determine the benefits or number of shares subject to awards that may be granted in the future to eligible participants under the LTIP because the grant of awards and terms of such awards are to be determined in the sole discretion of the Compensation Committee.
The following table sets forth information with respect to the number of shares of Valaris Class A ordinary shares subject to awards granted under the LTIP to the following individuals and groups since its original adoption through 2020 March 1.
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Name and Position | | Options | | Restricted Shares | | Restricted Share Units | | Performance-Based Awards |
Thomas P. Burke
President and Chief Executive Officer
| | — | | — | | — | | — |
Carl G. Trowell
Executive Chairman
| | — | | — | | 148,104 | | — |
Jonathan Baksht
Executive Vice President and Chief Financial Officer
| | — | | — | | 231,037 | | — |
Gilles Luca
Senior Vice President and Chief Operating Officer
| | — | | — | | 203,746 | | — |
Alan Quintero
Senior Vice President, Business Development
| | — | | — | | — | | — |
Michael T. McGuinty
Senior Vice President, General Counsel and Secretary
| | — | | — | | 182,926 | | — |
P. Carey Lowe
Former Executive Vice President and Chief Operating Officer
| | — | | — | | — | | — |
John S. Knowlton
Former Senior Vice President - Technical
| | — | | — | | — | | — |
All Executive Officers as a Group (including the above) | | — | | — | | 765,813 | | — |
All Non-Executive Directors as a Group | | — | | — | | 345,138 | | — |
All Non-Executive Officer Employees as a Group | | — | | — | | 4,124,767 | | — |
Equity Compensation Plan Information
The following table summarizes certain information related to our compensation plans under which our shares are authorized for issuance as of December 31, 2019, without regard to this amendments proposed by this Resolution 5:
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Plan category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | Weighted-average exercise price of outstanding options, warrants and rights | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))(1) |
| | (a) | | (b)(1) | | (c) |
Equity compensation plans approved by security holders | | — | | | $ | — | | | 2,471,736 | |
Equity compensation plans not approved by security holders(2) | | 906,624 | | | 51.56 | | | 2,425,751 | |
Total | | | 906,624 | | | $ | 51.56 | | | 4,897,487 | |
(1) Restricted share units and restricted shares do not have an exercise price and, thus, are not reflected in this column.
(2) Under the 2018 LTIP, 2.3 million shares remained available for future issuances of non-vested share awards, share option awards and performance awards as of December 31, 2019. In connection with the Pride acquisition, we assumed Pride's option plan and the outstanding options thereunder. As of December 31, 2019, options to purchase 7,500 shares at a weighted-average exercise price of $165.51 per share were outstanding under this plan. No shares are available for future issuance under this plan, no further options will be granted under this plan and the plan will be terminated upon the earlier of the exercise or expiration date of the last outstanding option. In connection with the Atwood acquisition, we assumed Atwood’s Amended and Restated 2007 Long-Term Incentive Plan (the “Atwood LTIP”) and the options outstanding thereunder. As of December 31, 2019, options to purchase 124,176 shares at a weighted-average exercise price of $99.39 per share were outstanding under this plan. There were also 96,626 shares remaining available for future issuance, which we may grant to employees and other service providers who were not employed or engaged with us prior to the Atwood acquisition.
The Atwood LTIP, which we adopted in connection with the Atwood acquisition, provides for discretionary equity compensation awards. Awards may be granted in the form of share options, restricted share awards, share appreciation rights and performance share or unit awards. All future awards granted under the Atwood LTIP will be subject to such terms and conditions, including vesting terms, as may be determined by the plan administrator at the time of grant. Following the Atwood acquisition, the Atwood LTIP is administered by and all award decisions will be made on a discretionary basis by our Compensation Committee or Board of Directors.
In connection with the Rowan Transaction, we assumed the Amended and Restated 2013 Rowan Companies plc Incentive Plan (the “Rowan LTIP”)and the non-vested share awards, options, and share appreciation rights outstanding thereunder. As of December 31, 2019, options to purchase 244,025 shares at a weighted-average exercise price of $25.58 per share, 530,923 share appreciation rights at a weighted-average exercise price of $50.70 per share and 2,075,426 restricted share units were outstanding under this plan. There were also 2.3 million shares remaining available for future issuance, which we may grant to employees and other service providers who were not employed or engaged with us prior to the Rowan Transaction.
The Rowan LTIP, which we adopted in connection with the Rowan Transaction, provides for discretionary equity compensation awards. Awards may be granted in the form of share options, restricted share or unit awards, share appreciation rights and performance share or unit awards. All future awards granted under the Rowan LTIP will be subject to such terms and conditions, including vesting terms, as may be determined by the plan administrator at
the time of grant. Following the Rowan Transaction, the Rowan LTIP is administered by and all award decisions will be made on a discretionary basis by our Compensation Committee or Board of Directors.
Shareholder approval is required to approve the amendment to the LTIP.
The Board recommends that shareholders vote FOR the ordinary resolution to approve the amendment to the 2018 Long-Term Incentive Plan.
If no indication is given as to how you want your shares to be voted, the persons designated as proxies will vote the proxies received FOR Resolution 5.
RESOLUTION 6
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6. | AN ORDINARY RESOLUTION TO APPROVE THE DIRECTORS' REMUNERATION POLICY. |
The proposed Directors' Remuneration Policy has been prepared in accordance with the provisions of the Companies Act and The Large and Medium Sized Companies and Groups (Accounts and Reports) Regulations 2008 (the "Regulations") (as currently amended). Shareholders are invited to vote on the Directors' Remuneration Policy (the "Directors' Remuneration Policy"), which may be found in the first section of Annex 1 to this proxy statement and contains details of our policy. It is intended that the Directors' Remuneration Policy, if approved, will, for the purposes of section 226D(6)(b) of the Companies Act, take effect after the Meeting on 15 June 2020.
The Board recommends that shareholders vote FOR the approval of the Directors' Remuneration Policy, as described in the first section of Annex 1 set forth in this proxy statement.
If no indication is given as to how you want your shares to be voted, the persons designated as proxies will vote the proxies received FOR Resolution 6.
RESOLUTION 7
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7. | A NON-BINDING ADVISORY VOTE TO APPROVE THE DIRECTORS' REMUNERATION REPORT FOR THE YEAR ENDED 31 DECEMBER 2019. |
In accordance with Section 439 of the Companies Act and Schedule 8 of the Large and Medium Sized Companies and Groups (Accounts and Reports) Regulations 2008 (as currently amended), shareholders are invited to vote on the Directors' Remuneration Report for the year ended 31 December 2019 excluding the Directors’ Remuneration Policy (the "Directors' Remuneration Report"), which may be found in Annex 1 to this proxy statement.
Because this vote is advisory, it will not be binding upon our Board. However, we value constructive dialogue with our shareholders on director compensation and other important governance topics and encourage all shareholders to vote their shares on this matter. We will take into account the outcome of this vote when considering future director compensation arrangements.
The Board recommends that shareholders vote FOR the approval of the Directors' Remuneration Report, as described in Annex 1 set forth in this proxy statement (but excluding the Directors' Remuneration Policy).
If no indication is given as to how you want your shares to be voted, the persons designated as proxies will vote the proxies received FOR Resolution 7.
RESOLUTION 8
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8. | A NON-BINDING ADVISORY VOTE TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS. |
In accordance with Section14A of the Exchange Act, we are providing our shareholders the opportunity to cast a non-binding advisory vote on the compensation of our named executive officers, which is described in the CD&A and Executive Compensation sections of this proxy statement.
Our executive compensation programme is designed to provide a competitive level of compensation necessary to attract, employ, retain and reward individuals and to motivate them to lead us to achieve short-term and long-term business objectives that enhance shareholder value.
Overall operational efficiency and safety performance are among our core values and key business objectives. Achievement of these objectives is measured against specific annual goals and published industry safety standards and serves as a means of determining performance-based compensation. Our executive bonus and long-term incentive compensation philosophy includes the concept that such compensation should increase when we have strong financial performance and should decline when we have poor financial performance. Our philosophy is also grounded in the principle that the creation of shareholder value is an important measure of executive officer performance and overall compensation.
Shareholders are urged to read the CD&A section of this proxy statement, which more thoroughly discusses how our compensation policies and procedures support our compensation philosophy. We believe that these policies and procedures are effective in supporting our compensation philosophy and in achieving our goals.
Because this vote is advisory, it will not be binding upon our Board. However, we value constructive dialogue with our shareholders on executive compensation and other important governance topics and encourage all shareholders to vote their shares on this matter. We will take into account the outcome of this vote when considering future executive compensation arrangements.
At the 2017 Annual General Meeting of Shareholders, our shareholders recommended, by advisory vote, a one-year frequency of future advisory votes on executive compensation. In accordance with these results, we intend to hold this vote annually until the next required advisory vote on the frequency of shareholder votes on the compensation of named executive officers, which we expect to hold no later than our 2023 Annual General Meeting of Shareholders.
The Board recommends that shareholders vote FOR the approval of the overall compensation of our named executive officers, as described in the CD&A and Executive Compensation sections set forth in this proxy statement.
If no indication is given as to how you want your shares to be voted, the persons designated as proxies will vote the proxies received FOR Resolution 8.
RESOLUTION 9
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9. | A NON-BINDING ADVISORY VOTE TO APPROVE THE REPORTS OF THE AUDITORS AND THE DIRECTORS AND THE U.K. STATUTORY ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2019. |
For each financial year, the directors must present a directors' report, audited accounts and an independent auditor's report on the financial statements to shareholders at an Annual General Meeting of Shareholders. Those to be presented at the Meeting are in respect of the year ended 31 December 2019 and will be delivered to the Registrar of Companies in the United Kingdom following the Meeting. Copies of our U.K. statutory accounts, the U.K. statutory directors' report and the auditors' report for the year ended 31 December 2019 have been included with our annual report to shareholders accompanying this proxy statement. The full accounts and reports of Valaris will be available for inspection prior to and during the Meeting. The vote on this resolution is advisory and will not be binding on the Board.
The Board recommends that shareholders vote FOR the approval of the reports of the auditors and the directors and the accounts for 2019.
If no indication is given as to how you want your shares to be voted, the persons designated as proxies will vote the proxies received FOR Resolution 9.
RESOLUTION 10
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10. | AN ORDINARY RESOLUTION AUTHORISING THE BOARD TO ALLOT SHARES. |
As a U.K. company governed in part by the Companies Act , we cannot issue new shares (other than in certain limited circumstances) without first obtaining approval from our shareholders. The Companies Act provides that this approval grants authority to the Board to allot shares in the Company and to grant rights to subscribe for or convert any security of the Company into shares of the Company. If our shareholders approve this grant of authority, their approval would be effective until the conclusion of the next Annual General Meeting of Shareholders (or, if earlier, at the close of business on 19 August 2021).Without this grant of authority from shareholders, the Board would be unable to issue any of our shares without obtaining specific prior approval from our shareholders. Approval of this Resolution will not, however, implicate any shareholder approval requirements of the NYSE for share issuances, such as for executive compensation purposes, certain financing transactions or in connection with acquisitions, and we would continue to be subject to the requirements to obtain shareholder approval in those instances. Allotments or issuances of ordinary shares for cash are subject to rights of pre-emption of the existing shareholders. If the shareholders approve Resolutions 11 and 12 at the Meeting, those pre-emption rights will be disapplied to a limited extent as set forth in Resolutions 11 and 12 for new issues of shares subject to this Resolution.
If authorised by our shareholders, the first part of this Resolution 10 (paragraph (A) in the full text of the Resolution below) would give the Board the authority to allot shares or grant rights to subscribe for or convert any securities into shares, up to an aggregate nominal amount of $26,431,699. This amount represents approximately 33.3% of the issued share capital (excluding treasury shares) of the Company as of 20 April 2020, the latest practicable date prior to publication of this proxy statement.
The second part of Resolution 10 (paragraph (B) in the full text of the Resolution below) would give the Board authority to allot shares or grant rights to subscribe for or convert any securities into shares in connection with a rights issue or other similar issue in favour of ordinary shareholders, up to an aggregate nominal amount equal to $52,863,399 (as reduced by the nominal amount of any shares issued under paragraph (A) of this Resolution 10). This amount (before any reduction) represents approximately 66.6% of the issued share capital (excluding treasury shares) of the Company as of 20 April 2020, the latest practicable date prior to publication of this proxy statement.
Together, the aggregate nominal amount of any relevant securities issued under the authority conferred by paragraphs (A) and (B) will represent an amount that is equal to approximately 66.6% of the enlarged issued share capital (excluding treasury shares) of the Company as of 20 April 2020.
Our Board may exercise the authority to allot shares representing up to 33.3% (or 66.6% in connection with a rights issue or other similar issue) of the issued share capital of the Company (excluding treasury shares). Such an allotment could be carried out in compliance with applicable U.K. law for various purposes including for example to raise additional capital, to reduce debt or increase liquidity as necessary. Any determination to exercise the authority to allot shares will be dependent upon market conditions and our profitability, liquidity, financial condition, market outlook, capital requirements and other factors the Board deems relevant.
The description of our shares contained in our Current Report on Form 8-K filed 23 December 2009, as amended and superseded by the description set forth in our Current Report on Form 10-K filed 21 February 2020, is incorporated herein by reference.
As of 20 April 2020, a total of 7,505,249ordinary shares are held by the Company in treasury.
The Board recommends that shareholders vote FOR the ordinary resolution to authorise the Board to allot shares.
If no indication is given as to how you want your shares to be voted, the persons designated as proxies will vote the proxies received FOR Resolution 10.
The full text of the Resolution is as follows:
AN ORDINARY RESOLUTION THAT THE BOARD BE GENERALLY AND UNCONDITIONALLY AUTHORISED TO ALLOT SHARES IN THE COMPANY AND TO GRANT RIGHTS TO SUBSCRIBE FOR OR CONVERT ANY SECURITY INTO SHARES IN THE COMPANY:
(A) UP TO A NOMINAL AMOUNT OF $26,431,699 (SUCH AMOUNT TO BE REDUCED BY ANY ALLOTMENTS OR GRANTS MADE UNDER PARAGRAPH (B) BELOW IN EXCESS OF SUCH SUM); AND
(B) COMPRISING EQUITY SECURITIES (AS DEFINED IN THE COMPANIES ACT) UP TO A NOMINAL AMOUNT OF $52,863,399(SUCH AMOUNT TO BE REDUCED BY ANY ALLOTMENTS OR GRANTS MADE UNDER PARAGRAPH (A) ABOVE) IN CONNECTION WITH AN OFFER BY WAY OF A RIGHTS ISSUE OR OTHER SIMILAR ISSUE:
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(i) | TO ORDINARY SHAREHOLDERS IN PROPORTION (AS NEARLY AS MAY BE PRACTICABLE) TO THEIR EXISTING HOLDINGS; AND |
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(ii) | TO HOLDERS OF OTHER EQUITY SECURITIES AS REQUIRED BY THE RIGHTS OF THOSE SECURITIES OR AS THE BOARD OTHERWISE CONSIDERS NECESSARY, |
AND SO THAT THE BOARD MAY IMPOSE ANY LIMITS OR RESTRICTIONS AND MAKE ANY ARRANGEMENTS WHICH IT CONSIDERS NECESSARY OR APPROPRIATE TO DEAL WITH TREASURY SHARES, FRACTIONAL ENTITLEMENTS, RECORD DATES, LEGAL, REGULATORY OR PRACTICAL PROBLEMS IN, OR UNDER THE LAWS OF, ANY TERRITORY OR ANY OTHER MATTER,
SUCH AUTHORITY TO APPLY UNTIL THE CONCLUSION OF THENEXT ANNUAL GENERAL MEETING OF SHAREHOLDERS (OR, IF EARLIER, AT THE CLOSE OF BUSINESS ON 19 AUGUST 2021), BUT, IN EACH CASE, DURING THIS PERIOD THE COMPANY MAY MAKE OFFERS AND ENTER INTO AGREEMENTS WHICH WOULD, OR MIGHT, REQUIRE SHARES TO BE ALLOTTED OR RIGHTS TO SUBSCRIBE FOR OR CONVERT SECURITIES INTO SHARES TO BE GRANTED AFTER THE AUTHORITY ENDS AND THE BOARD MAY ALLOT SHARES OR GRANT RIGHTS TO SUBSCRIBE FOR OR CONVERT SECURITIES INTO SHARES UNDER ANY SUCH OFFER OR AGREEMENT AS IF THE AUTHORITY HAD NOT ENDED.
RESOLUTIONS 11 AND 12
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11. | A SPECIAL RESOLUTION TO APPROVE THE GENERAL DISAPPLICATION OF PRE-EMPTION RIGHTS. |
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12. | A SPECIAL RESOLUTION TO APPROVE THE DISAPPLICATION OF PRE-EMPTION RIGHTS IN CONNECTION WITH AN ACQUISITION OR SPECIFIED CAPITAL INVESTMENT. |
As a U.K. company governed in part by the Companies Act, before we can raise additional capital through the issuance of ordinary shares of the Company for cash, we are required first to offer those shares to current shareholders in proportion to their shareholdings. The Companies Act permits shareholders to waive, or disapply, those pre-emption rights. In addition, under U.K. law such pre-emption rights do not apply to any issuance of shares for non-cash consideration (including where shares are issued in exchange for other securities). If our shareholders approve the disapplication of pre-emption rights, and provided they approve the allotment of shares in Resolution 10, their approval for this Resolution 11 and this Resolution 12 would each be effective until the conclusion of the next Annual General Meeting of Shareholders (or, if earlier, at the close of business on 19 August 2021).
Resolutions 11 and 12 would give the Board the ability to raise additional capital by issuing ordinary shares and shares held in the Company's treasury for cash free of the restriction in Section 561 of the Companies Act.
The power set out in Resolution 11 would be limited to (a) allotments or sales in connection with pre-emptive offers and offers to holders of other equity securities if required by the rights of those securities or as the Board otherwise considers necessary, or (b) otherwise up to an aggregate nominal amount of $3,968,724 (which represents approximately 5% of the issued share capital (excluding treasury shares) of the Company as of 20 April 2020, the latest practicable date prior to publication of this proxy statement).
In respect of the power referred to in (b), the Board confirms that it does not intend to issue shares in reliance on such authority if the cumulative usage of such authority within a rolling three-year period would be in excess of 7.5% of the issued share capital of the Company (excluding treasury shares) without prior consultation with shareholders, except in connection with an acquisition or specified capital investment as described below in Resolution 12.
Resolution 12 is intended to give the Company additional flexibility to make non pre-emptive issues of shares in connection with an acquisition or specified capital investment which is announced contemporaneously with the corresponding allotment, or which has taken place in the preceding six month period and is disclosed in the announcement of the corresponding allotment. A specified capital investment means one or more specific capital investment related uses for the proceeds of an issuance of equity securities, in respect of which sufficient information regarding the effect of the transaction on the Company, the assets which are the subject of the transaction and (where appropriate) the profits attributable to them is made available to shareholders to enable them to reach an assessment of the potential return.
The power under Resolution 12 is in addition to that proposed by Resolution 11 and would be limited to an aggregate nominal amount of $3,968,724 (which represents approximately 5% of the issued share capital (excluding treasury shares) of the Company as of 20 April 2020).
The powers under Resolutions 11 and 12 would provide the Board with additional flexibility to pursue strategic transactions, raise capital and finance growth with equity.
If Resolution 11 is passed, the authority conferred by Resolution 11 will replace the authority conferred by Resolution 11 (General Disapplication of Pre-Emptive Rights Proposal) approved by shareholders at the general meeting of the Company held on 20 May 2019.
If Resolution 12 is passed, the authority conferred by Resolution 12 will replace the authority conferred by Resolution 12 (Specified Disapplication of Pre-Emptive Rights Proposal) approved by shareholders at the general meeting of the Company held on 20 May 2019.
The Board recommends that shareholders vote FOR the approval of general disapplication of pre-emption rights and FOR the approval of disapplication of pre-emption rights in connection with an acquisition or specified capital investment.
If no indication is given as to how you want your shares to be voted, the persons designated as proxies will vote the proxies received FOR Resolutions 11 and 12.
The full text of Resolution 11 is as follows:
IF RESOLUTION 10 IS PASSED, THE BOARD SHALL BE GIVEN POWER TO ALLOT EQUITY SECURITIES (AS DEFINED IN THE COMPANIES ACT) FOR CASH UNDER THE AUTHORITY GIVEN BY THAT RESOLUTION AND/OR TO SELL ORDINARY SHARES HELD BY THE COMPANY AS TREASURY SHARES FOR CASH AS IF SECTION 561 OF THE COMPANIES ACT DID NOT APPLY TO ANY SUCH ALLOTMENT OR SALE, SUCH POWER TO BE LIMITED:
(A) TO THE ALLOTMENT OF EQUITY SECURITIES AND SALE OF TREASURY SHARES IN CONNECTION WITH AN OFFER OF, OR INVITATION TO APPLY FOR, EQUITY SECURITIES (BUT IN THE CASE OF THE AUTHORITY GRANTED UNDER PARAGRAPH (B) OF RESOLUTION 10, BY WAY OF A RIGHTS ISSUE OR OTHER SIMILAR ISSUE ONLY):
(I) TO ORDINARY SHAREHOLDERS IN PROPORTION (AS NEARLY AS MAY BE PRACTICABLE) TO THEIR EXISTING HOLDINGS; AND
(ll) TO HOLDERS OF OTHER EQUITY SECURITIES, AS REQUIRED BY THE RIGHTS OF THOSE SECURITIES, OR AS THE BOARD OTHERWISE CONSIDERS NECESSARY,
AND SO THAT THE BOARD MAY IMPOSE ANY LIMITS OR RESTRICTIONS AND MAKE ANY ARRANGEMENTS WHICH IT CONSIDERS NECESSARY OR APPROPRIATE TO DEAL WITH TREASURY SHARES, FRACTIONAL ENTITLEMENTS, RECORD DATES, LEGAL, REGULATORY OR PRACTICAL PROBLEMS IN, OR UNDER THE LAWS OF, ANY TERRITORY OR ANY OTHER MATTER; AND
(B) IN THE CASE OF THE AUTHORITY GRANTED UNDER PARAGRAPH (A) OF RESOLUTION 10 AND/OR IN THE CASE OF ANY SALE OF TREASURY SHARES, TO THE ALLOTMENT OF EQUITY SECURITIES OR SALE OF TREASURY SHARES (OTHERWISE THAN UNDER PARAGRAPH (A) ABOVE) UP TO A NOMINAL AMOUNT OF$3,968,724,
SUCH POWER TO APPLY UNTIL THE CONCLUSION OF THE NEXT ANNUAL GENERAL MEETING OF SHAREHOLDERS (OR, IF EARLIER, AT THE CLOSE OF BUSINESS ON 19 AUGUST 2021); HOWEVER, IN EACH CASE, DURING THIS PERIOD THE COMPANY MAY MAKE OFFERS, AND ENTER INTO AGREEMENTS, WHICH WOULD, OR MIGHT, REQUIRE EQUITY SECURITIES TO BE ALLOTTED (AND TREASURY SHARES TO BE SOLD) AFTER THE POWER ENDS AND THE BOARD MAY ALLOT EQUITY SECURITIES (AND SELL TREASURY SHARES) UNDER ANY SUCH OFFER OR AGREEMENT AS IF THE POWER HAD NOT ENDED.
The full text of Resolution 12 is as follows:
IF RESOLUTION 10 IS PASSED, THE BOARD SHALL BE GIVEN POWER IN ADDITION TO ANY POWER GRANTED UNDER RESOLUTION 11 TO ALLOT EQUITY SECURITIES (AS DEFINED IN THE COMPANIES ACT) FOR CASH UNDER THE AUTHORITY GIVEN PURSUANT TO PARAGRAPH (A) OF RESOLUTION 10 AND/OR TO SELL ORDINARY SHARES HELD BY THE COMPANY AS TREASURY SHARES FOR CASH AS IF SECTION 561 OF THE COMPANIES ACT DID NOT APPLY TO ANY SUCH ALLOTMENT OR SALE, SUCH POWER TO BE:
(A) LIMITED TO THE ALLOTMENT OF EQUITY SECURITIES AND/OR SALE OF TREASURY SHARES UP TO A NOMINAL AMOUNT OF $3,968,724; AND
(B) USED ONLY FOR THE PURPOSES OF FINANCING (OR REFINANCING, IF THE POWER IS TO BE USED WITHIN SIX MONTHS AFTER THE ORIGINAL TRANSACTION) A TRANSACTION WHICH THE BOARD DETERMINES TO BE AN ACQUISITION OR OTHER CAPITAL INVESTMENT,
SUCH POWER TO APPLY UNTIL THE CONCLUSION OF THE NEXT ANNUAL GENERAL MEETING OF SHAREHOLDERS (OR, IF EARLIER, AT THE CLOSE OF BUSINESS ON 19 AUGUST 2021); HOWEVER, IN EACH CASE, DURING THIS PERIOD THE COMPANY MAY MAKE OFFERS, AND ENTER INTO AGREEMENTS, WHICH WOULD, OR MIGHT, REQUIRE EQUITY SECURITIES TO BE ALLOTTED (AND TREASURY SHARES TO BE SOLD) AFTER THE POWER ENDS AND THE BOARD MAY ALLOT EQUITY SECURITIES (AND SELL TREASURY SHARES) UNDER ANY SUCH OFFER OR AGREEMENT AS IF THE POWER HAD NOT ENDED.
GENERAL AND OTHER MATTERS
Resolutions 1 through 12 are the only matters that will be brought before the Meeting. Article 45.2 of our Articles of Association, effective 20 May 2013 ("Articles of Association") limits the business transacted at the Meeting to the purposes stated in the Notice.
DELINQUENT SECTION 16(a) REPORTS
Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than 10% of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of our Class A ordinary shares ("Section 16 reports"). Directors, executive officers and greater than 10% shareholders are required by SEC regulations to furnish us copies of all Section 16(a) forms they file.
To our knowledge, based solely upon review of the copies of such Section 16 reports furnished to us during the year ended 31 December 2019 and on written representations from our directors and executive officers, all Section 16 reports applicable to our directors, executive officers and holders known to us to beneficially own more than 10% of any class of our equity securities were filed on a timely basis, except one Form 4 for Mr. Quintero that did not report a grant of restricted share units made on 3 June 2019 in a timely manner.
HOUSEHOLDING OF SHAREHOLDER MATERIALS
We participate, and some brokers, banks and other nominee record holders may be participating, in the practice of householding proxy materials, which means that we and any participating brokers, banks and other nominee record holders will deliver only one Notice of Internet Availability of Proxy Materials and proxy materials to multiple shareholders sharing an address unless we have, or such broker, bank, trust or other nominee record holder has, received contrary instructions from one or more shareholders at such address. This procedure allows multiple shareholders residing at the same address the convenience of receiving a single Notice of Internet Availability of Proxy Materials or set of proxy materials. Upon request, we will promptly deliver a separate copy of the Notice of Internet Availability of Proxy Materials or proxy materials to any shareholder at a shared address to which a single copy of such documents was delivered. You may request a separate copy of the Notice of Internet Availability of Proxy Materials or proxy materials and request that you receive a single copy or multiple copies in the future by calling 1-800-579-1639 or e-mailing sendmaterial@proxyvote.com. You also may request paper copies when prompted after you vote at www.proxyvote.com.
IMPORTANT NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL GENERAL MEETING OF SHAREHOLDERS TO BE HELD ON
15 June 20208 JUNE 2022
We provide shareholders access to the proxy materials for the Meeting over the Internet as permitted under applicable SEC rules. We believe the rules enable us to provide shareholders the information they need in a more timely manner, while lowering the costs of printing and delivering the proxy materials.
To access and review the proxy materials for the Meeting, go to www.proxyvote.com and follow the instructions on the website. We encourage you to accessare monitoring developments regarding the ongoing COVID-19 pandemic and review all information containedpreparing in the proxy materials before voting. Please note that in light of UK Government measures relatingevent any modifications to our Annual General Meeting are necessary or appropriate.If we determine to make any change to the ongoing outbreakdate, time or procedure of COVID-19, subject to any further announcement by - or shareholder communication from - the Company, this year’sour Annual General Meeting, we will be run as a closed meeting and shareholders will not be able to attendannounce such changes in person.advance on our website www.valaris.com.
INFORMATION CONCERNING SHAREHOLDER PROPOSALS FOR THE
20212023 ANNUAL GENERAL MEETING OF SHAREHOLDERS
Any of our shareholders intending to present a proposal at the 20212023 Annual General Meeting of Shareholders must deliver such proposal to our principal executive office, in writing and in accordance with SEC Rule 14a-8, no later than 6 January 202120 December 2022 for inclusion in the proxy statement related to that meeting. The proposal should be delivered to our secretaryCompany Secretary by certified mail, return receipt requested.
In addition, apart from the SEC Rule 14a-8 process described above, a shareholder whose nomination of a person for appointment to the Board or proposal of business is not included in the proxy statement related to the 20212023 Annual General Meeting of Shareholders, but who still intends to submit a nomination or proposal at that meeting, is required by our Articles of Association,bye-laws, and subject to any other requirements of law, to deliver a timely notice for such nomination or proposal, in proper form, in writing. To be timely, such notice must be delivered to or mailed and received by our secretaryCompany Secretary at our principal executive offices, not earlier than the close of business on the 75th day and not later than the close of business on the 50th day prior to the first anniversary of the preceding year's Annual General Meeting of Shareholders, subject to any other requirements of law; provided, however, that in the event that the date of the Annual General Meeting of Shareholders is more than 30 days before or more than 60 days after such anniversary date, notice by the shareholder to be timely must be so delivered not earlier than the close of business on the 75th day prior to the date of such Annual General Meeting of Shareholders and not later than the close of business on the later of the 50th day prior to the date of such Annual General Meeting of Shareholders or, if the first public announcement of the date of such Annual General Meeting of Shareholders is less than 65 days prior to the date of such Annual General Meeting of Shareholders, the 15th day following the day on which public announcement of the date of such meeting is first made. In the case of the 20212023 Annual General Meeting of Shareholders, references to the anniversary date of the preceding year's Annual General Meeting of Shareholders shall mean the first anniversary of 158 June 2020.2022. In addition to giving notice pursuant to the advance notice provisions of the Company's bye-laws, a shareholder who intends to solicit proxies in support of nominees submitted under these advance notice provisions must also provide the notice required under Rule 14a-19, the SEC's universal proxy rule, to the Company Secretary regarding such intent no later than 9 April 2023.
Any such proposal must also comply with the other provisions contained in our Articles of Associationbye-laws relating to shareholder proposals, including provision of certain information specified in our Articles of Association,bye-laws, such as information concerning the nominee of the proposal, if any, and the shareholder and the beneficial owner, as the case may be. Any proposed nomination or business that does not meet the requirements set forth in our Articles of Association,bye-laws, other than proposals submitted in compliance with SEC Rule 14a-8 under the Exchange Act, may be declared out of order and may not be considered at the 20212023 Annual General Meeting of Shareholders.
In addition to the SEC and ArticlesOne or more shareholders of Association processes described above, under the Companies Act,(i) shareholders representingrecord who hold at least 5%1% of our issued and outstanding common shares as of the total voting rights of all shareholders who have a right to voterecord date for the 2023 Annual General Meeting and at the time of such Meeting and has complied with the requirements in our bye-laws may nominate a director nominee or (ii) at least 100 shareholders who havemake a rightproposal for business.
If a shareholder wishes to votepresent a proposal at the 2023 Annual General Meeting of Shareholders in accordance with our bye-laws, or to nominate a person for election as a director, the shareholder, and who hold sharesthe proposal must comply with the requirements set forth in our bye-laws, including by the shareholder giving timely notice of the proposal in writing to the Company on which there has been paid up an average sum, per shareholder, ofSecretary at least £100 can require the Company5847 San Felipe, Suite 3300, Houston, TX 77057. In order to give shareholdersbe timely under our bye-laws, notice of a resolution which may be and is intended to be moved at the Annual General Meeting of Shareholders unless (a) the resolution would, if passed, be ineffective (whether by reason of inconsistency with any enactment or the company's constitution or otherwise); (b) it is defamatory of any person; or (c) it is frivolous or vexatious. Such a request, made by the requisite number of shareholders,shareholder proposals must be received by the Company Secretary, not less than 90 days nor more than 120 days before the anniversary of the 2022 Annual General Meeting; however, in the event that annual general meeting is called for a date that is not more than 30 days before or more than 60 days after such anniversary, notice by the shareholder in order to be timely must be received not later than six weeks before10 days following the earlier of the date on which notice of the 2023 Annual General Meeting was posted to shareholders or the date on which public disclosure of Shareholders.the date of the 2023 Annual General Meeting was made. As a result, any notice given by or on behalf of a shareholder for the nomination of persons for election to the Board or present a proposal pursuant to the Company’s bye-laws (and not pursuant to SEC Rule 14a-8) must be received no earlier than 8 February 2023 and no later than 10 March 2023. All director nominations and shareholder proposals must comply with the requirements of the Company’s bye-laws.
The Chair of the meeting may refuse to allow the transaction of any business not proposed in compliance with our bye-laws.
OTHER MATTERS
The Company has not been notified of, and our Board is not aware of, any other matters to be presented for action at the Meeting.
The following materials are being distributed to shareholders with this proxy statement: the letter to shareholders from our President and Chief Executive Officer and our 20192021 annual report to shareholders, which includes our consolidated financial statements for the year ended 31 December 20192021 filed in our annual report on Form 10-K with the SEC and also includes our U.K. statutory accounts and reports of the directors and auditors of Valaris.SEC.
Upon request in writing, we will provide each person solicited by this proxy statement, without charge except for exhibits, a copy of our annual report on Form 10-K for the year ended 31 December 20192021 as filed with the SEC, including the financial statements and financial statement schedules.statements. Please direct your request to our Investor Relations Department, 5847 San Felipe, Suite 3300, Houston, Texas 77057.
In light of current UK government restrictions on public gatherings,the ongoing COVID-19 pandemic, we urge you to vote your shares by proxy.
FORWARD-LOOKING STATEMENTS
Annex 1
DIRECTORS' REPORTS
Introduction
Valaris plc ("Valaris,Statements contained in this proxy statement that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. Forward-looking statements include words or phrases such as "anticipate," "we,"believe," "our" or the "Company") is"estimate," "expect," "intend," “likely,” "plan," "project," "could," "may," "might," “should,” “will” and similar words. The forward-looking statements contained in this proxy statement are subject to disclosure regimesnumerous risks, uncertainties and assumptions that may cause actual results to vary materially from those indicated. You should also carefully read and consider “Item 1A. Risk Factors” in the United StatesPart I and United Kingdom. While some of the disclosure requirements in these jurisdictions overlap or are otherwise similar, some differ and require distinct disclosures. As a result, you will find our United Kingdom Statutory Directors' Remuneration Policy (the "Remuneration Policy") and Directors' Remuneration Report (the "Remuneration Report") within this Annex 1.
Annex 1 should be read in conjunction with the CD&A. Pursuant to English law, the Remuneration Report forms part of the statutory annual report of Valaris for the year ended 31 December 2019 and has been prepared in accordance with Schedule 8 of The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, as amended (the "Regulations"). The Remuneration Policy will be subject to a binding vote by shareholders during the Annual General Meeting of Shareholders to be held on 15 June 2020 (the "Meeting"). If approved, this Remuneration Policy will become effective immediately upon approval, superseding the remuneration policy approved by shareholders on 22 May 2017.
The Remuneration Report provides details on remuneration, and other information, required by the Regulations and will be subject to an advisory shareholder vote at the Meeting on 15 June 2020. The Companies Act requires the auditors to report to the shareholders on certain parts of the Remuneration Report and to state whether, in their opinion, those parts of the Remuneration Report have been properly prepared in accordance with the Regulations. There is no English law requirement to audit the Remuneration Policy.
DIRECTORS' REMUNERATION POLICY
The Chief Executive Officer and Executive Chairman currently serve as executive directors on the Valaris Board of Directors (the "Board"), and all other current directors are non-executive directors. The Executive Chairman will step down from his position on 1 May 2020 and will continue his service as a non-executive director until the Meeting. The Board has appointed Paul E. Rowsey, III, as the non-executive chairman of the Board effective upon the Executive Chairman's stepping down. This Remuneration Policy will first address our remuneration philosophy for executive directors, followed by our remuneration philosophy for non-executive directors.
Our executive director remuneration philosophy is based on the promotion of the following principles:
strong financial performance;
creation of and preservation of a strong balance sheet;
industry leading safety performance;
operational efficiency (downtime reduction and safety);
customer satisfaction;
positioning assets in markets that offer prospects for long-term growth in profitability;
creation of long-term value; and
strategic and opportunistic enhancement of our rig fleet.
We stress the importance of these objectives through the structure of our remuneration programme by placing a significant amount of executive director pay at risk and subjecting a significant portion of their potential remuneration to specific performance requirements.
The Remuneration Policy for executive directors is set by the Compensation Committee of the Company, which is made up entirely of independent non-executive directors. The Chief Executive Officer and the Executive Chairman
do not attend meetings of the Compensation Committee unless expressly invited to do so by the Chairman of the Compensation Committee. The Compensation Committee takes independent advice from its compensation consultant, which also provides the Compensation Committee with independently sourced data to assist the Compensation Committee in setting the Remuneration Policy. For further information on our decision-making process by which we have determined, reviewed and implemented our remuneration policies, see "Compensation“Item 7. Management’s Discussion and Analysis - How We Make Compensation Decisions"of Financial Condition and Results of Operations” in our Proxy Statement for the year ended 31 December 2019.
In setting the Remuneration Policy for our executive directors, the Board and the relevant committees thereof take into account certain characteristics that align the executive directors with shareholders, including:
Placing a significant portion of officer pay at-risk, based on achievement of performance objectives and/or growth in long-term shareholder value;
Maintaining executive and director share ownership guidelines;
Imposing minimum holding periods after vesting for stock and options until share ownership guidelines are met;
Subjecting equity and other incentive awards to a compensation clawback provision;
Prohibiting the pledging or hedging of company stock;
Prohibiting buyouts of underwater stock option awards without prior shareholder approval;
Prohibiting repricing of stock option awards without prior shareholder approval;
Prohibiting share/option recycling;
Prohibiting payment of excise tax gross-ups;
Providing no single-trigger change-in-control severance benefits except under limited legacy Rowan arrangements, including an agreement with our Chief Executive Officer;
Providing no single-trigger vesting of time-based equity awards upon a change in control, except under limited legacy Rowan arrangements, including an agreement with our Chief Executive Officer; and
Providing no guarantees for salary increases.
In supportPart II of our compensation philosophy and our business objectives, we designed our executive director remuneration programme to accomplish the following primary goals:
Attract, retain and motivate highly qualified individuals capable of leading us to achieve our business objectives;
Pay for performance by providing competitive pay opportunities that result in realised pay which increases when we have strong financial performance and declines when we have poor financial performance; and
Ensure alignment with shareholders through the provision of long-term equity-based remuneration and enforcement of robust share ownership guidelines.
The following key changes are proposed to the Remuneration Policy (when compared to the policy approved by shareholders in 2017):
To align with corporate best practice, extending the scenarios in which the malus / clawback provisions in respect of both short and long-term incentive arrangements may be invoked by the Compensation Committee or the Board and including the ability to defer part of the annual bonus into Company shares or other instruments;
In line with institutional investors’ expectations, incorporating the discretion commonly being adopted by UK-incorporated listed companies to adjust the formulaic outcome of variable pay metrics to reflect underlying company performance;
Adding in flexibility to the policy for the Compensation Committee to determine appropriate performance and vesting periods for cash and equity-based incentive awards, to allow awards to be granted over the life of the policy on terms which align with the company’s objectives at that time;
In recognition of themost recent precipitous decline in oil prices, the dramatic decline in global demand for oil and the economic uncertainties created by world efforts to control the spread of the COVID-19 pandemic, adding in flexibility to the policy for the Compensation Committee to determine, in its discretion, an appropriate mix of cash- and share-based compensation (including through the use of retention payments), subject to the below-described overall annual limit on each executive director’s total cash bonuses, retention payments, and LTIP awards; and
The Compensation Committee has introduced a new overall cap on an executive director’s variable compensation so that the executive director’s total cash bonuses, retention payments, and LTIP awards (valued at grant) may not exceed an aggregate limit of $8 million per year.
Minor drafting changes have also been made to clarify the policy’s scope. The particular terms of Mr. Trowell and Mr. Burke’s service contracts which were agreed at the time of and in connection with the Rowan Transaction have also been summarised in the policy at Annex 1-12 to 1-13.
The Board reserves the discretion to increase or decrease total remuneration in appropriate circumstances such as where: the nature or scope of a director's role or responsibilities changes or in order to be competitive at the median level of peer companies; the remuneration is not deemed to reflect appropriately the individual's contribution or the overall business performance; or the remuneration does not appropriately take into account the scope of responsibilities attendant with service on the board of a public limited company that is incorporated under the laws of England and Wales and listed on the New York Stock Exchange and subject to U.S. Securities and Exchange Commission reporting requirements. Any discretionary adjustments will be detailed in the following year's annual report on remuneration.
The Board believes thatForm 10-K, which is available on the designSEC's website at www.sec.gov or on the Investor Relations section of our current programme is competitivewebsite at www.valaris.com. Each forward-looking statement speaks only as of the date of the particular statement and appropriate withinwe undertake no obligation to update or revise any forward-looking statements, except as required by law.
Company goals are aspirational and may change. Statements regarding the market where we primarily compete for executive talentCompany’s goals are not guarantees or promises that they will be met. Content available at websites and that the characteristics of our programmes listed above are consistent with "best practices" in compensation governance for other companies listed on the New York Stock Exchange (the "NYSE").
Referencesdocuments referenced in this Remuneration Policy to the Board include the Board as well as any other relevant committeesproxy statement are not incorporated herein and are not part of the Board.
Legacy arrangements
The Board reserves the right to make any remuneration payments and payments for loss of office (including exercising any discretion available to it in connection with such payments) to current and former directors notwithstanding that such payments may not be in line with the policy set out below where the terms of the payment were agreed: (a) before the policy came into effect (so long as consistent with any remuneration policy in force at the relevant time); (b) before 1 October 2013; or (c) at a time when the relevant individual was not a director of the Company and, in the opinion of the Board, the payment was not in consideration for the individual becoming a director of the Company. Details of any payments to current or former directors will be set out in the annual Directors' Remuneration Report in the following year’s annual report on remuneration. The Board may also make minor amendments to the policy set out in this report (for regulatory, exchange control, tax or administrative purposes or to take account of a change in legislation) without obtaining shareholder approval for such amendments.
Remuneration Policy for Executive Directors
The Remuneration Policy, if approved at the Meeting, will apply in accordance with applicable UK legal requirements from that date until the Annual General Meeting of Shareholders in 2023, unless revised and approved by a vote of shareholders ahead of that time. The Remuneration Policy as it applies to executive directors is set out in the table below.
proxy statement.
|
| | | | | |
Element | Purpose and Link to Strategy | Operation | Maximum
Opportunity(1)
| Performance Measures | Clawback/Award Disqualification |
Salary and Fees | Attract and retain high performing individuals reflecting market value of role and the executive director's skills, experience and performance. | Salaries are set by the Board and are reviewed at least annually taking into account the executive director's role, experience and performance and by reference to the median salary paid to executive directors of our compensation peer group companies.
Salary increases typically take effect in the first quarter of each year, although such increases may take effect at other times if the Board considers it appropriate.
| Salary increases will ordinarily be in line with increases awarded to other employees in the Company and will not ordinarily exceed 10% per year.
Salary adjustments may be made to reflect wider market conditions in the geography in which the individual operates.
| None, although overall performance of the individual is considered by the Board when setting salaries annually. | Not applicable |
Benefits | Competitive benefits taking into account market value and benefits offered to the wider global management population to attract and retain executive talent.
| Benefits include, but are not limited to, health insurance, life insurance, annual executive health physicals and a car (or similar allowance).
Benefits include provisions for relocation assistance when applicable. Overseas allowance and reimbursement components could include: monthly housing allowance; cost of living allowance; transportation allowance; annual home leave allowance; dependents' schooling assistance; tax equalisation for certain overseas allowance and reimbursement benefits; foreign service premium; supplemental equity awards and other similar benefits.
Benefit provisions are tailored to reflect market practice in the geography in which the executive director is based and different policies may apply if current or future executive directors are based in a different country.
| Set at a level the Board considers appropriate as compared to benefits offered in connection with comparable roles by companies of a similar size in the relevant market.
Executive director benefits will ordinarily be in line with benefits offered in connection with comparable roles by companies of a similar size in the relevant market
The Board reserves the discretion to increase its spend on benefits in appropriate circumstances such as in response to an increase in benefits costs. The Board further reserves the discretion to introduce new benefits where it concludes that it is in the interests of the Company to do so, having regard for the particular circumstances.
| None | Not applicable |
Element | Purpose and Link to Strategy | Operation | Maximum
Opportunity(1)
| Performance Measures | Clawback/Award Disqualification |
|
| | | | | |
Cash Performance Bonuses(2) | Incentivise delivery of Company strategic objectives and enhance performance over designated performance periods. | Awards are provided to the executive director through the short-term cash incentive plan (the "ECIP"). Awards are tied to achievement of specific performance measures weighted as the Board considers appropriate in respect of any performance periods set by the Board and are paid out in cash based on performance against the targets set by the Board after the end of the relevant performance period or, if paid earlier, will be subject to clawback (on a gross or net of tax basis, as the Board considers appropriate and in accordance with applicable law) if relevant performance targets are not achieved.
The Board may at its discretion determine that all or part of any bonus will be deferred into shares in the Company or such other instruments it considers appropriate on such terms as the Board may determine.
The majority of performance-based ECIP awards are weighted on achieving financial or operational performance targets.
The Board may, but is not required to, adjust performance goals, specific performance factors and targets related to those performance goals and award criteria, to the extent the Board deems such adjustments appropriate.
| The maximum aggregate cash performance bonuses and retention payments paid, along with the grant date value (determined by the Board) of any LTIP awards granted, to an executive director in any single fiscal year is limited to $8 million.
The maximum payout is established as two times the target payout. The threshold payout is one-half of target payout.
| Performance metrics are predominantly formula-derived and selected based on the current business objectives. The Board may select performance measures from a list of financial, business and operational goals set forth in the ECIP, as it may be amended, restated or replaced from time to time.
| The Board may reduce the size of any cash incentive awards which have not yet been paid for executive directors who violate our Code of Business Conduct Policy, in the case of certain financial restatements, a fatal or serious injury to an employee under certain circumstances or significant damage to property or the environment.
|
|
| | | | | |
Retention Payments (6)
| Retain and motivate executive directors during periods of distress, uncertainty or during other crucial business cycles, as determined by the Board. | Cash-based retention awards may be provided to executive directors as part of a comprehensive compensation strategy after considering retentive needs and the total compensation provided to the executive director for the applicable period. Such awards will generally be paid upon Board approval, but will remain subject to clawback in the event of certain terminations (as determined by the Board) of employment during the retention period specified by the Board at the time of award.
In setting the value of any retention payments, the Board will consider the overall aggregate compensation paid to the executive director and will, as a reference point, evaluate such compensation against the median aggregate compensation paid to the executive directors of our compensation peer group companies.
| The maximum aggregate cash performance bonuses and retention payments paid, along with the grant date value (determined by the Board) of any LTIP awards granted, to an executive director in any single fiscal year is limited to $8 million.
| None | Retention payments will be subject to clawback (on a gross or net of tax basis, as the Board considers appropriate and in accordance with applicable law) in the event that the executive director is terminated for cause or resigns without good reason prior to the expiration of the retention period set by the Board.
|
Employer Matching and Profit Sharing Programmes | Attract and retain executive talent, which in turn helps the Company achieve its strategic targets.
| The executive director may participate in the employer matching and profit sharing provisions of our defined contribution savings plans on a tax-deferred basis.
| The maximum total matching contribution annually is 5% of eligible salary.
Annual profit sharing distributions are limited to a maximum of 10% of eligible employee salary.
The Board may set a higher level in exceptional circumstances or to reflect local practice and regulation, if relevant.
| None | Not applicable |
|
| | | | | |
Long-Term Incentive Plan ("LTIP")(4)
| Incentivise long-term Company financial performance in line with the Company's strategy and long-term shareholder returns.
Promote alignment with shareholders by tying executive compensation to creation of long-term shareholder value and encouraging executives to build meaningful equity ownership stakes.
| Awards will normally be made annually under the LTIP. The Board also has a practice of granting special equity awards to newly-hired or promoted officers and may grant special equity awards to ensure the retention ofofficers and to further support our succession planning efforts.
Awards will take the form of any of share options, restricted share awards, restricted share unit awards, stock appreciation rights, performance awards and performance unit awards (or similar cash-settled instruments).Awards will generally vest on the date set by the Board at the time the award is granted.
Participation and individual award levels will be determined at the discretion of the Board within the terms of the LTIP.
The Board may, at its discretion, impose a post-vesting holding period on awards granted under the LTIP, during which the shares subject to that award may not be sold.
The terms of an award may include the right to receive the value of dividends that would have been paid on the shares subject to an award if the executive director had been the beneficial owner of those shares.
To the extent legally permitted, the Board reserves the right to adjust or accelerate LTIP awards, including adjusting the extent to which awards vest to reflect the underlying performance of the Company, the participant or such other factors it considers relevant.
| The maximum aggregate grant date fair value of awards under the LTIP made to a participant will not exceed $10 million per year.
No more than $100,000 worth of shares may be subject to tax favoured Incentive Stock Options that vest in the same calendar year.
In addition, the maximum aggregate cash performance bonuses and retention payments paid, along with the grant date value (as determined by the Board) of any LTIP awards granted, to an executive director in any single fiscal year is limited to $8 million.
| Awards of share options, restricted share awards and restricted share unit awards will generally be time-based and are not subject to performance measures.(3)
Performance awards and performance unit awards are earned at the end of a pre-determined period subject to performance against pre-determined performance measures and targets weighted as the Board may determine.
The Board may select performance measures from a list of financial, business and operational goals set forth in the LTIP, as it may be amended, restated or replaced from time to time.(4)
The Board has discretion to amend the performance measures in exceptional circumstances if it considers it appropriate to do so, such as during cases of accounting changes, relevant merger and acquisition activity and any non-significant changes. Any such amendments would be fully disclosed in the following year's remuneration report.
| The Board is permitted to seek to claw back or reduce equity incentive awards for executive directors who violate our Code of Business Conduct Policy, commit gross misconduct or breach their restrictive covenants.
|
____________________
| |
(1)
| The Board reserves the right to make payments and to agree to make payments outside the Remuneration Policy in exceptional circumstances. The Board would only use this right where it believes the use is in the best interests of the Company and when it would be impractical to seek prior specific approval of the shareholders of the Company at a general meeting. |
| |
(2)
| Performance measures that may be selected by the Board in granting an ECIP award include: (a) earnings (including, without limitation, total shareholder return, earnings per share or earnings before or after taxes); (b) return measures (including, without limitation, return on invested capital, return on assets, capital, equity, investment or sales); (c) cash flow (including, without limitation, operating cash flow, free cash flow or cash flow return on capital or investments); (d) share price (including, without limitation, growth measures and total shareholder return); (e) operating metrics; (including, without limitation, operational downtime, rig utilisation, days sales outstanding, project completion time, budget goals, and similar matters); (f) safety performance and/or incident rate; (g) technology, efficiency, corporate responsibility or human resources management targets; (h) strategic team goals; and (i) any other performance criteria, objective or goal that has been approved by the Board in its discretion. For example, the 2019 ECIP awards were made to the executive director based on the following performance measures: Adjusted EBITDA; Synergies; Safety (TRIR/Process Safety); Downtime for Floaters and Jackups and Strategic Team Goals (STGs). Performance measures used in our ECIP awards are selected based on current business objectives. For further information on our decision-making process by which we have historically determined our ECIP performance measures, see "Compensation Discussion and Analysis - 2019 Financial and Operational Performance Measures and Weightings" in our Proxy Statement for the year ended 31 December 2019. |
| |
(3)
| The Board has decided not to apply further performance conditions to share options because it believes that there is an inherent performance condition in such awards as growth in the share price is required for the awards to have value. Restricted share awards and restricted share unit awards are an integral part of the remuneration package in some of the Company’s key jurisdictions which, in the case of the executive directors are balanced by the performance-related awards. |
| |
(4)
| Performance measures that may be selected by the Board in granting a LTIP performance award or performance unit award include: (a) earnings (including, without limitation, total shareholder return, earnings per share or earnings before or after taxes); (b) return measures (including, without limitation, return on invested capital, return on assets, capital, equity, recurring EBITDA improvement, investment or sales); (c) cash flow (including, without limitation, operating cash flow, free cash flow or cash flow return on capital or investments); (d) share price (including, without limitation, growth measures and total shareholder return); (e) operating metrics; (including, without limitation, operational downtime, rig utilisation, days sales outstanding, project completion time, budget goals, and similar matters); (f) safety performance and/or incident rate; (g) technology, efficiency, corporate responsibility or human resources management targets; (h) strategic team goals; and (i) any other performance criteria, objective or goal that has been approved by the Board in its discretion. For example, performance unit awards were granted to an executive director based upon long-term relative performance criteria during 2019 for the performance period beginning 1 January 2019 and ending 31 December 2021 based upon a relative TSR performance measure. |
| |
(5)
| The Company's approach to annual salary reviews is consistent across the Company, with consideration given to the scope of the role, level of experience, responsibility, individual performance and pay levels in comparable companies. The Company's approach to benefits and employer matching and profit sharing programmes is to set executive director remuneration to be in line with such remuneration offered to other similarly situated employees. Other employees are eligible to participate in the company's performance-based bonus plans. Opportunities and specific performance conditions vary by organisational level with business area-specific metrics incorporated where appropriate. |
| |
(6)
| Given the impact of the COVID-19 pandemic on the energy sector, the Compensation Committee has considered it prudent at the time of finalising the Remuneration Policy to include in the Remuneration Policy the flexibility to make retention payments which are not subject to post-grant performance conditions (but which will be conditional on the individual’s ongoing service). This is to ensure that the Compensation Committee can deliver a comprehensive compensation strategy to retain key members of management during highly uncertain times, when the setting of robust and stretching performance targets over the long term is extremely challenging and may not deliver the best value for the company and its stakeholders. |
Total Remuneration by Performance
The total expected remuneration during fiscal year 2020 for our CEO for minimum, target maximum performance and maximum performance assuming a 50% increase in stock price is presented in the chart below.
____________________ The chart above assumes no share price movement (with the exception of the maximum performance assuming a 50% increase in stock price scenario) and excludes dividend accruals. The chart also assumes the provision of a remuneration package for the entirety of the 2020 fiscal year comprising fixed pay, annual bonus and long-term incentive awards which is substantively equivalent in terms of composition to the one offered to our CEO for the entirety of the 2019 fiscal year.
Assumptions made for each scenario are as follows: |
| | | |
Performance Level | Fixed | Short-term Variable Compensation (ECIP) | Long-term Incentive Compensation
(LTIP)
|
Minimum (Below Threshold) | Base salary | 0% earned if performance is below threshold/minimum acceptable on all performance measures | Performance Units: 0% earned if performance is below threshold/minimum acceptable on performance measure.
RSUs: 100% of target(1)
|
Target (In Line with Expectation) | Base salary | Target set at 110% of base salary, which is earned if performance measures are at 100% of goals and strategic team goals achievement "meets expectations" | Performance Units: Target set at 250% of base salary, which earned if performance measures are at 100% of the goal for the performance measure
RSUs: Target set at 250% of base salary(1)
|
Maximum (at constant share prices and assuming 50% of stock price appreciation))
| Base salary | 190% of target if performance measures exceed maximum goals (resulting in a 200% payout for 80% of the plan) and strategic team goals are all achieved at an outstanding level (resulting in a 150% payout for 20% of the plan)
| Performance Units: 250% of target if performance measures exceed maximum goal for the performance measure
RSUs: 100% of target
|
| | | |
(1) Assumes a constant share price. Target value of award would increase or decrease in relation to stock price appreciation or depreciation since date of grant.
Remuneration Policy for Non-Executive Directors
|
| | | |
Element | Purpose and Link
to Strategy
| Operation | Maximum Opportunity |
Fees | Attract and retain qualified candidates.
| Reviewed at least annually by the Board by reference to the median remuneration package of our compensation peer group companies.
Remuneration adjustments, if applicable, are normally effective from on or around 1 June. Adjustments will not ordinarily exceed 10% per annum but may increase by a greater percentage in exceptional circumstances.
The Non-Executive Chairman of the Board and the chairs of the Audit, Compensation and Nominating, Governance and Sustainability Committees receive additional retainers to compensate for their roles. The additional retainer for the Non-Executive Chairman of the Board and the committee chairs are established by reference to the market median remuneration package of our compensation peer group companies.
No eligibility for performance-related pay or retirement benefits.
| No prescribed maximum annual increase. |
Benefits | Attract and retain qualified candidates. | Travel to Board meeting locations or the location of other Company business.
Eligible to participate in U.S. and U.K. group health and welfare insurance plans.
The Company reserves the right to pay any tax incurred in respect of any of the benefits above.
| None |
NED Awards | To align directors’ interests with our shareholders and to attract qualified candidates in the markets where the Company has operations. | Non-executive directors may receive time vested awards under the terms of the LTIP summarised on pages 1-7 and 1-10 but non-executives’ awards will: (a) not be subject to any performance conditions; and (b) be subject to a vesting period set by the Board at the time of grant. | The value of any non-executive director’s awards at the time of grant will count towards the total value of fees they are deemed to have received, when calculating any fee increase (in accordance with the fee review process described in the ‘Fees’ section above). |
Agreements with Non-Executive Directors
There are no agreements or letters of appointment in place with our non-executive directors. All directors are subject to annual nomination by the Board and re-election by our shareholders.
Recruitment and Promotion Arrangements
The remuneration package for a newly recruited or promoted director (or for a new director appointed to the Board in any other circumstances including a director appointed in connection with any merger and acquisition activity) would be set in accordance with the terms of the approved remuneration policy in force at the time of appointment. However, the Board reserves the right to make payments of fees and base salary (or retainer) and make benefit or cash bonus provisions or payments in respect of any other component of remuneration (including the terms and conditions attaching thereto) outside of the scope of the general policy (and its caps) for directors to meet individual circumstances of recruitment or in connection with any merger and acquisition activity. When determining appropriate remuneration for a new director, the Board will take into consideration all relevant factors (including quantum, nature of remuneration and the jurisdiction from which the candidate was recruited) to ensure that pay arrangements are in the best interests of the Company and its shareholders.
The Board may offer additional cash and/or share-based elements when it considers these to be in the best interests of the Company, and therefore has resolved not to set an absolute monetary limit on the amount of variable or performance-related remuneration that may be payable. The Board has the discretion to offer awards of variable remuneration if judged advisable to compensate a candidate for loss of awards or benefits as a result of leaving a previous employer (taking into account whether such benefits or awards would have been subject to performance criteria) or to meet individual circumstances of recruitment or where a director is appointed in connection with any corporate transaction, including, but not limited to, merger and acquisition activity. The Board will ensure that any such remuneration would have a fair value approximating that of the awards forfeited and would generally be determined on a comparable basis taking into account factors including the form in which the awards were granted, performance conditions attached, the probability of the awards vesting (past, current and likely future performance) as well as the vesting schedules. Depending on individual circumstances at the time, the Board has the discretion to determine the type of award (cash, shares or options, vesting and holding periods and whether or not performance conditions would apply). Any use of the discretion would be disclosed to shareholders if considered appropriate and reasonably practicable.
In the case of an internal appointment, any variable remuneration awarded in respect of the prior role may be paid in accordance with its terms on grant. In addition, any other ongoing remuneration obligations existing prior to appointment may continue.
Loss of Office Payment Policy
For executive directors, the Board will take into account all relevant factors (including, but not limited to, the circumstances of the loss of office, the performance of the relevant director during office and any commercial justifications) when considering making any payments for loss of office.
The Board reserves the discretion to:
make additional exit payments by way of settlement or compromise of any claim arising in connection with the termination of an executive director's office or employment;
pay an annual bonus or severance payment for the financial year in which the relevant executive director ceases to hold office with the Company;
retain or accelerate the vesting of LTIP awards; and
make other payments such as legal fees or outplacement costs, if considered commercially appropriate.
Long-Term Incentive Plan (LTIP)
Following a change in control of the Company or an equity restructuring (i.e., dissolution, liquidation, sale of all or substantially all assets and certain mergers, consolidations or combinations), both executive and non-executive directors may be eligible to receive certain benefits as described in the Company's LTIP. In connection with an equity restructuring, the Board may:
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(i) | cancel outstanding awards and pay the excess of the consideration being offered to shareholders over the exercise price. This provision will apply to awards granted six (6) months prior to the transaction only after the six-month anniversary from the grant date if the grantee is an “insider” (as defined under Section 16 of the Exchange Act), the Company is subject to Section 16 of the Exchange Act and such disposition is not exempt under Section 16 of the Exchange Act; |
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(ii) | exchange or substitute each award for another award with respect to the shares in the Company or other property for which such award is exchangeable and make an equitable adjustment in the applicable option price or exercise price of the award, if any, or in the number of shares in the Company or amount of property (including cash) subject to the award; or |
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(iii) | provide that upon the exercise of an award that was previously granted, the grantee will be entitled to purchase or receive under such award, in lieu of the number of shares in the Company then covered by such award, the number and class of shares of stock or other securities or property (including, without limitation, cash) to which the grantee would have been entitled in connection with the equity restructuring if the grantee had been the holder of record of the number of shares then covered by such award; |
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(iv) | effect one or more of the following alternatives in an equitable and appropriate manner: (A) accelerate the vesting of awards, or (B) require the mandatory surrender of awards in exchange for cash; or |
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(v) | provide for the assumption of the LTIP by the acquiring company. |
If the employment of an executive director is terminated without cause or if an executive director resigns from his or her employment for good reason within the two-year period following a change in control of the Company, all outstanding awards will immediately vest or become exercisable or payable (at 100% of the target level), and all forfeiture restrictions will lapse. Any share options that are not exercised by the executive director will terminate on the earlier of the expiration of the share option term or 90 days after the date his or her employment terminates or such other date as may be determined by the Board and provided in the share option agreement.
A "change in control" will be deemed to have occurred under the LTIP if any person acquires beneficial ownership of 50% or more of our voting securities, there is a change in the composition of a majority of the then-incumbent Board during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board prior to their date of the appointment or election, or all or substantially all of the assets of the Company are sold.
Our policy on termination payments upon a change in control is intended to reflect market practice in the U.S.
Any equity award subject to time vesting will become fully vested upon retirement other than for cause, death or permanent and total disability of a director or in such other circumstances the Board considers appropriate (other than cause). With respect to performance-based equity awards made to executive directors, the Board may provide that the award will be subject to pro rata vesting upon retirement in a performance period based on the actual level of performance upon termination of employment by the Company. In addition, the Board may provide that any performance-based equity awards made to executive directors will fully vest at target upon death or permanent and total disability.
The terms "good reason" and "cause" are as defined in the LTIP.
Cash Incentive Plan (ECIP)
Following a change in control of the Company, executive directors receive certain benefits as described in the Company's ECIP. The ECIP provides that in the event of a change in control, the executive director is entitled to the target amount of the ECIP award within 60 days of the triggering event, unless an alternative amount is determined by the Board.
The ECIP also provides that in the event of death or permanent and total disability, the executive director is entitled to an ECIP award at 100% of the target value, unless an alternative amount is determined by the Board.
Executive Director Employment Agreements
The Company’s policy in setting notice periods for executive directors is to select a period that best reflects and protects the best interests of the Company, taking into account market practice and the particular circumstances of the individual director.
Mr. Burke’s Employment Agreement
Concurrently with the execution of the transaction agreement with Rowan, Mr. Burke entered into an employment agreement with Rowan Companies, Inc., ENSCO Global Resources Limited and Valaris (solely for purposes of guaranteeing the payments and obligations under the employment agreement) (the ‘‘Burke Employment Agreement’’).
The Burke Employment Agreement has an initial term of two years and became effective upon the closing of the transaction. The term is automatically extended each year for one additional year unless Mr. Burke is provided written notice of non-renewal at least ninety days prior to the then-applicable term.
Waiver of Equity Award Acceleration. Mr. Burke’s change-in-control agreement provides for single-trigger equity award acceleration upon a change in control (as described above). The Burke Employment Agreement modified the treatment of Mr. Burke’s equity awards under his change-in-control agreement. Time-vesting awards held by Mr. Burke as of the closing of the Rowan Transaction did not accelerate solely due to the closing. Performance-based awards held by Mr. Burke as of the closing of the Rowan Transaction were treated in accordance with the transaction agreement. Upon a termination without cause, resignation for good reason or due to Mr. Burke’s death or disability, in each case that occurs during the three-year period after the closing (the ‘‘Protection Period’’), (i) equity awards will fully vest and (ii) vested stock options and stock appreciation rights will be exercisable until the earlier of (A) the second anniversary after the termination or (B) the original maximum term of the stock option or stock appreciation right. In addition, equity awards held by Mr. Burke will fully accelerate upon the occurrence of a subsequent change in control. However, if a change in control occurs after the Protection Period, then there will be no single-trigger acceleration with regard to equity awards granted after the closing date if the award agreements for such awards provide for double-trigger vesting.
Cash Compensation. The Burke Employment Agreement provides for an annual base salary of $950,000. Mr. Burke is also eligible to participate in an annual short-term incentive bonus plan with a target opportunity of 110% of his annual base salary. On 3 December 2019, Mr. Burke requested a 10% reduction of his annual base salary, reducing it to $855,000 per annum commencing effective as of 1 January 2020. This reduction had a corresponding effect on Mr. Burke’s annual incentive opportunity, annual equity opportunity, and severance entitlements.
Equity-Based Compensation. Mr. Burke is eligible to receive equity awards under Valaris’ long-term incentive award plans and programmes. For a period of two years after the closing date, Mr. Burke is eligible to receive equity awards from Valaris with a target annual award level of not less than 500% of his base salary on terms and conditions no less favourable than those applicable to executive officers of Valaris generally.
Benefits. Mr. Burke is eligible to participate in the employee benefit plans of Valaris. This includes participation in Valaris’ expatriate assignment and tax equalisation policy as applied to Valaris expatriate employees in London generally, which entitles Mr. Burke to the following benefits: (i) a cost of living allowance of $25,000 per year; (ii) a housing allowance equal to $160,000 annually; (iii) education reimbursement of up to $45,000 per child per year; (iv) reimbursement for Mr. Burke’s and each of his eligible dependents for one home leave roundtrip airline ticket and ground transportation (airport transfer) per year; and (v) reimbursement for tax preparation services. In the event Mr. Burke’s principal place of employment is relocated, Mr. Burke will also receive a payment in the amount of $20,000, along with such other relocation benefits as are provided under Valaris’ relocation policy.
Severance Payments and Benefits. Upon a termination of the Burke Employment Agreement without cause or a resignation for good reason, Mr. Burke would be eligible to receive severance payments and benefits, subject to his execution and non-revocation of a release of claims. He would only be eligible to receive such payments and benefits under the Burke Employment Agreement if he is not eligible to receive benefits under his change-in-control agreement. Commencing on the third anniversary of the closing of the transaction, Mr. Burke would be eligible to receive the following payments and benefits: (i) an amount in cash equal to two times his base salary; (ii) an amount in cash equal to two times the ‘‘Average Bonus Amount’’ (i.e., the greater of: (A) the average of the combined annual bonus awards received by Mr. Burke pursuant to Valaris’ annual incentive plan in the three calendar years immediately
before the date of termination (including the annual bonus awards received from Rowan) and (B) Mr. Burke’s target annual bonus for the year during which the termination of employment occurs); (iii) a pro-rated portion of the annual bonus award that Mr. Burke would have earned had he remained employed through the end of the fiscal year in which the date of termination occurs based upon actual performance for such year (and, to the extent there is any discretionary component thereof, with the discretionary aspects being determined at not less than the target level); (iv) continued coverage in the employer provided medical, dental and vision plans available to Mr. Burke and his eligible dependents immediately prior to the date of termination, to the extent such coverage is elected by Mr. Burke pursuant to COBRA, for a period of twenty-four months following the date of termination; (v) if before, upon the commencement of or during the term of the Burke Employment Agreement, Mr. Burke was required to relocate his principal place of employment outside of the United States, reimbursement of the reasonable cost of return relocation-related expenses (not including make-whole payments for any loss incurred on the sale of Mr. Burke’s principal residence); and (vi) any of Mr. Burke’s unvested equity, equity-based or long-term incentive awards granted under any equity or long-term incentive plans of Valaris or Rowan will immediately become 100% vested in all of the rights and interests then held by Mr. Burke, provided, however, that unless a provision more favourable to Mr. Burke is included in an applicable award agreement, all performance-based awards will remain subject to attaining the applicable performance goals and conditions. Until the third anniversary of the closing of the Rowan Transaction, Mr. Burke will be eligible for severance under his change in control agreement.
Mr. Trowell’s Employment Agreement
Concurrently with the execution of the transaction agreement with Rowan, Mr. Trowell entered into an employment agreement with ENSCO Services Limited (the "Trowell Employment Agreement"). The Trowell Employment Agreement originally provided that Mr. Trowell will serve as Executive Chairman for a term of eighteen months commencing on 11 April 2019, but was amended in April of 2020 to provide that his term as Executive Chairman and employment with the Company will end on 30 April 2020. Mr. Trowell's non-competition restricted period was extended from 1 year to 2 years, and he agreed to provide consulting services to the Chairman of the Board through 31 December 2020 for no additional remuneration. Mr. Trowell will not stand for re-election to the Board at the Meeting.
Cash Compensation. The Trowell Employment Agreement provides for an annual base salary of £450,000 (£150,000 less than his 2018 level) and specifies that Mr. Trowell will be eligible to participate in the ECIP. His threshold, target and maximum level of bonus opportunity under such plan equals 55%, 110% and 220%, respectively, of Mr. Trowell's base salary (consistent with his 2018 ECIP opportunity). In connection with his separation, Mr. Trowell will forfeit his pro-rated ECIP payment for 2020 and any unvested equity awards.
Payment in Lieu of Future Equity Awards. As a consequence of Mr. Trowell's loss of office as President and Chief Executive Officer in connection with the Rowan Transaction, Mr. Trowell waived his 2017, 2018 and 2019 unvested cash performance unit awards and his 2019 unvested restricted share units exchange for payment of $5,000,000.
Benefits. Mr. Trowell was eligible to participate in the same benefit plans and programmes in which other executive non-expatriate employees who are based in the United Kingdom are eligible to participate. Since Mr. Trowell was not be eligible to participate in the retirement plans in which U.S.-based employees participate, Mr. Trowell was also eligible to receive cash payments equal to the cash amounts that would have been contributed by ENSCO Services Limited on Mr. Trowell's behalf to such retirement plans had he participated in such plans.
Severance Payments and Benefits. In connection with the expiration or termination of Mr. Trowell’s employment as Executive Chairman, Mr. Trowell will receive (i) a lump sum severance payment of £800,000 (which amount reflects a 60% reduction from his severance entitlement under his employment agreement entered into upon closing of the Rowan Transaction, and which will be payable within 14 days following 30 April 2020, and (ii) an additional lump sum of £3,000,000 in connection with exceeding pre-defined synergy targets set in connection with the Rowan Transaction (which amount will be payable within 14 days following 30 April 2020). If Mr. Trowell's employment had been terminated by ENSCO Services Limited during the term for any reason (other than certain limited reasons set forth in the agreement), Mr. Trowell would be eligible to receive the following payments and benefits: (A) payment in respect of salary that would otherwise have been due and payable for the period commencing on the date of termination to the end of the term; (B) any unvested restricted share units would vest in full on the date of termination; (C) payment of awards under the ECIP for the period(s) up to the end of the term based on the achievement of the performance goals established by ENSCO Services Limited under such plan for the year(s) in question and the terms of such plan; and (D) to the extent not previously paid, the maximum severance payment of £5,000,000 described above. Mr. Trowell has agreed to waive his right to private medical insurance for a period of up to twenty-four months following the termination date.
Shareholding Guidelines
Our overall remuneration package aligns the long-term interests of our shareholders and other stakeholders with those of management by incentivising growth in the value of the business over the long term. To support this alignment, we have adopted share ownership guidelines as we believe our directors and other senior managers should be encouraged to hold a prescribed level of shares in the Company. Over a period of five years from appointment, our directors are required to build a holding in the Company's vested and unvested shares to a minimum value equivalent to a specified multiple of his or her base salary or annual retainer (as applicable). The shareholding guidelines are set out in full in our Corporate Governance Policy (as amended from time to time in the absolute discretion of the Board).
Differences in Remuneration Policy for the Executive Directors Compared to Other Employees
The Remuneration Policy for executive directors is designed with regard to the employee remuneration policy across the Company. However, there are some differences in the structure of the Remuneration Policy for executive directors and other senior employees, which the Board believes are necessary to reflect the different levels of responsibility. The key difference in policy is the increased emphasis on performance-related pay for executive directors so that remuneration will increase or decrease in line with business performance and to align the interests of executive directors and shareholders. The structure of the reward package for the wider employee population is based on the principle that it should be sufficient to attract and retain the best talent and be competitive within our broader industry. It is driven by local market practice as well as the level of seniority and accountability, reflecting the global nature of our business.
Consultation with Employees
Although the Board does not consult directly with employees on the Remuneration Policy, the Board does consider the general base salary levels, remuneration arrangements and employment conditions for the broader employee population when determining the remuneration policy for executive directors. Employees who are shareholders as a result of the Company’s share-based incentive plans may also express their views on the Remuneration Policy in the same way as other shareholders.
Consideration of Shareholder Views
The Board values shareholders' input on the design of our remuneration programmes. The Board believes that our programmes are structured to deliver realised pay that is commensurate with performance and that we have a pay for performance approach to executive pay that holds management accountable for producing profitable growth. The Board also believes that we have adopted multiple remuneration governance "best practices."
Based upon the Board's views on our current approach to executive director compensation, we have not made any significant structural or philosophical changes to our revised 2020 Remuneration Policy as a result of any comments or feedback expressed by shareholders on any aspects of remuneration.
DIRECTORS' REMUNERATION REPORT
Introduction
Valaris plc's ("we," "our" or the "Company") Board of Directors (the "Board") believes that our current programme is competitive and appropriate within the market where we primarily compete for directors and executive talent. However,
we are sensitive to the compensation governance practices prevalent in the United Kingdom and recognise that some characteristics of our current programmes may not be consistent with those practices. Some characteristics of our programmes that differ from typical U.K. practice but are common and competitively appropriate within our market include:
Awards of time-vested restricted shares to executives: restricted shares are a common award type among our compensation and performance peer groups and are intended to help encourage retention, facilitate long-term share ownership and further align our executive directors with our shareholders' interests. In 2019, time-vested restricted shares made up 50% of our executive director's annual long-term incentive awards. The other 50% was granted in the form of performance unit awards that will be settled in cash at the end of a three-year performance cycle, which are contingent upon achievement of certain levels of total shareholder return ("TSR") and return on capital employed ("ROCE") relative to our performance peer group.
The use of equity for compensating non-executive directors: equity is a common component of non-executive director compensation within our compensation and performance peer groups, where it is widely considered to be a "best practice" for non-executive directors to receive at least 50% of their annual compensation in equity.
Our director compensation programme takes into account the additional director responsibilities attendant with service on the board of a public limited company that is incorporated under the laws of England and Wales and listed on the New York Stock Exchange and subject to U.S. Securities and Exchange Commission reporting requirements, as compared with other public companies that are listed and incorporated in the U.S. References in this Remuneration Report to the Board include the Board as well as any other relevant committees of the Board.
2019 compensation highlights
Below are highlights of the compensation-related decisions that impacted our executive directors and non-executive directors during 2019:
Base salary and retainers: Mr. Burke’s initial base salary of $950,000 was established per his employment contract . Mr. Burke voluntarily elected to reduce his by 10% from $950,000 to $855,000 in December 2019. Mr. Trowell’s base salary was reduced in connection with his transition from CEO to Executive Chairman. There were no changes in 2019 to the retainers paid to our non-executive directors.
Ensco Cash Incentive Plan ("ECIP") performance measures: The ECIP provides annual cash bonus incentives to participating employees, including our executive director, based on the achievement of short-term and medium-term performance goals and objectives. Following the completion of the Rowan Transaction, the Company and the Compensation Committee adopted ECIP measures, which aligned with the Company’s key business objectives and budget for 2019. The Company and the Compensation Committee undertook a thorough goal-setting process which evaluated the potential risks and opportunities for the business. For certain metrics (e.g., EBITDA), this review process resulted in us setting target goals that were lower than our prior year’s actual performance; however, we believed that these goals were appropriate and sufficiently rigorous given the challenges facing the offshore drilling industry. As further evidence of the rigor of our goals, the Company’s 2019 EBITDA performance still fell short of the Committee’s $220M target and the executive directors earned below-target payouts for this portion of the annual incentive plan.
Our non-executive directors do not participate in the ECIP.
Annual formula-derived ECIP bonuses for 2019 performance paid out at 116.3%: We achieved maximum performance for Safety (PSI and TRIR). We achieved strategic team goals ("STGs") and Synergies in excess of target and above-threshold performance for EBITDA, Floater Downtime and Jackup Downtime.
Long-term performance units paid out at 144.0% of target with realised value at 72% of target grant date value: With respect to performance units granted in 2017 with a three-year performance period ended 31December 2019, we achieved a rank of 6 and 3 out of 6 performance peer group companies in relative Total Shareholder Return ("TSR") and Return on Capital Employed ("ROCE") performance, respectively. After giving effect to the decline in our share price over the three-year performance period, the realisable value of these awards as of the end of 2019 was 72% of the original grant date value.
Mr. Burke receives performance units. Our non-executive directors and our executive chairman do not receive performance units.
Board and Compensation Committee membership
The following table lists the current members of the Board and the Compensation Committee:
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Board of Directors | Compensation Committee |
Thomas P. Burke | |
Carl G. Trowell | |
William E. Albrecht | Member |
Frederick Arnold | |
Georges J. Lambert | |
Suzanne P. Nimocks | Chairperson |
Mary E. Francis CBE | |
Thierry Pilenko | Member |
Keith O. Rattie | |
Paul E. Rowsey, III | Member |
Charles L. Szews | |
Adam Weitzman | Member |
Mr. Trowell and Mr. Burke are the executive directors currently on the Board. Mr. Burke was appointed to the Board on 11 April 2019. Mr. Trowell was appointed to the Board on 2 June 2014. While serving as executive directors, Mr. Trowell nor Mr. Burke receive additional compensation for their services as directors. All other members of the Board are non-executive directors.
Compensation methodology and process
In carrying out its responsibilities for establishing, implementing and monitoring the effectiveness of our general and executive compensation philosophy, plans and programmes, our Compensation Committee relies on outside experts to assist in its deliberations. Until 11 April 2019, the date of the closing of the Rowan Transaction, the Compensation Committee received independent compensation advice and data from Pearl Meyer. Following the Rowan Transaction, the Compensation Committee retained FW Cook as its independent compensation consultant. Prior to retaining FW Cook, the Compensation Committee assessed the independence of FW Cook and concluded that the retention of FW Cook raised no conflicts of interest.
Pearl Meyer and FW Cook were engaged by the Compensation Committee to provide counsel regarding:
Compensation philosophy and best practices;
Peer group composition;
Compensation programme design;
Short-term and long-term incentive plan administration;
Competitive compensation analyses for executive officers and non-executive directors; and
Trends in executive compensation.
With respect to non-executive director compensation, Pearl Meyer and FW Cook reviewed the Company's philosophy and practices regarding general Board compensation, committee compensation, committee chair compensation and non-executive director equity award programmes. In connection with these reviews, Pearl Meyer and FW Cook provided the Compensation Committee with comparative market assessments of executive and non-executive director compensation levels, including information relative to compensation trends and retention prevailing practices.
In addition to providing the Compensation Committee with information regarding compensation trends in the general marketplace, compensation practices of other companies in the offshore drilling and oilfield services industries and regulatory compliance developments, Pearl Meyer and FW Cook also evaluated certain data that our Human Resources department submitted to the Compensation Committee regarding incentive compensation calculations for awards payable under the ECIP and the Long-Term Incentive Plan ("LTIP").
The Compensation Committee meets regularly in executive session with FW Cook outside the presence of management. FW Cook did not provide any services to the Company or management other than services requested by or with the approval of the Compensation Committee, and its services were limited to executive and non-executive director compensation consulting.
Fees paid to Pearl Meyer and FW Cook by the Company during 2019 of approximately $71,325 and $191,612, respectively, were less than 1% of Pearl Meyer and FW Cook's total turnover. Fees are paid to our compensation consultants on a time and materials basis.
The Compensation Committee regularly reviews the services provided by its outside consultants and believes that FW Cook is independent in providing executive compensation consulting services. The Compensation Committee continues to monitor the independence of its compensation consultant on a periodic basis.
We compete for executive-level talent with oilfield service companies as well as other industries and professions. To provide guidance to the Board and Compensation Committee, comparative salary data is obtained from several sources, including FW Cook, industry-specific surveys and compensation peer company proxy statements filed with the U.S. Securities and Exchange Commission. Our current compensation peer group was approved by the Compensation Committee in May 2019 following the completion of the Rowan Transaction. In looking for potential peer companies, our Compensation Committee focused on companies with reasonably similar business characteristics, which included:
Size measured by revenue, assets and market value;
Energy industry focus;
Traded on a major stock exchange;
Asset intensity;
Multi-national with broad geographic reach;
Offshore focus; and
Robust pay disclosure.
Compensation risk
The Compensation Committee carefully considers the relationship between risk and our overall compensation policies, programmes and practices for the Chairman, Chief Executive Officer and non-executive directors. The Compensation Committee continually monitors the Company's general compensation practices, specifically the design, administration and assessment of our incentive plans, to identify any components, measurement factors or potential outcomes that might create an incentive for excessive risk-taking detrimental to the Company. The Compensation Committee has determined that the Company's compensation plans and policies do not encourage excessive risk-taking.
The Compensation Committee also paid particular attention to potential unintended consequences associated with the establishment of the ECIP and performance unit award goals and related measurement criteria under the LTIP. In formulating such goals and performance criteria, the Compensation Committee focused on matters such as safety performance, financial performance, relative TSR, relative ROCE, recurring EBITDA improvement and STGs. The Compensation Committee determined that such goals and performance criteria did not encourage participation in high-risk activities that are reasonably likely to have a material adverse effect on the Company.
In addition, the Compensation Committee believes that there are numerous governance characteristics of our compensation programmes that serve to mitigate excessive risk taking. We have clawback and award disqualification provisions in place in the LTIP awards and through the ECIP.
Remuneration Policy Summary for Executive Directors
Our current Remuneration Policy, which was approved at the Annual General Meeting on 22 May 2017, will apply until the 2020 Annual General Meeting of Shareholders. Our proxy statement is available at www.proxyvote.com. The following is a summary of the current Remuneration Policy as it applies to executive directors:
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Element | Purpose and Link to Strategy | Operation | Maximum
Opportunity(1)
| Performance Measures | Clawback/Award Disqualification(2)
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Salary and Fees | Attract and retain high performing individuals reflecting market value of role and the executive director's skills, experience and performance. | Salaries are set by the Board and are reviewed annually taking into account the executive director's role, experience and performance and by reference to the median salary paid to executive directors of our compensation peer group companies.
Salary increases typically take effect in the first quarter of each year.
| Salary increases will ordinarily be in line with increases awarded to other employees in the Company and will not ordinarily exceed 10% per year.
Salary adjustments may be made to reflect wider market conditions in the geography in which the individual operates. | None, although overall performance of the individual is considered by the Board when setting salaries annually. | Not applicable |
Benefits | Competitive benefits taking into account market value and benefits offered to the wider U.K. and U.S. management population. | Benefits include, but are not limited to, health insurance, life insurance and annual executive health physicals.
Benefits include provisions for relocation assistance upon appointment when applicable. Overseas allowance and reimbursement components could include: monthly housing allowance; cost of living allowance; transportation allowance; annual home leave allowance; dependents' schooling assistance; tax equalisation for certain overseas allowance and reimbursement benefits; foreign service premium; supplemental equity awards and other similar benefits.
Benefit provision is tailored to reflect market practice in the geography in which the executive director is based and different policies may apply if current or future executive directors are based in a different country.
| Set at a level the Board considers appropriate as compared to benefits offered in connection with comparable roles by companies of a similar size in the relevant market.
Executive director benefits will ordinarily be in line with benefits offered to other salaried employees.
The Board reserves the discretion to increase its spend on benefits in appropriate circumstances such as in response to an increase in benefits costs. The Board further reserves the discretion to introduce new benefits where it concludes that it is in the interests of the Company to do so, having regard for the particular circumstances. | None | Not applicable |
Element | Purpose and Link to Strategy | Operation | Maximum
Opportunity(1)
| Performance Measures | Clawback/Award Disqualification(2)
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Annual Cash Bonus | Incentivise delivery of company strategic objectives and enhance performance on an annual basis. | Awards are provided to the executive director through the Ensco Cash Incentive Plan (the "ECIP"). Awards are tied to achievement of specific performance measures and are paid out in cash after the end of the financial year based on performance against the targets and performance measures set annually by the Board.
| The maximum ECIP payout is $5 million per year. The maximum payout is established as two times the target payout. The threshold payout is one-half of target payout.
| Performance metrics are formula-derived and selected annually based on the current business objectives. The Board may select performance measures from a list of financial, business and operational goals set forth in the ECIP, as it may be amended, restated or replaced from time to time.(3)
| The Board will seek to reduce the size of cash incentive awards for executive directors who violate our Code of Business Conduct Policy or in the case of certain financial restatements. |
Employer Matching and Profit Sharing Programmes | Incentivise the delivery of company strategic targets.
| The executive director may participate in the employer matching and profit sharing provisions of our defined contribution savings plans on a tax-deferred basis.
| The maximum total matching contribution annually is 5% of eligible salary.
Annual profit sharing distributions are limited to a maximum of 10% of eligible employee salary.
The Board may set a higher level in exceptional circumstances or to reflect local practice and regulation, if relevant.
| None | Not applicable |
Long-Term Incentive Plan ("LTIP")(4)
| Incentivise long-term company financial performance in line with the company's strategy and long-term shareholder returns.
Promote alignment with shareholders by tying executive compensation to creation of long-term shareholder value and encouraging executives to build meaningful equity ownership stakes. | Awards will normally be made annually under the LTIP. The Board also has a practice of granting special equity awards to newly-hired or promoted officers and may grant special equity awards to ensure the retention ofofficers and to further support our succession planning efforts.
Awards will take the form of either share options, restricted share awards, restricted share unit awards, stock appreciation rights, performance awards and performance unit awards.Except in exceptional circumstances, awards will generally vest over a three year period.
Participation and individual award levels will be determined at the discretion of the Board within the terms of the LTIP.
Performance awards and performance unit awards may be settled in cash, shares or a combination of cash and shares.
| The maximum aggregate grant date fair value of awards under the LTIP made to a participant will not exceed $10 million per year.
| Awards of share options, restricted share awards and restricted share unit awards will be time-based and are not subject to performance measures.
Performance awards and performance unit awards are earned at the end of a pre-determined period subject to performance against pre-determined performance measures and targets.
The Board may select performance measures from a list of financial, business and operational goals set forth in the LTIP, as it may be amended, restated or replaced from time to time.(5)
The Board has discretion to amend the performance measures in exceptional circumstances if it considers it appropriate to do so, such as during cases of accounting changes, relevant merger and acquisition activity and any non-significant changes. Any such amendments would be fully disclosed in the following year's remuneration report.
| The Board will seek to claw back or reduce equity incentive awards for executive directors who violate our Code of Business Conduct Policy or in the case of certain financial restatements. |
____________________
| |
(1)
| The Board reserves the right to make payments and to agree to make payments outside the Remuneration Policy in exceptional circumstances. The Board would only use this right where it believes the use is in the best interests of the Company and when it would be impractical to seek prior specific approval of the shareholders of the Company at a general meeting. |
| |
(2)
| The Company has clawback provisions in its long-term incentive award agreements and award disqualification measures in the LTIP and the ECIP. Using this authority, the Board may seek to claw back or reduce equity incentive awards or reduce the size of cash incentive awards for executive officers, including executive directors, who violate our Code of Business Conduct or in the case of certain financial restatements (including application of the provisions of the Sarbanes-Oxley Act of 2002, as amended, in the event of a restatement of our earnings). |
| |
(3)
| Performance measures that may be selected by the Board in granting an ECIP award include: (a) net income as a percentage of revenue; (b) earnings per share (EPS); (c) return on net assets employed before interest and taxes (RONAEBIT); (d) operating margin as a percentage of revenue; (e) safety performance relative to industry standards and the Company annual target; (f) strategic team goals (STGs); (g) net operating profit after taxes; (h) net operating profit after taxes per share; (i) return on invested capital; (j) return on assets or net assets; (k) total stockholder return (TSR); (l) return on capital employed (ROCE); (m) relative total stockholder return (as compared with a peer group of the Company or other appropriate index); (n) earnings or adjusted earnings before interest, taxes, depletion, depreciation and/or amortisation (EBIT, EBITD, EBITDA); (o) net income; (p) free cash flow; (q) free cash flow per share; (r) revenue (or any component thereof); (s) revenue growth; (t) days sales outstanding (DSO); (u) downtime for any asset; (v) backlog related measures or (w) any other performance objective approved by the shareholders of the Company in accordance with Section 162(m) of the U.S. Internal Revenue Code of 1986. For example, the 2016 ECIP awards were made to the executive director based on the following performance measures: EBITDA; EPS; DSO; Safety (TRIR); Downtime for Floaters and Jackups and STGs. |
| |
(4)
| Under the LTIP, the Board may grant, in addition to the restricted shares and performance unit awards under the previous Remuneration Policy, share options, restricted share unit awards, stock appreciation rights and performance awards, to align the policy with the awards that could be granted under the terms of the LTIP. |
| |
(5)
| Performance measures that may be selected by the Board in granting a LTIP performance award or performance unit award include: (a) net income as a percentage of revenue; (b) earnings per share (EPS); (c) return on net assets employed before interest and taxes (RONAEBIT); (d) operating margin as a percentage of revenue; (e) safety performance relative to industry standards and the Company annual target; (f) strategic team goals (STGs); (g) net operating profit after taxes; (h) net operating profit after taxes per share; (i) return on invested capital; (j) return on assets or net assets; (k) total shareholder return (TSR); (l) relative total shareholder return (as compared with a peer group of the Company or other appropriate index) (relative TSR); (m) absolute return on capital employed (absolute ROCE); (n) relative return on capital employed (as compared with a peer group of the Company or other appropriate index) (relative ROCE); (o) earnings or adjusted earnings before interest, taxes, depletion, depreciation and/or amortisation (EBIT, EBITD, EBITDA); (p) net income; (q) free cash flow; (r) free cash flow per share; (s) revenue (or any component thereof); (t) revenue growth; (u) backlog related measures or (v) any other performance criteria, objective or goal that has been approved by the holder of Shares, in accordance with Section 162(m) of the U.S. Internal Revenue Code of 1986. For example, performance unit awards were granted to the executive director based upon long-term relative performance criteria during 2016 for the performance period beginning 1January 2016 and ending 31December 2018 based upon the relative TSR and Relative ROCE performance measures.
|
Total shareholder return
The chart below presents a comparison of the ten-year cumulative total return, assuming $100 invested on 31 December 2009 for Valaris plc, the Standard and Poor's SmallCap 600 Index and a self-determined peer group. Total return assumes the reinvestment of dividends, if any, in the security on the ex-dividend date. Since Valaris operated exclusively as an offshore drilling company, a self-determined peer group composed exclusively of major offshore drilling companies has been included as a comparison.* Valaris is no longer part of the Standard & Poor's MidCap 400 Index. The Standard & Poor's SmallCap 600 Index includes Valaris and has been included as a comparison.
COMPARISON OF CUMULATIVE TOTAL RETURN*
Among Valaris plc, the S&P SmallCap 600 Index and Peer Group
Share price
The highest and lowest prices of the Company's Class A ordinary shares during the year ended 31 December 2019 were $19.56 and $3.42, respectively. The closing market price of the Company's Class A ordinary shares on 31 December 2019 was $6.56.
Information subject to audit
The auditors are required to report on the information contained in the Share Price section above and tables A, B, C, D and E below.
Remuneration of Chief Executive Officer and Executive Chairman
The Chief Executive Officer and Executive Chairman currently serve as executive directors and do not receive any additional compensation for their services as director.
An objective of the Board has been to motivate, reward and retain our executive directors by means of equity compensation through our LTIP. The value of equity awards over time bears a direct relationship to the market price of our shares, which the Board believes will promote alignment with shareholders, instill a sense of ownership and shareholder perspective that will manifest itself in positive and sustainable long-term performance and provide a strong retentive element to our compensation programme. In order to accomplish these goals, our approach to long-term incentive compensation included a combination of time-vested and performance-based long-term incentive awards. The tables below summarise total Chief Executive Officer and Executive Chairman remuneration and include
annual bonus payouts and performance unit awards vesting as a percentage of maximum opportunity for the current year and previous five years.
Mr. Burke was appointed as our President and Chief Executive Officer in April 2019 in connection with the Rowan Transaction. Upon hiring Mr. Burke, Mr. Trowell retired as Chief Executive Officer but remained as Executive Chairman of the Board of Directors. The 2019 remuneration disclosed below reflects the total remuneration for Mr. Burke during the period he served as CEO, including a prorated annual bonus payout.
|
| | | | |
| | 2019 |
Total Remuneration | | $ | 5,983,505 |
|
Annual Bonus as a Percentage of Maximum | | 58 | % |
Performance Awards Vesting as a Percentage of Maximum(1) | | N/A |
|
____________________
| |
(1)
| Mr. Burke did not participate in the performance award plan in 2019. |
Mr. Trowell was hired as our President and Chief Executive Officer on 2 June 2014. Upon hiring Mr. Trowell, Daniel W. Rabun retired as Chief Executive Officer but remained employed by the Company as an executive director to serve as Chairman of the Board of Directors until 18 May 2015. The remuneration disclosed in the table below reflects the total remuneration for Mr. Trowell since his appointment as Chief Executive Officer in June 2014, including prorated annual bonus payout and remuneration for 2019 for the period he served as CEO.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2019 | | 2018 | | 2017 | | 2016 | | 2015 | | 2014(1) |
Total Remuneration | | $ | 6,502,955 |
| | $ | 6,207,433 |
| | $ | 5,906,374 |
| | $ | 4,550,662 |
| | $ | 4,933,408 |
| | $ | 7,758,001 |
|
Annual Bonus as a Percentage of Maximum | | 58 | % | | 43 | % | | 64 | % | | 50 | % | | 69 | % | | 30 | % |
Performance Awards Vesting as a Percentage of Maximum | | — | % | (2) | 34 | % | | 12 | % | | 7 | % | | N/A |
| | N/A |
|
____________________
| |
(1)
| In connection with Mr. Trowell's hiring, he was granted a make-whole restricted share award subject to a three-year cliff vesting of $4.0 million. |
| |
(2)
| Mr. Trowell agreed to forfeit all non-vested 2017, 2018 and 2019 cash performance unit awards and any entitlement to restricted share awards in 2019 in exchange for a payment of $5,000,000 upon closing of the Rowan Transaction. See "Executive Compensation Table" |
The 2014 remuneration disclosed below reflects the total remuneration for Mr. Rabun for the period he served as a CEO, including a prorated annual bonus payout.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2014 | | 2013 | | 2012 | | 2011 | | 2010 | | 2009 |
Total Remuneration | | $ | 5,835,655 |
| | $ | 9,878,742 |
| | $ | 10,188,238 |
| | $ | 10,897,191 |
| | $ | 7,152,858 |
| | $ | 4,619,128 |
|
Annual Bonus as a Percentage of Maximum | | 30 | % | | 54 | % | | 77 | % | | 61 | % | | 68 | % | | 66 | % |
Performance Awards Vesting as a Percentage of Maximum | | 30 | % | | 40 | % | | 66 | % | | 43 | % | | 77 | % | | 57 | % |
Remuneration of Executive Directors - Table A
The compensation paid to our executive director for the fiscal years ended 31 December 2019 and 2018 is reported in the tables below.
|
| | | | | | | | | | | | | | | | | | | | | | | |
Name | | Year | | Salary and Fees ($) | | Taxable Benefits ($)(3) | | Annual Incentives ($)(4) | | Long-Term Incentives ($)(5) | | Pensions ($)(6) | | Other ($)(7) | | Total ($) |
Thomas P. Burke (1) | | 2019 | | 676,927 |
| | 455,044 |
| | 882,367 |
| | — |
| | 195,417 |
| | 3,773,750 |
| | 5,983,505 |
|
Carl G. Trowell(2) | | 2019 | | 629,168 |
| | 71,499 |
| | 802,288 |
| | — |
| | — |
| | 5,000,000 |
| | 6,502,955 |
|
| | 2018 | | 801,600 |
| | 102,007 |
| | 3,262,722 |
| | 838,704 |
| | — |
| | 1,202,400 |
| | 6,207,433 |
|
____________________
| |
(1)
| Mr. Burke was appointed to the Board on 11 April 2019. |
| |
(2)
| Mr. Trowell was appointed to the Board on 2 June 2014. |
| |
(3)
| Taxable benefits provided to our executive directors include the following: |
|
| | | | | | | | | | | | | | | | | | | | | |
Name | | Year | | Group Term Life Insurance | | Dividends on Share Awards* | | Overseas Allowance** | | Other | | Total |
Thomas P. Burke | | 2019 | | $ | 973 |
| | $ | — |
| | 449,851 |
| | $ | 4,220 |
| | $ | 455,044 |
|
Carl G. Trowell | | 2019 | | $ | 628 |
| | $ | 39,413 |
| | — |
| | $ | 31,458 |
| | $ | 71,499 |
|
| | 2018 | | $ | 642 |
| | $ | 61,285 |
| | — |
| | $ | 40,080 |
| | $ | 102,007 |
|
____________________
* The amounts disclosed in this column represent the dividends or dividend equivalents earned and paid during 2019and 2018 on the director's unvested restricted shares and share units.
| |
** | The amounts disclosed in this column for Mr. Burke include payments made in regards to relocation, housing allowance, and dependent tuition allowance. |
| |
(4)
| The amounts disclosed in this column represent the aggregate grant date fair value of restricted share awards or units granted during the respective year and bonuses awarded for the respective years pursuant to the ECIP. No amounts pursuant to the ECIP were deferred. |
The following table sets forth information regarding the components of annual incentives earned and restricted share awards granted to our executive directors for the fiscal years ended 31 December 2019 and 2018:
|
| | | | | | | | | | | |
Name | | Year | | Restricted Share Awards ($) | | ECIP ($) | | Total ($) |
Thomas P. Burke | | 2019 | | — |
| | 882,367 |
| | 882,367 |
|
Carl G. Trowell* | | 2019 | | — |
| | 802,288 |
| | 802,288 |
|
| | 2018 | | 2,500,000 |
| | 762,722 |
| | 3,262,722 |
|
____________________
* In connection with the employment agreement, Mr. Trowell agreed to forfeit the 2017, 2018 and 2019 performance unit awards and the 2019 restricted shares awards in exchange for a lump sum cash payment of $5,000,000 upon closing of the Rowan Transaction.
During 2019, the Board approved financial, safety performance and STG conditions for our executive officers, including our executive directors, for the 2019 plan year. The ECIP performance measures and actual results for the executive officers for the 2019 plan year were as follows:
2019 ECIP performance measures |
| | | | | | | | | | | | | | | | | | |
Performance Measure | | Weighting | | Threshold | | Target | | Maximum | | Actual Results | | % of Target Earned |
EBITDA (000)(1) | | 40.0 | % | | $175,000 |
| | $220,000 |
| | $255,000 |
| | $205,700 |
| | 33.6 | % |
Synergies (000s) | | 20.0 | % | | $101,800 |
| | $121,800 |
| | $141,800 |
| | $132,000 |
| | 30.2 | % |
PSI | | 5.0 | % | | 0.15 |
| | 0.10 |
| | 0.08 |
| | 0.03 |
| | 10.0 | % |
TRIR | | 5.0 | % | | 0.40 |
| | 0.35 |
| | 0.30 |
| | 0.28 |
| | 10.0 | % |
Downtime - Floaters | | 5.0 | % | | 4.50% |
| | 3.50% |
| | 3.00% |
| | 4.12% |
| | 3.5 | % |
Downtime - Jackups | | 5.0 | % | | 2.10 | % | | 1.60 | % | | 1.35% |
| | 1.61% |
| | 5.0 | % |
STGs | | 20.0 | % | | 1.00 |
| | 2.00 |
| | 3.00 |
| | 2.402 |
| | 24.0 | % |
TOTAL AWARD | | 100.0 | % | | | | | | | | | | 116.3 | % |
Individual award calculation
|
| | | | | | | | | | | | | | | | |
Executive Officer | 2019 Target Opportunity | | Weighted % of Target Earned | = | Formula-Derived ECIP Award | + | Discretionary Adjustment ($) | = | Actual ECIP Award |
x |
Thomas P. Burke | $ | 758,699 |
| | 116.3 | % | | $ | 882,367 |
| | — | | $ | 882,367 |
|
Carl G. Trowell | $ | 689,843 |
| | 116.3 | % | | $ | 802,288 |
| | — | | $ | 802,288 |
|
| |
(5)
| The amounts disclosed in this column represent aggregate amounts received or receivable in respect of performance unit awards where final vesting is or was determined as a result of the achievement of performance measures or targets relating to a period ending in the relevant financial year. Please see below for further information on individual award calculations and performance unit awards outstanding at the beginning and end of 2019. |
LTIP performance measures
The performance measures and actual results for performance unit awards granted under the LTIP during 2017 for the performance period beginning 1 January 2017 and ending 31 December 2019 were as follows:
|
| | | | | | | | | | | | | | | | |
Performance Measure | | Weight | | | | Threshold | | Target | | Maximum | | Actual Results | | % of Target Payout Achieved |
Relative TSR | | 50% | | Rank Award Multiplier | | 5 of 7 0.67 | | 4 of 7 1.00 | | 1 of 7 2.0 | | 6 |
| | — | % |
Relative ROCE | | 50% | | Rank Award Multiplier | | 5 of 7 0.67 | | 4 of 7 1.00 | | 1 of 7 2.0 | | 3 |
| | 144 | % |
Performance unit awards granted under the LTIP during 2017 for the performance period beginning 1 January 2017 and ending 31 December 2019 were paid in cash in March 2020. Mr. Burke did not participate in the 2017 LTIP programme. Mr. Trowell forfeited his 2017, 2018 and 2019 performance awards and 2019share awards in exchange for a payment of $5,000,000 upon closing of the Rowan Transaction. As a result, the executive directors did not receive compensation for the performance unit awards granted under the 2017 LTIP.
| |
(6)
| The amount disclosed in this column represents the amount credited in the legacy Rowan Restoration Plan. |
| |
(7)
| Other benefits provided to our executive directors include the following: |
|
| | | | | | | | | | | | | | | | | | |
Name | | Year | | Lump Sum Cash Payment | | Bonus | | SERP | | Total |
Thomas P. Burke | | 2019 | | $ | 3,750,000 |
| | $ | — |
| | $ | 23,750 |
| | $ | 3,773,750 |
|
Carl G. Trowell | | 2019 | | $ | 5,000,000 |
| | $ | — |
| | $ | — |
| | $ | 5,000,000 |
|
| | 2018 | | $ | — |
| | $ | 1,202,400 |
| | $ | — |
| | $ | 1,202,400 |
|
Performance unit awards - Table B
The following table sets forth information regarding performance unit awards outstanding at the beginning and end of 2019 for our executive director. Our non-executive directors do not receive performance unit awards.
|
| | | | | | | | | | | | | | | | | |
| | Date of Grant | | End of Period Over Which Qualifying Conditions Must be Fulfilled for Each Award(1) | | Grant date Fair Value of Performance Unit Awards at Beginning of FY ($)(2)(3)(4) | | Grant date Fair Value of Performance Unit Awards Granted During the FY ($)(2)(3) | | Actual Payout Related to Awards Which Vested During the FY ($) | | Grant date Fair Value of Performance Unit Awards at End of FY ($) | |
Carl G. Trowell | | 3/3/2016 | (4) | 31/12/2018 | | 2,275,000 |
| | — |
| | 838,704 |
| | — |
| |
| | 6/3/2017 | | 31/12/2019 | | 2,500,000 |
| | — |
| | N/A |
| | — |
| (5) |
| | 5/3/2018 | | 31/12/2020 | | 2,500,000 |
| | — |
| | N/A |
| | — |
| (5) |
| | 6/3/2019 | | 31/12/2021 | | — |
| | 2,500,000 |
| | N/A |
| | — |
| (5) |
____________________
| |
(1)
| Performance unit awards are measured over a three-year performance period. Any amounts earned under the performance unit awards are not payable until after the close of the performance period. Performance awards are subject to forfeiture if the recipient leaves the Company prior to award payout. |
| |
(2)
| Grant date fair value for performance unit awards is measured using the estimated probable payout on the grant date. The performance unit awards are based upon financial performance measured over the three-year performance period. Performance unit awards granted in 2019, 2018 and 2017 are denominated and paid in cash. The goals for the performance unit awards granted have three performance bands: a threshold, a target and a maximum. If the minimum threshold for the respective financial performance measure is not met, no amount will be paid for that component. Payments are calculated using straight-line interpolation for performance between the threshold and target and between the target and maximum for each component. |
| |
(3)
| TSR is defined as dividends paid during the performance period plus the ending share price of the performance period minus the beginning share price of the performance period, divided by the beginning share price of the performance period. The beginning share price is based on the average daily closing price during the quarter preceding the performance period, and the ending share price is based on the average daily closing price of the last quarter of the performance period. ROCE is defined as net income from continuing operations, adjusted for certain nonrecurring gains and losses, plus after-tax net interest expense, divided by total equity as of 1 January of the respective year plus the average of the long-term debt balances as of 1 January and 31 December of the respective year.
|
| |
(4)
| The performance unit award for the performance period beginning 1 January 2016 and ending 31 December 2018 was paid in cash in March 2019. |
| |
(5)
| Mr. Trowell agreed to forfeit his 2017, 2018 and 2019 performance awards and 2019 share awards in exchange for a payment of $5,000,000 upon closing of the Rowan Transaction. |
Remuneration of Non-Executive Directors
The Remuneration Policy, which was approved at the Annual General Meeting on 22 May 2017, will apply until the 2020 Annual General Meeting of Shareholders. The following is a summary of the Current Remuneration Policy as it applies to non-executive directors:
|
| | | |
Element | Purpose and Link
to Strategy
| Operation | Maximum Opportunity |
Fees | Attract and retain qualified candidates.
| Reviewed annually by the Board by reference to the median of our compensation peer group companies.
Compensation adjustments, if applicable, are normally effective from on or around 1 June. Adjustments will not ordinarily exceed 10% per annum.
The Chairman of the Board and the chairs of the Audit, Compensation and Nominating, Governance and Sustainability Committees receive additional retainers to compensation for their roles. The additional retainer for the Chairman of the Board and the committee chairs are established by reference to the market median of our compensation peer group companies.
No eligibility for bonuses or retirement benefits.
Compensation also includes an annual award of stock-based compensation under the LTIP that is not subject to performance tests. Annual equity awards made to the Chairman of the Board and to other non-executive directors.
| No prescribed maximum annual increase. |
Benefits | Attract and retain qualified candidates. | Travel to Board meeting locations or the location of other company business.
Eligible to participate in U.S. and U.K. group health and welfare insurance plans. | None |
Non-Executive Directors compensation - Table C
The compensation paid to our non-executive directors for the fiscal years ended 31 December 2019 and 2018 is reported in the tables below. The compensation paid to non-executive directors includes an element of equity-based compensation, designed to provide greater alignment of interests between non-executive directors and the Company's shareholders. This equity-based compensation is not subject to the achievement of performance metrics given the nature of the role performed by the non-executive directors.
|
| | | | | | | | | | | | | | |
Name | | Year | | Salary and Fees ($) | | Taxable Benefits ($)(1) | | Annual Incentives ($)(2) | | Total ($) |
William E. Albrecht | | 2019 | | 114,583 |
| | 5,763 |
| | 200,009 |
| | 320,355 |
|
Frederick Arnold | | 2019 | | 34,783 |
| | 2,200 |
| | 103,826 |
| | 140,809 |
|
Mary E. Francis CBE | | 2019 | | 100,000 |
| | 5,097 |
| | 200,009 |
| | 305,106 |
|
| 2018 | | 100,000 |
| | 3,771 |
| | 200,006 |
| | 303,777 |
|
Georges J. Lambert | | 2019 | | 38,587 |
| | 1,113 |
| | 111,477 |
| | 151,177 |
|
Suzanne P. Nimocks | | 2019 | | 105,417 |
| | 11,592 |
| | 200,009 |
| | 317,018 |
|
Thierry Pilenko | | 2019 | | 91,667 |
| | 5,306 |
| | 200,009 |
| | 296,982 |
|
Keith O. Rattie | | 2019 | | 120,000 |
| | 16,810 |
| | 200,009 |
| | 336,819 |
|
| 2018 | | 120,000 |
| | 15,695 |
| | 200,006 |
| | 335,701 |
|
Paul E. Rowsey, III | | 2019 | | 112,747 |
| | 20,092 |
| | 200,009 |
| | 332,848 |
|
| 2018 | | 210,000 |
| | 22,417 |
| | 275,018 |
| | 507,435 |
|
Charles L. Szews | | 2019 | | 97,455 |
| | 18,209 |
| | 200,009 |
| | 315,673 |
|
J. Roderick Clark | | 2019 | | 75,412 |
| | 13,776 |
| | 200,009 |
| | 289,197 |
|
| 2018 | | 115,000 |
| | 19,750 |
| | 200,006 |
| | 334,756 |
|
Roxanne J. Decyk | | 2019 | | 2,747 |
| | 2,721 |
| | — |
| | 5,468 |
|
| 2018 | | 100,000 |
| | 17,431 |
| | 200,006 |
| | 317,437 |
|
C. Christopher Gaut | | 2019 | | 75,000 |
| | 7,222 |
| | 200,009 |
| | 282,231 |
|
| 2018 | | 100,000 |
| | 7,542 |
| | 200,006 |
| | 307,548 |
|
Jack E. Golden | | 2019 | | 2,747 |
| | 2,098 |
| | — |
| | 4,845 |
|
| 2018 | | 100,000 |
| | 3,998 |
| | 200,006 |
| | 304,004 |
|
Gerald W. Haddock | | 2019 | | 2,747 |
| | 3,234 |
| | — |
| | 5,981 |
|
| 2018 | | 100,000 |
| | 19,155 |
| | 200,006 |
| | 319,161 |
|
Francis S. Kalman | | 2019 | | 2,747 |
| | 2,799 |
| | — |
| | 5,546 |
|
| 2018 | | 100,000 |
| | 16,339 |
| | 200,006 |
| | 316,345 |
|
Phil D. Wedemeyer | | 2019 | | 2,747 |
| | 2,374 |
| | — |
| | 5,121 |
|
| 2018 | | 100,000 |
| | 8,170 |
| | 200,006 |
| | 308,176 |
|
| |
(1)
| Taxable benefits provided to our non-executive directors include dividends on non-vested restricted share awards, payments made by the Company on the behalf of the directors for contributions to group health and welfare insurance and payments made by the Company to reimburse directors for business expenses incurred in connection with the attendance of Board meetings in the U.K., which are subject to U.K. income tax. |
The payments made by the Company to each director during 2019 and 2018 as reimbursement for business expenses incurred in connection with the attendance of Board meetings in the United Kingdom, which are subject to U.K. income tax are as follows:
|
| | | | | | | | |
Name | | 2019 | | 2018 |
William E. Albrecht | | $ | 5,241 |
| | $ | — |
|
Fredrick Arnold | | $ | — |
| | $ | — |
|
Mary E. Francis CBE | | $ | 3,258 |
| | $ | 191 |
|
Georges J. Lambert | | $ | 1,113 |
| | $ | — |
|
Suzanne P. Nimocks | | $ | 2,999 |
| | $ | — |
|
Thierry Pilenko | | $ | 5,306 |
| | $ | — |
|
Keith O. Rattie | | $ | 6,674 |
| | $ | 3,792 |
|
Paul E. Rowsey, III | | $ | 8,871 |
| | $ | 9,043 |
|
Charles L. Szews | | $ | 5,455 |
| | $ | — |
|
J. Roderick Clark | | $ | 5,946 |
| | $ | 7,847 |
|
Roxanne J. Decyk | | $ | 1,332 |
| | $ | 5,528 |
|
C. Christopher Gaut | | $ | 6,638 |
| | $ | 5,300 |
|
Jack E. Golden | | $ | 1,545 |
| | $ | 1,892 |
|
Gerald W. Haddock | | $ | 1,845 |
| | $ | 7,252 |
|
Francis S. Kalman | | $ | 1,410 |
| | $ | 4,436 |
|
Phil D. Wedemeyer | | $ | 1,911 |
| | $ | 6,544 |
|
| |
(2)
| The non-executive director amounts disclosed in this column represent the aggregate grant date fair value of restricted share units granted during the respective year. |
Time-vested restricted shares - Table D
The following table sets forth information regarding the number and amount of restricted share awards outstanding at the beginning and end of the fiscal year ended 31 December 2019 for each director serving on the Board during 2019: |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Date of Grant | | End of Period Over Which Qualifying Conditions Must be Fulfilled for Each Award(1) | | Restricted Shares/Units Outstanding at Beginning of FY (#) | | Restricted Shares/Units Granted During the FY (#) | | Restricted Shares/Units Which Vested During the FY (#) | | Market Price Per Share on Date of Grant ($) | | Market Price Per Share on Vesting of Award ($) | | Income Realised Upon Vesting ($) | | Restricted Shares/Units Outstanding at End of FY (#) |
Thomas P. Burke | 11/4/2019 | | (2) | (2) | — |
| | 575,743 |
| | — |
| | 15.88 |
| | N/A |
| | N/A |
| | 575,743 |
|
Carl G. Trowell | 3/3/2016 | | 3/3/2019 | (3) | 19,061 |
| | — |
| | 19,061 |
| | 43.72 |
| | 16.88 |
| | 321,750 |
| | — |
|
6/3/2017 | | 6/3/2020 | (3) | 43,268 |
| | — |
| | 21,634 |
| | 38.52 |
| | 16.88 |
| | 365,182 |
| | 21,634 |
|
5/3/2018 | | 5/3/2021 | (3) | 133,833 |
| | — |
| | 44,611 |
| | 18.68 |
| | 17.36 |
| | 774,447 |
| | 89,222 |
|
6/3/2019 | | N/A | (4) | — |
| | 148,104 |
| | N/A |
| | N/A |
| | N/A |
| | N/A |
| | — |
|
William Albrecht | 11/4/2019 | | (2) | (2) | — |
| | 12,686 |
| | — |
| | 15.88 |
| | N/A |
| | N/A |
| | 12,686 |
|
3/6/2019 | | 3/6/2020 | (8) | — |
| | 22,806 |
| | — |
| | 8.77 |
| | N/A |
| | N/A |
| | 22,806 |
|
Frederick Arnold | 4/12/2019 | | 4/12/2020 | (5) | — |
| | 23,437 |
| | — |
| | 4.43 |
| | N/A |
| | N/A |
| | 23,437 |
|
Mary E. Francis CBE | 1/6/2016 | | 1/6/2019 | (3) | 1,727 |
| | — |
| | 1,727 |
| | 38.60 |
| | 8.37 |
| | 14,455 |
| | — |
|
1/6/2017 | | 1/6/2020 | (3) | 5,274 |
| | — |
| | 2,637 |
| | 25.28 |
| | 8.37 |
| | 22,072 |
| | 2,637 |
|
1/6/2018 | | 1/6/2021 | (3) | 7,599 |
| | — |
| | 2,533 |
| | 26.32 |
| | 8.37 |
| | 21,201 |
| | 5,066 |
|
3/6/2019 | | 3/6/2020 | (5) | — |
| | 22,806 |
| | — |
| | 8.77 |
| | N/A |
| | N/A |
| | 22,806 |
|
Georges J. Lambert | 4/12/2019 | | 4/12/2020 | (5) | — |
| | 25,164 |
| | — |
| | 4.43 |
| | N/A |
| | N/A |
| | 25,164 |
|
Suzanne P. Nimocks | 11/4/2019 | | (2) | (2) | — |
| | 31,583 |
| | 1,498 |
| | 15.88 |
| | 8.63 |
| | 12,928 |
| | 30,085 |
|
| 3/6/2019 | | 3/6/2020 | (5) | — |
| | 22,806 |
| | — |
| | 8.77 |
| | N/A |
| | N/A |
| | 22,806 |
|
Thierry Pilenko | 11/4/2019 | | (2) | (2) | — |
| | 19,380 |
| | — |
| | 15.88 |
| | N/A |
| | N/A |
| | 19,380 |
|
3/6/2019 | | 3/6/2020 | (8) | — |
| | 22,806 |
| | — |
| | 8.77 |
| | N/A |
| | N/A |
| | 22,806 |
|
Keith O. Rattie | 1/6/2016 | | 1/6/2019 | (3) | 1,727 |
| | — |
| | 1,727 |
| | 38.60 |
| | 8.37 |
| | 14,455 |
| | — |
|
1/6/2017 | | 1/6/2020 | (3) | 5,274 |
| | — |
| | 2,637 |
| | 25.28 |
| | 8.37 |
| | 22,072 |
| | 2,637 |
|
1/6/2018 | | 1/6/2021 | (3) | 7,599 |
| | — |
| | 2,533 |
| | 26.32 |
| | 8.37 |
| | 21,201 |
| | 5,066 |
|
3/6/2019 | | 3/6/2020 | (5) | — |
| | 22,806 |
| | — |
| | 8.77 |
| | N/A |
| | N/A |
| | 22,806 |
|
Paul E. Rowsey, III | 1/6/2016 | | 1/6/2019 | (3) | 2,375 |
| | — |
| | 2,375 |
| | 38.60 |
| | 8.37 |
| | 19,879 |
| | — |
|
1/6/2017 | | 1/6/2020 | (3) | 7,252 |
| | — |
| | 3,626 |
| | 25.28 |
| | 8.37 |
| | 30,350 |
| | 3,626 |
|
1/6/2018 | | 1/6/2021 | (3) | 10,449 |
| | — |
| | 3,483 |
| | 26.32 |
| | 8.37 |
| | 29,153 |
| | 6,966 |
|
3/6/2019 | | 3/6/2020 | (5) | — |
| | 22,806 |
| | — |
| | 8.77 |
| | N/A |
| | N/A |
| | 22,806 |
|
Charles L. Szews | 11/4/2019 | | (2) | (2) |
|
| | 7,574 |
| | 1,498 |
| | 15.88 |
| | 8.63 |
| | 12,928 |
| | 6,076 |
|
3/6/2019 | | 3/6/2020 | (5) | — |
| | 22,806 |
| | — |
| | 8.77 |
| | N/A |
| | N/A |
| | 22,806 |
|
J. Roderick Clark | 1/6/2016 | | 1/6/2019 | (3) | 1,727 |
| | — |
| | 1,727 |
| | 38.60 |
| | 8.37 |
| | 14,455 |
| | — |
|
1/6/2017 | | 12/11/2019 | (6) | 5,274 |
| | — |
| | 5,274 |
| | 25.28 |
| | (7) | | 34,017 |
| | — |
|
1/6/2018 | | 12/11/2019 | (6) | 7,599 |
| | — |
| | 7,599 |
| | 26.32 |
| | (7) | | 44,150 |
| | — |
|
3/6/2019 | | 12/11/2019 | (6) | — |
| | 22,806 |
| | 22,806 |
| | 8.77 |
| | 4.53 |
| | 103,311 |
| | — |
|
Roxanne J. Decyk | 1/6/2016 | | 11/4/2019 | (6) | 1,727 |
| | — |
| | 1,727 |
| | 38.60 |
| | 16.37 |
| | 28,271 |
| | — |
|
1/6/2017 | | 11/4/2019 | (6) | 5,274 |
| | — |
| | 5,274 |
| | 25.28 |
| | 16.37 |
| | 86,335 |
| | — |
|
1/6/2018 | | 11/4/2019 | (6) | 7,599 |
| | — |
| | 7,599 |
| | 26.32 |
| | 16.37 |
| | 124,396 |
| | — |
|
C. Christopher Gaut | 1/6/2016 | | 1/6/2019 | (3) | 1,727 |
| | — |
| | 1,727 |
| | 38.60 |
| | 8.37 |
| | 14,455 |
| | — |
|
1/6/2017 | | 12/11/2019 | (6) | 5,274 |
| | — |
| | 5,274 |
| | 25.28 |
| | (7) | | 34,017 |
| | — |
|
1/6/2018 | | 12/11/2019 | (6) | 7,599 |
| | — |
| | 7,599 |
| | 26.32 |
| | (7) | | 44,150 |
| | — |
|
3/6/2019 | | 12/11/2019 | (6) | — |
| | 22,806 |
| | 22,806 |
| | 8.77 |
| | 4.53 |
| | 103,311 |
| | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Date of Grant | | End of Period Over Which Qualifying Conditions Must be Fulfilled for Each Award(1) | | Restricted Shares/Units Outstanding at Beginning of FY (#) | | Restricted Shares/Units Granted During the FY (#) | | Restricted Shares/Units Which Vested During the FY (#) | | Market Price Per Share on Date of Grant ($) | | Market Price Per Share on Vesting of Award ($) | | Income Realised Upon Vesting ($) | | Restricted Shares/Units Outstanding at End of FY (#) |
Jack E. Golden | 6/10/2017 | | 11/4/2019 | (6) | 2,250 |
| | — |
| | 2,250 |
| | 22.72 |
| | 16.37 |
| | 36,833 |
| | — |
|
1/11/2017 | | 11/4/2019 | (6) | 3,966 |
| | — |
| | 3,966 |
| | 21.92 |
| | 16.37 |
| | 64,923 |
| | — |
|
1/6/2018 | | 11/4/2019 | (6) | 7,599 |
| | — |
| | 7,599 |
| | 26.32 |
| | 16.37 |
| | 124,396 |
| | — |
|
Gerald W. Haddock | 1/6/2016 | | 11/4/2019 | (6) | 1,727 |
| | — |
| | 1,727 |
| | 38.60 |
| | 16.37 |
| | 28,271 |
| | — |
|
1/6/2017 | | 11/4/2019 | (6) | 5,274 |
| | — |
| | 5,274 |
| | 25.28 |
| | 16.37 |
| | 86,335 |
| | — |
|
1/6/2018 | | 11/4/2019 | (6) | 7,599 |
| | — |
| | 7,599 |
| | 26.32 |
| | 16.37 |
| | 124,396 |
| | — |
|
Francis S. Kalman | 1/6/2016 | | 11/4/2019 | (6) | 1,727 |
| | — |
| | 1,727 |
| | 38.60 |
| | 16.37 |
| | 28,271 |
| | — |
|
1/6/2017 | | 11/4/2019 | (6) | 5,274 |
| | — |
| | 5,274 |
| | 25.28 |
| | 16.37 |
| | 86,335 |
| | — |
|
1/6/2018 | | 11/4/2019 | (6) | 7,599 |
| | — |
| | 7,599 |
| | 26.32 |
| | 16.37 |
| | 124,396 |
| | — |
|
Phil D. Wedemeyer | 1/11/2017 | | 11/4/2019 | (6) | 3,966 |
| | — |
| | 3,966 |
| | 21.92 |
| | 16.37 |
| | 64,923 |
| | — |
|
1/6/2018 | | 11/4/2019 | (6) | 7,599 |
| | — |
| | 7,599 |
| | 26.32 |
| | 16.37 |
| | 124,396 |
| | — |
|
________________
| |
(1)
| The end of period date noted in the table above refers to the date on which all restricted share awards and units for the grant identified have vested. |
| |
(2)
| Upon close of the Rowan Transaction, legacy Rowan shares were exchanged for Valaris shares. The shares were granted on the basis of original vesting schedules. |
| |
(3)
| Restricted share units granted to non-executive directors between 2016 and 2019 vest (restrictions lapse) at a rate of 33% each year over a three-year period or upon retirement from the Board.
|
| |
(4)
| Under his 2019 employment agreement, Mr. Trowell agreed to forfeit all outstanding performance unit awards and the 2019 shares awards granted to him in exchange for a payment of $5,000,000 upon the closing of the Rowan Transaction. |
| |
(5)
| Restricted share units granted in the form of time-vested restricted shares that vest after one year. |
| |
(6)
| Shares vested upon retirement from Board. |
| |
(7)
| Mr. Clark's and Mr. Gaut's shares outstanding shares were accelerated this year due to the Rowan Transaction. As a result, 2,637 and 2,533 of the 2017 and 2018 share awards vested on 1 June 2019 at a market price of $8.37 the remaining 2,637 and 5,066 shares vested on 11 November 2019 at a market price of $4.53. |
| |
(8)
| Restricted share units granted in the form of deferred restricted shares that vest after one year. The shares are considered exercised at the time the board member retires. |
Other remuneration
We assumed the Rowan Pension Plan in connection with the Rowan Transaction. The Rowan Pension Plan is a qualified defined benefit plan under the U.S. Internal Revenue Code in which Mr. Burke participates. The Rowan Pension Plan was fully frozen effective as of 30 June 2018, both as to the entry of new participants and as to additional pay credits.
Agreements with directors
There are no agreements or letters of appointment in place with our non-executive directors. All directors are subject to annual nomination by the Board and re-election by our shareholders.
Mr. Trowell’s Employment Agreement
Concurrently with the execution of the transaction agreement with Rowan, Mr. Trowell entered into an employment agreement with ENSCO Services Limited (the "Trowell Employment Agreement"). The Trowell Employment Agreement provides that Mr. Trowell will serve as Executive Chairman for a term expiring on 11 October 2020. The Trowell Employment Agreement became effective upon the closing of the transaction and supersedes in its entirety
Mr. Trowell's previous employment agreement. The unexpired term of the Trowell Employment Agreement as of 24 April 2020 is 5 months 17 days.
Mr. Burke’s Employment Agreement
Concurrently with the execution of the transaction agreement with Rowan, Mr. Burke entered into an employment agreement with Rowan Companies, Inc., ENSCO Global Resources Limited and Valaris (solely for purposes of guaranteeing the payments and obligations under the employment agreement) (the ‘‘Burke Employment Agreement’’).
The Burke Employment Agreement has an initial term of two years and became effective upon the closing of the transaction. As such, the unexpired term of the Burke Employment Agreement is, as of 27 April 2020, approximately 1 year and 2 weeks. The term is automatically extended each year for one additional year unless Mr. Burke is provided written notice of non-renewal at least ninety days prior to the then-applicable term.
Waiver of Equity Award Acceleration. Mr. Burke’s change in control agreement provides for single-trigger equity award acceleration upon a change in control (as described above). The Burke Employment Agreement modified the treatment of Mr. Burke’s equity awards under his change in control agreement. Time-vesting awards held by Mr. Burke as of the closing date of the Rowan Transaction did not accelerate solely due to the closing. Performance-based awards held by Mr. Burke as of the Rowan Transaction closing were treated in accordance with the transaction agreement. Upon a termination without ‘‘Cause’’, resignation for ‘‘Good Reason’’ or due to Mr. Burke’s death or disability, in each case that occurs during the three-year period after the closing (such period, the ‘‘Protection Period’’), then (i) equity awards will fully vest and (ii) vested stock options and stock appreciation rights will be exercisable until the earlier of (A) the second anniversary after the termination or (B) the original maximum term of the stock option or stock appreciation right. Equity awards held by Mr. Burke will also fully accelerate upon the occurrence of a subsequent change in control. However, if a change in control occurs after the Protection Period, then there will be no single-trigger acceleration with regard to equity awards granted after the closing date if the award agreements for such awards provide for double-trigger vesting.
Cash Compensation. The Burke Employment Agreement provides for an annual base salary of $950,000. Mr. Burke will also be eligible to participate in an annual short-term incentive bonus plan with a target opportunity of 110% of his annual base salary. On December 3, 2019, Mr. Burke requested a 10% reduction of his annual base salary, reducing it to $855,000 per annum commencing effective as of 1 January 2020. This reduction had a corresponding effect on Mr. Burke’s annual incentive opportunity, annual equity opportunity, and severance entitlements.
Cash Sign-On Bonus. In consideration of Mr. Burke’s (i) waiver of single trigger vesting for certain equity awards subject to time-based vesting only as of the closing date, (ii) waiver of certain rights in connection with a change in control or a resignation for ‘‘Good Reason,’’ (iii) waiver of certain severance payments upon a change in control under his existing change in control agreement and (iv) relocation from the United States to the UK and the associated cost of living and tax burden associated with such move, Mr. Burke will receive a one-time, lump-sum cash payment of $3,750,000 as a sign-on bonus. In the event Mr. Burke’s employment terminates as a result of his resignation without Good Reason or a termination for Cause, in each case during the three-year period immediately following the date of the transaction agreement, Mr. Burke will be required to immediately re-pay the signing bonus, on a pro-rata basis, net of any taxes paid thereon.
Equity-Based Compensation. Mr. Burke will be eligible to receive equity awards under Valaris’s long-term incentive award plans and programmes. For the two years after the closing date, Mr. Burke will be eligible to receive equity awards from Valaris with a target annual award level of not less than 500% of his base salary on terms and conditions no less favourable than those applicable to executive officers of Valaris generally.
Benefits. Mr. Burke will be eligible to participate in the employee benefit plans of Valaris. This will include participation in Valaris’s expatriate assignment and tax equalisation policy as applied to Valaris expatriate employees in London generally, which will entitle Mr. Burke to the following benefits: (i) a cost of living allowance of $25,000 per year; (ii) a housing allowance equal to $160,000 annually; (iii) education reimbursement of up to $45,000 per child per year; (iv) reimbursement for Mr. Burke’s and each of his eligible dependents for one home leave roundtrip airline ticket and ground transportation (airport transfer) per year; and (v) reimbursement for tax preparation services. In the event Mr. Burke’s principal place of employment is relocated, Mr. Burke will also receive a payment in the amount of $20,000, along with such other relocation benefits provided under Valaris’s relocation policy.
Severance Payments and Benefits. Upon a termination of the Burke Employment Agreement without Cause or a resignation for Good Reason, Mr. Burke would be eligible to receive severance payments and benefits, subject to his execution and non-revocation of a release of claims. He would only be eligible to receive such payments and benefits
under the Burke Employment Agreement if he is not eligible to receive benefits under his change in control agreement. Commencing on the third anniversary of the closing of the transaction, Mr. Burke would be eligible to receive the following payments and benefits: (i) an amount in cash equal to two times his base salary; (ii) an amount in cash equal to two times the ‘‘Average Bonus Amount’’ (i.e., the greater of: (A) the average of the combined annual bonus awards received by Mr. Burke pursuant to Valaris’s annual incentive plan in the three calendar years immediately before the date of termination (including the annual bonus awards received from Rowan) and (B) Mr. Burke’s target annual bonus for the year during which the termination of employment occurs); (iii) a pro-rated portion of the annual bonus award that Mr. Burke would have earned had he remained employed through the end of the fiscal year in which the date of termination occurs based upon actual performance for such year (and, to the extent there is any discretionary component thereof, with the discretionary aspects being determined at not less than the target level); (iv) continued coverage in the employer provided medical, dental and vision plans available to Mr. Burke and his eligible dependents immediately prior to the date of termination, to the extent such coverage is elected by Mr. Burke pursuant to COBRA, for a period of twenty four months following the date of termination; (v) if before, upon the commencement of or during the term of the Burke Employment Agreement, Mr. Burke was required to relocate his principal place of employment outside of the United States, reimbursement of the reasonable cost of return relocation-related expenses (not including make-whole payments for any loss incurred on the sale of Mr. Burke’s principal residence); and (vi) any of Mr. Burke’s unvested equity, equity-based or long-term incentive awards granted under any equity or long-term incentive plans of Valaris or Rowan will immediately become 100% vested in all of the rights and interests then held by Mr. Burke, provided, however, that unless a provision more favourable to the Executive is included in an applicable award agreement, all performance-based awards will remain subject to attaining the applicable performance goals and conditions. Until the third anniversary of the closing of the transaction, Mr. Burke will be eligible for severance under his change in control agreement.
Share ownership guidelines
Equity accumulation by our directors is encouraged, and we have specific share ownership guidelines, which are included in the Valaris Corporate Governance Policy. As respects non-executive directors, within five years of appointment to the Board, each such director should hold a number of vested and unvested shares of the Company having a value of at least five times the director's annual retainer. As respects named executive officers, guidelines specific to the position in question shall apply within five years of appointment to the position. Our executive director should hold a number of vested and unvested shares having a fair market value of at least six times his or her base salary. Each executive and non-executive director was in compliance with these guidelines at the end of 2019.
Directors' interest in shares - Table E
The interest of the current directors in office as of 31 December 2019 in shares and share incentives are shown in the table below.
|
| | | | | | | | | | | | | | | | | | | | | |
Name | | Unvested Restricted Shares/Units held as of 31 Dec 2019 | | Unvested and Vested Deferred Restricted Shares/Units held as of 31 Dec 2019 | | Unrestricted Shares held as of 31 Dec 2019 | | Vested Unexercised Options & SARs held as of 31 Dec 2019 | | Unvested Unexercised Options & SARs held as of 31 Dec 2019 | | Unearned Performance Unit Awards held as of 31 Dec 2019 | | Total Awards held as of 31 Dec 2019 |
| | | | | | | | | | | | | | |
Executive Director | | | | | | | | | | | | | | |
Thomas P. Burke | | 575,743 |
| | — |
| | 222,576 |
| | 72,057 |
| | 244,025 |
| | — |
| | 1,114,401 |
|
Carl G. Trowell | | 110,856 |
| | — |
| | 256,538 |
| | — |
| | — |
| | — |
| | 367,394 |
|
Non-executive Directors | | | | | | | | | | | | |
William E. Albrecht | | — |
| | 35,492 |
| | 16,857 |
| | — |
| | — |
| | — |
| | 52,349 |
|
Fredrick Arnold | | 23,437 |
| | | | — |
| | — |
| | — |
| | — |
| | 23,437 |
|
Mary E. Francis CBE | | 30,509 |
| | | | 9,643 |
| | — |
| | — |
| | — |
| | 40,152 |
|
Georges J. Lambert | | 25,164 |
| | | | — |
| | — |
| | — |
| | — |
| | 25,164 |
|
Suzanne P. Nimocks | | 22,806 |
| | 30,085 |
| | 19,120 |
| | — |
| | — |
| | — |
| | 72,011 |
|
Thierry Pilenko | | — |
| | 42,186 |
| | 687 |
| | — |
| | — |
| | — |
| | 42,873 |
|
Keith O. Rattie | | 30,509 |
| | | | 15,515 |
| | — |
| | — |
| | — |
| | 46,024 |
|
Paul E. Rowsey, III | | 33,398 |
| | | | 30,594 |
| | — |
| | — |
| | — |
| | 63,992 |
|
Charles L. Szews | | 22,806 |
| | 6,076 |
| | 18,295 |
| | — |
| | — |
| | — |
| | 47,177 |
|
Statement of change in pay of Chief Executive Officer compared with employees
The table below summarises the percentage change in salary, taxable benefits and annual incentives of the Chief Executive Officer and our employee population, as defined below, for the fiscal years ended 31 December 2019 and 2018.
Mr. Burke became our President and Chief Executive Officer on 11 April 2019 upon the closing of the Rowan Transaction. At this time, Mr. Trowell retired as Chief Executive Officer but remained employed by the Company as an executive director to serve as Chairman of the Board of Directors. Therefore, total remuneration during 2019 reflects remuneration for Messrs. Burke and Trowell during the period they served as Chief Executive Officer, including prorated annual bonus payouts.
|
| | | | | | | |
| | Chief Executive Officer | | Employees | |
| | Percentage Change (2019 vs 2018) | | Percentage Change (2019 vs 2018)(1) | |
Salary | | 13.4 | % | | 2.1 | % | |
Taxable Benefits(2) | | (57.6 | )% | | 4.7 | % | |
Annual Incentives | | 11.6 | % | | 2.7 | % | |
___________________
| |
(1)
| We selected our Corporate salaried employee population for this comparison based upon the duties of these employees, the locations where they work and the structure of their remuneration. |
| |
(2)
| Taxable benefits for Mr. Trowell and Mr. Burke consist of: dividends paid on restricted share awards; payments in lieu of participation in the Ensco Savings Plan and the SERP, equal to the amounts Valaris would have contributed to those plans; group term life insurance; and tax preparation fees. Taxable benefits for employees consist primarily of: dividends paid on restricted share awards and overseas allowances to the extent paid to any given employee. |
Relative importance of spend on pay
The table below shows the overall spend on employee pay, dividend payments and capital expenditures for the fiscal years ended 31 December 2019 and 2018.
|
| | | | | | | | | | | | |
| | 2019 | | 2018 | | Percentage Change | |
Employee Pay | | $ | 760,100,000 |
| | $ | 564,500,000 |
| | 35 | % | |
Dividend Payments | | $ | 4,500,000 |
| | $ | 17,900,000 |
| | (75 | )% | (2) |
Capital Expenditures(1) | | $ | 227,000,000 |
| | $ | 426,700,000 |
| | (47 | )% | |
___________________
| |
(1)
| Capital Expenditures consist of expenditures on new rig construction, rig enhancement and minor upgrades and improvements, which are an essential part of our business. |
| |
(2)
| Decrease in dividend payments as the Board of Directors determined that we will not pay a regular quarterly cash dividend starting in the second quarter of 2019. |
UK Chief Executive Officer pay ratio
We used the single figure remuneration (Option A in the relevant regulations) to determine the employees whose remuneration packages sit at the lower, median and upper quartile positions, as of December 31, 2019, across the UK workforce as this in our view is the most transparent way to calculate and compare the remuneration of the comparator employees. We have calculated the annual remuneration relating to 2019 for the three identified employees on the same basis as the CEO's total remuneration for 2019 in the single figure table, to produce the ratios below:
|
| | | | | | | | | | | | |
Quartile Position | | Employee Job Title | | Employee Base Salary | | Total Remuneration | | CEO Pay Ratio |
Lower | | Floorhand | | $ | 60,599 |
| | $ | 60,599 |
| | 1-to-104 |
Median | | Welder | | $ | 76,243 |
| | $ | 76,243 |
| | 1-to-83 |
Upper | | Electrician | | $ | 108,411 |
| | $ | 108,411 |
| | 1-to-58 |
We believe that the median pay ratio is consistent with the pay, reward and progression policies for our UK employees. The base salary and total remuneration levels for our CEO and the representative employee for each quartile position are competitively positioned within the relevant markets and reflect the operation of our remuneration structures which are effective in appropriately incentivising staff.
2020 implementation statement (period from 1 January 2020 to 31 December 2020)
Non-Executive Director Remuneration
For 2020, our non-executive director compensation will consist entirely of a cash-based retainer paid quarterly. Non-executive directors are not expected to receive any equity compensation in 2020.
Base salary, benefits, employer matching and profit sharing programmes for executive directors
Base salary, benefits and employer matching and profit sharing programmes were implemented in line with the Current Remuneration Policy.
2020 ECIP and LTIP awards for executive directors
Given the ongoing impact of the COVID-19 crisis on the global market for oil and on the broader economy, the Compensation Committee has elected at the time of this report to keep the terms of ECIP and LTIP awards to be granted in respect of 2020 under review in order to allow it to respond to the developing situation (which may involve incentivizing directors by reference to bespoke performance metrics and targets under the ECIP and/or LTIP). Any awards granted in respect of 2020 will naturally be in line with the Remuneration Policy set out at Annex 1-1 to 1-20.
Given the disclosure of the Compensation Committee’s current thinking as to the 2020 ECIP and LTIP awards in this report may give Valaris’ competitors a market advantage, the Compensation Committee considers it in the best interests of shareholders not to disclose information relating to the ECIP and LTIP awards (in particular, relevant performance metrics and targets) at the current time on the grounds of commercial sensitivity. The Compensation Committee remains committed to an open and transparent dialogue with its shareholders and undertakes to disclose the relevant performance metrics in its first Directors’ Remuneration Report following the point at which it decides this information is no longer commercially sensitive.
Shareholder voting on remuneration matters
The Board values shareholders' input on the design of our employee compensation programmes. The Board believes that our programmes are structured to deliver realised pay that is commensurate with performance and that we have a pay for performance approach to executive pay that holds management accountable for producing profitable growth. The Board also believes that we have adopted multiple compensation governance "best practices."
At our last annual general meeting of shareholders held on 20 May 2019, we received 288,306,461 votes in favour of our Directors' Remuneration Report, 5,146,156 votes in opposition and 1,874,459 abstentions, for total support of 98.2% of the votes cast on the proposal and total opposition of 1.8% of the votes cast on the proposal.
Please see "2020 implementation statement" above for a description of other compensation changes being implemented in 2020.
The Directors' Remuneration Report was approved by the Board of Directors on 24 April 2020 and was signed on its behalf by:
Thomas P. Burke
Director, President and Chief Executive Officer
ANNEX 2
Ensco plc 2018 Long-Term Incentive Plan
(As Effective May 21, 2018)
SECTION 1
GENERAL PROVISIONS RELATING TO
PLAN GOVERNANCE, COVERAGE AND BENEFITS
Section 1.1 Background and Purpose
Ensco plc, a public limited company incorporated under the laws of England and Wales (the “Company”), has adopted this plan document, entitled “Ensco plc 2018 Long-Term Incentive Plan” (the “Plan”), effective as of May 21, 2018 (the “Effective Date”). This Plan applies to all Incentive Awards granted on or after the Effective Date.
The purpose of the Plan is to foster and promote the long-term financial success of the Company and to increase shareholder value by: (a) encouraging the commitment of selected key Employees, (b) motivating superior performance of key Employees by means of long-term performance related incentives, (c) encouraging and providing key Employees with a program for obtaining ownership interests in the Company which link and align their personal interests to those of the Company’s shareholders, (d) attracting and retaining key Employees by providing competitive compensation opportunities, and (e) enabling key Employees to share in the long-term growth and success of the Company.
The Plan provides for payment of various forms of compensation. It is not intended to be a plan that is subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The Plan will be interpreted, construed and administered consistent with its status as a plan that is not subject to ERISA.
As of the Effective Date, the granting of new incentive awards under the Prior Plans will not be permitted. On and after the Effective Date, any Released Prior Plan Shares will become immediately available for grants of Incentive Awards under this Plan and thus will not be available for grants under any Prior Plan.
Section 1.2 Definitions
The following terms will have the meanings set forth below:
(a)Affiliate means any Subsidiary and any other entity that, directly or through one or more intermediaries, is controlled by the Company, as determined by the Committee.
(b)Applicable Law means the requirements relating to the administration of equity-based Incentive Awards under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted, and the applicable laws of any foreign country or jurisdiction where Incentive Awards are, or will be, granted under the Plan, including regulations and other authoritative guidance issued thereunder by the appropriate governmental authority, as determined by the Committee.
(c)Board means the then-current board of directors of the Company.
(d)Cash Award means any Incentive Award granted to a Grantee under the Plan that is not valued by reference to, or otherwise based upon, Common Stock.
(e)Cause, when used in connection with the termination of a Grantee’s Employment, unless otherwise provided in the applicable Incentive Agreement, means the termination of the Grantee’s Employment by the Company or any Affiliate by reason of:
(1)the occurrence of any act or omission by the Grantee that results in the Grantee’s conviction, plea of no contest, plea of nolo contendere, or imposition of unadjudicated probation for any felony or crime involving moral turpitude, or, where such Grantee is resident outside the US, the conviction of the Grantee by a court of competent jurisdiction as to which no further appeal can be taken of any crime by Grantee (other than a road traffic offence for which no custodial sentence is given);
(2)the breach by the Grantee of any policy or written agreement with the Company or any of its Subsidiaries, including, without limitation, the Company’s Code of Business Conduct Policy and any employment or non-disclosure agreement;
(3)the Committee’s determination that the Grantee failed to substantially perform the Grantee’s material duties (other than a failure resulting from the Grantee’s illness or incapacity);
(4)the Grantee’s commission of an act of fraud, embezzlement, misappropriation, intentional misconduct or gross negligence, or breach of fiduciary duty against the Company or any of its Subsidiaries; or
(5)the Committee’s determination that the Grantee willfully failed to carry out or comply with any lawful and reasonable material directive of the Board or the Grantee’s immediate supervisor.
(f)CEO means the then-current Chief Executive Officer of the Company.
(g)Change in Control means a Change in Control of the Company, which will be deemed to have occurred upon any of the following events: (i) a change in the ownership of the Company, which occurs on the date that any one person, or more than one person acting as a group, acquires ownership of Shares that, together with Shares held by such person or persons acting in concert, constitutes more than fifty percent (50%) of the total voting power of the Shares; (ii) a majority of the members of the Board is replaced during any twelve (12)-month period by Directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of appointment or election; or (iii) a sale of all or substantially all of the assets of Company.
Notwithstanding the foregoing, a “Change in Control” of the Company will not be deemed to have occurred by virtue of the consummation of any transaction or series of related transactions immediately following which the beneficial owners of the voting Shares immediately before such transaction or series of transactions continue to have a majority of the direct or indirect ownership in one or more entities which, singly or together, immediately following such transaction or series of transactions, either (a) own all or substantially all of the assets of the Company as constituted immediately prior to such transaction or series of transactions, or (b) are the ultimate Parent with direct or indirect ownership of all of the voting Shares after such transaction or series of transactions.
For further clarification, a “Change in Control” of the Company will not be deemed to have occurred by virtue of the consummation of any transaction or series of related transactions effected for the purpose of changing the place of incorporation or form of organization of the Company or the ultimate Parent of the Company and its Subsidiaries.
Further, in the case of any item of income under an Incentive Award to which the foregoing definition would otherwise apply with the effect that the tax under Code Section 409A would apply or be imposed on income under such Incentive Award, but where such tax would not apply or be imposed if the meaning of the term “Change in Control” met the requirements of Code Section 409A(a)(2)(A)(v), then the term “Change in Control” herein will mean, but only with respect to the income so affected, a transaction, circumstance or event that constitutes a “Change in Control” (as defined above) and that also constitutes a “change in control event” within the meaning of Treasury Regulation §1.409A-3(i)(5).
The Committee will have full and final authority, which will be exercised in its discretion, to determine conclusively whether a Change in Control has occurred pursuant to the above definition, the date of the occurrence of such Change in Control and any incidental matters relating thereto; provided that any exercise of authority in conjunction with a determination of whether a Change in Control is a “change in control event” as defined in Treasury Regulation Section 1.409A-3(i)(5) will be consistent with such regulation.
(h) Code means the U.S. Internal Revenue Code of 1986, as amended, and the regulations and other authority promulgated thereunder by the appropriate governmental authority.
(i) Committee means the Compensation Committee of the Board or such other committee of Directors or other individuals satisfying Applicable Law as appointed by the Board, or by the Compensation Committee, to administer the Plan. To the extent that the Board or an authorized individual acts under the Plan in accordance with a power of the Committee, pursuant to Applicable Law, all rights, powers and authorities vested in the Committee under the Plan with respect thereto will instead be exercised by the Board or such authorized individual, and thus any reference in the Plan to the Committee in such context will be deemed to include a reference to the Board or such authorized individual when acting in such capacity.
(j) Common Stock means the Class A ordinary shares of the Company, nominal value U.S. $0.10 per share, and any class of ordinary shares into which such Class A ordinary shares may hereafter be converted, reclassified or recapitalized.
(k) Company means Ensco plc, a public limited company incorporated under the laws of England and Wales, and any successor in interest thereto.
(l)Date of Grant means the effective date on which an Incentive Award is made to a Grantee as set forth in the applicable Incentive Agreement; provided, however, that for compliance with Section 16 of the Exchange Act or other Applicable Law, the Date of Grant for an Incentive Award will be the date of shareholder approval of the Plan if such date is later than the effective date of such Incentive Award, as applicable.
(m) Director means a Board member.
(n) Disability means, unless otherwise defined in the Incentive Agreement, a permanent and total disability (as defined in Code Section 22(e)(3)), whereby the Grantee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months. A determination of Disability may be made by a physician selected or approved by the Committee and, in this respect, the Grantee will submit to any reasonable examination(s) required by such physician upon request. Notwithstanding the foregoing provisions of this paragraph, in the event that an Incentive Award is subject to Code Section 409A, then, in lieu of the foregoing definition and to the extent necessary to comply with the requirements of Code Section 409A, the definition of “Disability” for purposes of such Incentive Award will be the definition of “disability” provided under Code Section 409A if and to the extent inconsistent with the above definition.
(o) Dividend Equivalent Right means the right of the Grantee to receive the equivalent value (in cash or in Shares) based on dividends paid on Shares, with respect to the Shares specified in the Grantee’s Incentive Award as if such Shares were held by the Grantee.
(p) Effective Date means May 21, 2018.
(q) Employee means either: (i) where the employee is resident outside the United Kingdom, any employee of the Company (or any Parent or Subsidiary) within the meaning of Code Section 3401(c) including, without limitation, officers who are members of the Board; or (ii) where the employee is resident in the United Kingdom, any employee of the Company (or any Parent or Subsidiary) within the meaning of Section 230(1) of the UK Employment Rights Act 1996.
(r) Employment means that the individual is employed as an Employee by the Company or any Parent, Subsidiary, or other Affiliate, or by any corporation issuing or assuming an Incentive Award in any transaction described in Code Section 424(a), or by a parent corporation or a subsidiary corporation of such corporation issuing or assuming such Incentive Award, as the parent-subsidiary relationship will be determined at the time of the corporate action described in Code Section 424(a). In this regard, neither the transfer of an Employee from Employment by the Company to Employment by any Parent or Subsidiary, nor the transfer of an Employee from Employment by any Parent or Subsidiary to Employment by the Company, will be deemed to be a termination of Employment. Moreover, the Employment of an Employee will not be deemed to have been terminated because of an approved leave of absence from active Employment on account of temporary illness, authorized vacation or granted for reasons of professional advancement, education, or health, or during any period required to be treated as a leave of absence by virtue of any applicable statute, Company personnel policy or written agreement and/or any leave of absence from active Employment on account of maternity leave, paternity leave, adoption leave and/or shared parental leave under a right offered to such Employee under Applicable Law.
Notwithstanding anything herein to the contrary, for purposes of the Plan, the termination of Employment of an Employee will not result in the payment of any amount hereunder that is subject to, and not exempt under, Code Section 409A, unless such termination of Employment constitutes a “separation from service” as defined under Code Section 409A. All determinations hereunder regarding Employment or termination of Employment, and separation from service for purposes of Code Section 409A, will be made by the Committee in its discretion.
(s) Equity Restructuring means any of the following: (i) a dissolution or liquidation of the Company, (ii) a sale of all or substantially all of the Company’s assets, or (iii) a merger, consolidation or combination involving the Company (other than a merger, consolidation or combination (A) in which the Company is the continuing or surviving corporation and (B) which does not result in the outstanding Shares being converted into or exchanged for different securities, cash or other property, or any combination thereof).
(t) Exchange Act means the U.S. Securities Exchange Act of 1934, as amended, and as interpreted by the rules, regulations and other authoritative guidance issued thereunder by the appropriate governmental entity.
(u) Fair Market Value for a Share as of a particular date means and will be determined as follows: (i) if the Common Stock is listed on any established stock exchange, its Fair Market Value will be the closing sales price for such Common Stock as quoted on such exchange for such date, or if no sale occurred on such date, the last day preceding such date during which a sale occurred, as reported in a source that the Committee deems reliable; (ii) if the Common Stock is not traded on a stock exchange but is quoted on a national market or other quotation system, the closing sales price on such date, or if no sales occurred on such date, then on the last date preceding such date during which a sale occurred, as reported in a source that the Committee deems reliable; or (iii) without an established market for the Common Stock, the Committee will determine the Fair Market Value in its discretion.
(v) Good Reason means (unless a different definition of “Good Reason” is provided in the applicable Incentive Agreement (in which case such definition will apply with respect to the awards issued under that agreement)) the occurrence of one or more of the following events (without the Grantee’s express written consent):
(1) a material diminution in the Grantee’s authority, duties or responsibilities within the Company and its Subsidiaries immediately prior to the Change in Control;
(2) a material (i.e., at least ten percent (10%)) reduction in the Grantee’s base salary or bonus compensation formula in effect immediately prior to the Change in Control;
(3) a material reduction in employee benefits, on an aggregated basis, as compared to the coverage or benefits to which the Grantee was entitled immediately prior to the Change in Control under the same or similar plans, programs or policies after the Change in Control; or
(4) for any shore-based, non-expatriate Grantee, a geographical relocation of the Grantee’s principal office location by more than 50 miles.
In the event of the occurrence of any of the above listed events and in the event the Grantee wishes to resign from his or her Employment on the basis of occurrence of such event, the Grantee will give notice of the proposed resignation, and the successor entity will have a period of thirty (30) days following its receipt of such notice to remedy the breach or occurrence giving rise to such proposed resignation. In the event the successor entity fails to so remedy said breach or occurrence by expiration of said thirty (30)-day period, the Grantee will be deemed to have resigned from his or her Employment for Good Reason for purposes of Section 7.8.
(w) Grantee means any Employee who is granted an Incentive Award under the Plan.
(x) Host Country means the country or residence of the Company or its Subsidiary which has the legal relationship of employer and employee with the Grantee.
(y) Immediate Family means with respect to a Grantee, the Grantee’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships.
(z) Incentive Agreement means an agreement entered into between the Company and the Grantee setting forth the terms and conditions pursuant to which an Incentive Award is granted under the Plan, as such agreement is further defined in Section 7.1. The agreement may be in the form of an award deed and may be written or electronic as determined by the Committee. No officer or director will execute an Incentive Agreement for himself or herself on behalf of the Company.
(aa) Incentive Award means any grant under the Plan to a Grantee of a Nonstatutory Stock Option, ISO, SAR, RSA, RSU, Other Stock-Based Award, Cash Award, or Dividend Equivalent Right.
(bb)Insider means, while the Company is a Publicly Held Corporation, an individual who is, on the relevant date, an officer, Director or ten percent (10%) beneficial owner of any class of the Company’s equity securities that is registered pursuant to Section 12 of the Exchange Act, all as defined under Section 16 of the Exchange Act.
(cc)ISO means a stock option granted by the Committee to a Grantee under Section 2, which is designated by the Committee as an incentive stock option and is intended to qualify as an incentive stock option under Code Section 422.
(dd)Nonstatutory Stock Option means a stock option granted by the Committee to a Grantee under Section 2 that is not designated by the Committee as an ISO.
(ee)Option Price means the exercise price at which a Share may be purchased by the Grantee of a Stock Option.
(ff)Other Stock-Based Award means an Incentive Award granted by the Committee to a Grantee under Section 5.1 that is valued, in whole or in part, by reference to, or is otherwise based upon, Common Stock, and is payable in cash or in Shares.
(gg)Parent means any corporation (whether now or hereafter existing) which constitutes a “parent” of the Company, as defined in Code Section 424(e).
(hh)Performance-Based Award means a grant of an Incentive Award under the Plan pursuant to Section 6.
(ii)Performance Criteria means the business criteria that are specified by the Committee pursuant to Section 6 for an Incentive Award, with the satisfaction of such business criteria during the Performance Period being required in order for the grant and/or vesting of the Incentive Award to occur, as specified in the applicable Incentive Agreement.
(jj)Performance Period means a period of time determined by the Committee over which performance is measured for the purpose of determining a Grantee’s right to, and the payment value of, any Incentive Award.
(kk)Person means any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization, government or political subdivision thereof or other entity.
(ll)Plan means the Ensco plc 2018 Long-Term Incentive Plan, as effective on the Effective Date, which is set forth herein and as it may be amended from time to time.
(mm)Plan Maximum means the “Plan Maximum” as defined in Section 1.4.
(nn)Prior Plans means (i) the Ensco plc 2012 Long-Term Incentive Plan (the “2012 LTIP”), and (ii) the Ensco International Incorporated 2005 Long-Term Incentive Plan, As Revised and Restated on December 22, 2009 and As Assumed by Ensco plc as of December 23, 2009 (the “2005 LTIP”), each as amended from time to time. The terms and conditions of the 2012 LTIP and the 2005 LTIP will each continue to apply to and govern the determination, exercise and payment of the respective stock options and other awards granted under the 2012 LTIP and the 2005 LTIP, as applicable, prior to the Effective Date.
(oo)Publicly Held Corporation means a corporation issuing any class of common equity securities required to be registered under Section 12 of the Exchange Act.
(pp)Recapitalization means any event in which the Company recapitalizes, reclassifies its capital stock, or otherwise changes its capital structure.
(qq)Released Prior Plan Share means any Share under a Prior Plan that is the subject of an outstanding stock option or other type of stock incentive award under the Prior Plan, which stock incentive award, on or after the Effective Date is forfeited or terminated, expires unexercised, or in any other manner causes the Share covered by such stock incentive award to be returned to the share pool under the Prior Plan, as determined under the rules in Section 1.5.
(rr)Restricted Stock means one or more Shares of Common Stock that are issued or transferred to a Grantee pursuant to Section 3, and are subject to certain vesting or other restrictions as set forth in the Plan and in the Grantee’s Incentive Agreement.
(ss)Restriction Period means the period of time determined by the Committee and set forth in the Incentive Agreement during which the transfer of Restricted Stock by the Grantee is restricted or is subject to a “substantial risk of forfeiture” under Code Section 83 for a Grantee who is subject to U.S. income taxation under the Code.
(tt)RSA means a “restricted stock award,” which is an authorization by the Committee to issue or transfer Restricted Stock to a Grantee pursuant to Section 3.
(uu)RSU means a “restricted stock unit,” which is a right granted to a Grantee pursuant to Section 4 which entitles the Grantee to receive one Share, or an amount in cash or other consideration determined by the Committee to be of equal value as of the settlement date, subject to certain vesting conditions and other restrictions as set forth in the Plan or in the Grantee’s Incentive Agreement.
(vv)Rule 16b-3 means Rule 16b-3 as promulgated under the Exchange Act.
(ww)SAR means a “stock appreciation right” as described in Section 2.3.
(xx)SAR Price means the exercise price of each Share covered by a SAR, as determined on its Date of Grant.
(yy)Securities Act means the U.S. Securities Act of 1933, as amended.
(zz)Share means a share of Common Stock.
(aaa)Share Pool means the number of Shares authorized for issuance under Section 1.4, as adjusted for (i) awards and payouts under Section 1.5 and (ii) changes and adjustments as described in Section 7.6.
(bbb)Spread means the difference between the exercise price per Share specified in a SAR grant and the Fair Market Value of a Share on the date of exercise of the SAR.
(ccc)Stock Option means pursuant to Section 2, (i) an ISO or (ii) a Nonstatutory Stock Option. In accordance with Code Section 422, only an Employee may be granted an ISO.
(ddd)Subsidiary means any entity (whether a corporation, partnership, joint venture or other form of entity), other than the Company, whether domestic or foreign, in an unbroken chain of entities beginning with the Company if each of the entities other than the last entity in the unbroken chain beneficially owns, at the time of the determination, securities or interests representing at least 50% of the total combined voting power of all classes of securities or interests in one of the other entities in such chain; except that, with respect to the issuance of ISOs, the term “Subsidiary” will have the same meaning as the term “subsidiary corporation” as defined in Code Section 424(f) as required by Code Section 422.
(eee)Tax Equalization or Hypothetical Tax means the methodology established by the Company, either through general personnel policies or specific agreement, to neutralize, in whole or in part, the tax consequences to Employees assigned to locations outside of the Employee’s home country.
(fff)Unallocated Prior Plan Shares means any Share that was authorized for issuance under the share pool for a Prior Plan, but such Share, as of the Effective Date, is not subject to an outstanding stock incentive award under such Prior Plan.
(ggg)Withholding Taxes means any amounts withheld from the Grantee by the Company or any Affiliate (i) to meet the obligation of the Company or any of its Subsidiaries with respect to withholding of taxes or social security contributions imposed by the Host Country or country of the Grantee’s residence or citizenship, as applicable, upon any taxable event for the Grantee arising as a result of any Incentive Award, or (ii) to meet the obligation of the Grantee, if any, to the Company or any of its Subsidiaries under the Company’s Tax Equalization or Hypothetical Tax policies or specific agreements relating thereto.
Section 1.3 Plan Administration
(a)Authority of the Committee. To the extent Applicable Law permits, the Board may delegate any or all of its powers under the Plan to the Committee or officers of the Company or any of its Subsidiaries. The Board may abolish any Committee or re-vest in itself any previously delegated authority at any time. Except as may be limited by Applicable Law and subject to the provisions herein, the Committee will have the complete power and authority to (i) select Grantees who will participate in the Plan; (ii) determine the sizes, duration and types of Incentive Awards; (iii) determine the terms and conditions of Incentive Awards and Incentive Agreements; (iv) determine whether any Shares subject to Incentive Awards will be subject to any restrictions on transfer; (v) construe and interpret the Plan and any Incentive Agreement or other agreement entered into under the Plan; and (vi) establish, amend, or waive rules for the Plan’s administration. Further, the Committee will make all other determinations which may be necessary or advisable for the administration of the Plan.
(b)Decisions Binding. All determinations and decisions of the Committee will be made in its discretion pursuant to the provisions of the Plan, and will be final, conclusive and binding on all Persons including the Company, its shareholders, employees, Grantees, and their estates and beneficiaries. The Committee’s decisions and determinations with respect to the Plan or any Incentive Award need not be uniform and may be made selectively among Incentive Awards, Grantees and other Persons, whether or not such Incentive Awards are similar or such Persons are similarly situated.
(c)Modification of Outstanding Incentive Awards. Subject to the shareholder approval requirements under Section 8.7 or as otherwise required, the Committee may, in its discretion, provide for the extension of the exercisability of an Incentive Award, accelerate the vesting or exercisability of an Incentive Award, eliminate or make less restrictive any restrictions contained in an Incentive Award, waive any restriction or other provisions of an Incentive Award, or otherwise amend or modify an Incentive Award in any manner that (i) is not adverse to the Grantee to whom such Incentive Award was granted, (ii) is consented to by such Grantee, and (iii) does not cause the Incentive Award to provide for the deferral of compensation in a manner that does not comply with Code Section 409A or is not exempt under Code Section 409A (unless otherwise determined by the Committee). With respect to an Incentive Award that is an ISO, no adjustment thereto will be made to the extent constituting a “modification” within the meaning of Code Section 424(h)(3) unless otherwise agreed to by the Grantee in writing. Notwithstanding the above provisions of this subsection, no amendment or modification of an Incentive Award will be made to the extent such modification results in any Stock Option having an exercise price that is less than 100% of the Fair Market Value per Share on the Date of Grant (110% for Grantees of ISOs who are 10% or greater shareholders pursuant to Section 1.7(b)). With respect to restrictions in the Plan that are based on the requirements of Rule 16b-3, Code Section 422, the rules of the New York Stock Exchange or any other national stock exchange or inter-dealer quotation system upon which the Common Stock is listed or quoted, or any other Applicable Law, to the extent that any such restrictions are no longer required by Applicable Law, the Committee will have the sole discretion and authority to grant Incentive Awards that are not subject to such mandated restrictions and/or to waive any such mandated restrictions with respect to outstanding Incentive Awards.
(d)Delegation of Authority. To the extent consistent with Applicable Law, the Committee may delegate to designated officers or other employees of the Company any of its duties and authority under the Plan pursuant to such conditions or limitations as the Committee may establish from time to time, including, without limitation, the authority to recommend Grantees and the forms and terms of their Incentive Awards.
(e)Limitation of Liability. The Committee and each member thereof will be entitled to, in good faith, rely or act upon any report, opinion, calculation or other information furnished by any officer or employee of the Company or an Affiliate, the Company’s independent certified public accountants, legal counsel or other advisors to the Company, or any consultant, attorney, accountant or other advisor retained by the Committee to assist in the administration of the Plan. No individual who is or was a member of the Board or the Committee or who has otherwise been delegated authority under the Plan, will be liable for any act, omission, interpretation, decision, construction or determination made in good faith in connection with the Plan or any Incentive Award. Notwithstanding any other provisions of the Plan, no individual acting as a director, officer, employee or agent of the Company or any Affiliate will be liable to any Grantee, former Grantee, spouse, beneficiary, or any other person for any claim, loss, liability, or expense incurred in connection with the Plan or any Incentive Award, and such individual will not be personally liable with respect to the Plan because of any contract or other instrument executed in his or her capacity as a director, officer, employee or agent of the Company or any Affiliate.
(f)Indemnification. Each individual who is or was a member of the Board or the Committee or who has otherwise been delegated authority under the Plan will, to the fullest extent permitted by law, be indemnified by the Company against and from any damage, loss, liability, cost and expense that may be imposed upon or reasonably incurred by such individual in connection with or resulting from any claim, action, suit, or proceeding to which such individual may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan, except for any such act or omission constituting willful misconduct or gross negligence. Each such individual will, to the fullest extent permitted by law, be indemnified by the Company for all amounts paid by him or her in settlement thereof, with the Company’s approval, or paid by such individual in satisfaction of any judgment in any such action, suit, or proceeding against such individual, provided that such individual will give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification will not be exclusive of any other rights of indemnification to which each such individual may be entitled (i) under the Company’s Articles of Association, (ii) pursuant to any separate indemnification or hold harmless agreement with the Company or any Affiliate, (iii) as a matter of law, contract or otherwise, or (iv) any power that the Company or any Affiliate may have to indemnify them or hold them harmless.
(g)Expenses of Committee. The Committee may employ legal counsel, including, without limitation, independent legal counsel and counsel regularly employed by the Company, and other agents as the Committee may deem appropriate for the administration of the Plan. All expenses incurred by the Committee in interpreting and administering the Plan, including, without limitation, meeting expenses and professional fees, will be paid by the Company.
Section 1.4 Share Reserve of Common Stock Available for Incentive Awards
(a) Subject to adjustment under Section 7.6, there will be available for Incentive Awards that are granted wholly or partly in Shares (including rights or Stock Options that may be exercised for or settled in Shares) any Unallocated Prior Plan Shares and any Released Prior Plan Shares, plus an additional 14,900,000 (FOURTEEN THOUSAND AND NINE HUNDRED) Shares (together, the aggregate number of such Shares is referred to as the “Plan Maximum”). Pursuant to Section 1.5(c), the number of such reserved Shares for Incentive Awards granted under the Plan that are forfeited or terminated, expire unexercised, are settled in cash in lieu of Shares or in a manner such that all or some of the Shares covered by an Incentive Award are not issued to a Grantee or are exchanged for Incentive Awards that do not involve Common Stock, will again immediately become available for grants of Incentive Awards hereunder.
(b) Any Shares that are subject to Awards of Stock Options will be counted against the Plan Maximum as one (1) Share for every one (1) Share granted. Any Shares that are subject to Awards other than Stock Options will be counted against the Plan Maximum as two (2) Shares for every one (1) Share granted.
(c) Subject to adjustment under Section 7.6, the aggregate number of Shares that may be issued upon exercise of ISOs will be 14,900,000 (FOURTEEN THOUSAND AND NINE HUNDRED) of the Shares reserved pursuant to the previous paragraph.
The Committee may from time to time adopt and observe such procedures concerning the counting of Shares against the Share reserve as it deems appropriate but only to the extent consistent with the foregoing provisions of this Section 1.4.
Section 1.5 Share Pool Adjustments for Awards and Payouts
(a) Incentive Awards will reduce the number of Shares authorized for issuance under the Share Pool in accordance with the ratio in Section 1.4(b).
(b) In certain circumstances, Shares subject to an Incentive Award will not be issued or transferred to a Grantee, or will be reacquired by the Company. Such Shares will no longer be charged against the Share reserve in Section 1.4, and may be used thereafter for grants of additional Incentive Awards under the Plan. The following additional parameters will apply:
(1)To the extent an Incentive Award is settled or paid in cash, Shares subject to such Incentive Award will not be considered to have been issued and thus will not be applied against the Share reserve in Section
1.4.
(2)To the extent that any outstanding Incentive Award that is to be settled in Shares is forfeited, cancelled, returned to the Company for failure to satisfy vesting requirements or other conditions thereof, or otherwise terminates without an issuance of Shares being made, the Share reserve in Section 1.4 will be credited with the number of Shares covered thereby and such Shares may be made subject to future Incentive Awards under the Plan.
(3)If an Incentive Award may be settled in Shares or cash, such Shares will be deemed issued only when and to the extent that settlement or payment is actually made in Shares. To the extent an Incentive Award is settled or paid in cash, and not Shares, any Shares previously reserved for issuance pursuant to such Incentive Award will again be deemed available for issuance under Section 1.4, and the Share reserve in Section 1.4, will be reduced only by the number of Shares actually issued and transferred to the Grantee.
(4)Notwithstanding the foregoing: (A) Shares withheld or tendered to pay Withholding Taxes or to purchase Shares upon the exercise of an Incentive Award (by either actual delivery or attestation of the Shares) will not again be available for the grant of Incentive Awards under the Plan, and (B) the full number of Shares subject to an Incentive Award that is a Stock Option or SAR which is settled by the issuance of Shares will be counted against the Share reserve in Section 1.4, regardless of the number of Shares actually issued upon the settlement of such Stock Option or SAR. Shares delivered by a Grantee to the Company to satisfy Withholding Taxes will be treated in the same way as Shares withheld or deducted from an Incentive Award (as specified above) and thus will not be available for future grants from the Share reserve under Section 1.4.
(5)Upon exercise of a SAR, or the exercise of a Stock Option by means of a net settlement, the number of Shares subject to the Incentive Award that are then being exercised will be counted against the Share reserve in Section 1.4, on the basis of one Share for every Share subject thereto, regardless of the actual number of Shares, if any, used to settle the Incentive Award upon exercise.
(6)Any Shares repurchased by the Company on the open market using the proceeds from the exercise of an Incentive Award will not increase the Share reserve in Section 1.4.
(7)The payment of Dividend Equivalent Rights in cash in conjunction with any outstanding Incentive Awards will not be counted against the Share reserve in Section 1.4.
(c) On and after the Effective Date, any Released Prior Plan Share will be credited to the Share reserve in Section 1.4 when the Share becomes a Released Prior Plan Share, and thus becomes available at that time to be applied for grants of Incentive Awards under this Plan, subject to the terms and conditions of this Plan only and not any Prior Plan.
Section 1.6 Shares Available
The Shares available for issuance or transfer under the Plan will be made available from Shares now or hereafter (a) held in the treasury of the Company, (b) authorized but unissued, or (c) to be purchased or acquired by the Company or an employee benefit trust. No fractional shares will be issued under the Plan; payment for fractional shares will be made in cash.
Section 1.7 Participation
(a) Eligibility. Incentive Awards may be granted only to an individual who, at the time of grant, is an Employee. The Committee will from time to time designate those Employees, if any, to be granted Incentive Awards under the Plan, the type of Incentive Awards granted, the number of Shares, Stock Options, rights or units, as the case may be, which will be granted to each such individual, and any other terms or conditions relating to the Incentive Awards as it may deem appropriate to the extent consistent with the provisions of the Plan. A Grantee who has been granted an Incentive Award may, if otherwise eligible, be granted additional Incentive Awards at any time.
(b) ISO Eligibility. ISOs may only be granted to Employees. In addition, no Employee will be eligible for the grant of any ISO who owns or would own immediately before the grant of such ISO, directly or indirectly, stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, or any Parent or Subsidiary as determined under Code Section 422. This restriction does not apply if, at the time such
ISO is granted, the ISO exercise price is at least one hundred and ten percent (110%) of the Fair Market Value on the Date of Grant and the ISO by its terms is not exercisable after the expiration of five (5) years from the Date of Grant. For the purpose of the immediately preceding sentence, the attribution rules of Code Section 424(d) will apply for the purpose of determining an Employee’s percentage ownership in the Company or any Parent or Subsidiary. This paragraph will be construed consistent with the requirements of Code Section 422.
Section 1.8 Types of Incentive Awards
The types of Incentive Awards under the Plan are Stock Options, SARs, RSAs, RSUs, Other Stock-Based Awards, Cash Awards or any combination of the foregoing.
Section 1.9 Minimum Vesting Requirements
Except with respect to Shares not to exceed five percent (5%) of the Plan Maximum, no Award which vests on the basis of the Grantee’s continued Employment shall vest earlier than one year following its Date of Grant, and no Award which vests on the basis of attainment of Performance Criteria shall provide for a Performance Period of less than one year.
SECTION 2
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
Section 2.1 Grant of Stock Options
The Committee is authorized to grant Stock Options to Grantees, in accordance with the terms and conditions of the Plan, and with such additional terms and conditions, not inconsistent with the Plan, as the Committee will determine in its discretion. Successive grants may be made to the same Grantee regardless of whether any Stock Option previously granted to such person remains unexercised.
Section 2.2 Stock Option Terms
(a)Grant. Each grant of a Stock Option will be evidenced by an Incentive Agreement, which will specify the number of Shares to which it pertains. Among its other provisions, each Incentive Agreement will set forth the extent to which the Grantee will have the right to exercise the Stock Option following termination of the Grantee’s Employment. Such provisions will be determined in the discretion of the Committee and included in the Grantee’s Incentive Agreement, and they need not be uniform among all Stock Options issued pursuant to the Plan or to the same Grantee.
(b)Exercise Price. The exercise price per Share under each Stock Option will be (i) not less than 100% of the Fair Market Value per Share on its Date of Grant and (ii) specified in the Incentive Agreement; provided, however, if the Grantee of an ISO is a 10% or greater shareholder pursuant to Section 1.7(b), the exercise price for the ISO will not be less than 110% of the Fair Market Value on the Date of Grant. Each Stock Option will specify the method of exercise which will be consistent with Section 2.4(a).
(c)Term. In the Incentive Agreement, the Committee will fix the term of each Stock Option, but not to exceed (i) ten (10) years from the Date of Grant for ISO grants or (ii) five (5) years for ISO grants to 10% or greater shareholders pursuant to Section 1.7(b). In the event no term is set out in the Incentive Agreement, the term of the Stock Option will be ten (10) years from the Date of Grant.
(d)Exercise. The Committee will determine the time or times at which a Stock Option may be exercised, in whole or in part. Each Stock Option may specify the required period of continuous Employment, the Performance Criteria or any other requirements to be achieved before the Stock Option or portion thereof will become exercisable. Each Stock Option, the exercise of which, or the timing of the exercise of which, is dependent, in whole or in part, on the achievement of designated Performance Criteria, may specify a minimum level of achievement in respect of the specified Performance Criteria below which no Stock Options will be exercisable and a method for determining the number of Stock Options that will be exercisable if performance is at or above such minimum but short of full achievement of the Performance Criteria. All such particular terms and conditions of the Stock Option will be set forth in the Grantee’s Incentive Agreement. A Stock Option cannot be exercised after the end of the term of the Stock Option.
(e)$100,000 Annual Limit on ISOs. Notwithstanding any contrary provision in the Plan, a Stock Option designated as an ISO will be an ISO only to the extent that the aggregate Fair Market Value (determined as of the time the ISO is granted) of the Shares with respect to which ISOs are exercisable for the first time by the Grantee during any single calendar year (under the Plan and all other plans of the Company and its Subsidiaries or Parent as determined under Code Section 424) does not exceed $100,000. This limitation will be applied by taking ISOs into account in the order in which they were granted and will be construed in accordance with Code Section 422(d). To the extent that a Stock Option intended to constitute an ISO exceeds the $100,000 limitation (or other limitation under Code Section 422), the portion of the Stock Option that exceeds such limitation will be deemed a Nonstatutory Stock Option. In such event, all other terms and provisions of such Stock Option grant will remain unchanged.
(f)No Reloads. Incentive Agreements for Stock Options will not contain any provision entitling a Grantee to the automatic grant of additional Stock Options in connection with the exercise of the original Stock Option.
Section 2.3 SARs
(a) Grant. The Committee may grant SARs to any Grantee. The terms and conditions of each SAR will be evidenced by an Incentive Agreement. A SAR is the right to receive an amount equal to the Spread with respect to a Share upon the exercise of the SAR. SARs may be granted in tandem with the grant of a Stock Option, in which case the Incentive Agreement will provide that (1) the SAR will be cancelled when and to the extent the related Stock Option is exercised and (2) the exercise of the SAR will result in the surrender of the right to purchase the Share under the Stock Option as to which the SAR was exercised. Alternatively, SARs may be granted independently of Stock Options, in which case the grant of SARs will be evidenced by an Incentive Agreement. Any SARs granted under the Plan are intended to satisfy the requirements under Code Section 409A to the effect that such SARs do not provide for the deferral of compensation that is subject to taxation under Code Section 409A.
(b) General Provisions. The SAR price per Share will not be less than one hundred percent (100%) of the Fair Market Value of a Share on the Date of Grant of the SAR. The term of the SAR will be determined by the Committee but will not be greater than ten (10) years from the Date of Grant. The Committee will not include any feature for the deferral of compensation other than deferral of the recognition of income until exercise of the SAR.
(c) Exercise. SARs will be exercisable subject to Section 2.4 or such other terms and conditions as the Committee will specify in the Incentive Agreement for the SAR grant. No SAR granted to an Insider may be exercised prior to six (6) months from the Date of Grant, except in the event of the death or Disability of such Grantee which occurs prior to the expiration of such six-month period if so permitted under the Incentive Agreement.
(d) Settlement. Upon exercise of the SAR, the Grantee will receive an amount equal to the Spread. The Spread, less applicable withholdings, will be payable in cash, Shares, or some combination of cash and Shares, within 30 calendar days of the exercise date.
Section 2.4 Stock Option and SAR Exercises ��
(a)Method of Exercise. Stock Options and SARs may be exercised by delivering to the Company a written notice of exercise, in a form the Committee approves (which may be electronic), signed by the person authorized to exercise the Stock Option or SAR, together with, as applicable, payment in full (i) as specified in Section 2.4(b) for the number of Shares for which the Incentive Award is exercised and (ii) as specified in Section 8.3 for any applicable taxes. Unless otherwise determined by the Committee, a Stock Option or SAR may not be exercised for a fraction of a Share.
Dispositions to a broker effecting a “cashless exercise” are not exempt under Section 16 of the Exchange Act while the Company is a Publicly Held Corporation. Moreover, in no event will the Committee allow the Option Price to be paid with a form of consideration, including a loan or a “cashless exercise,” if such form of consideration would violate the Sarbanes-Oxley Act of 2002, as determined by the Committee.
(b) Payment upon Exercise. Subject to any Company insider trading policy (including blackout periods) or other Applicable Law, unless otherwise determined by the Committee in its discretion, the exercise price of a Stock Option must be paid by:
(1)cash, wire transfer of immediately available funds or by check payable to the order of the Company; or
(2)as consistent with Applicable Law, if the Company is a Publicly Held Corporation at the time of exercise, (A) delivery (including telephonically to the extent permitted by the Company) of an irrevocable and unconditional undertaking by a broker acceptable to the Company to deliver promptly to the Company sufficient funds to pay the exercise price, or (B) the Grantee’s delivery to the Company of a copy of irrevocable and unconditional instructions to a broker acceptable to the Company to deliver promptly to the Company cash or a check sufficient to pay the exercise price; provided that such amount is paid to the Company at such time as may be required by the Committee.
(c) Delivery of Shares. As soon as practicable after receipt of a written notification of exercise and full payment, the Company will deliver, or cause to be delivered, to or on behalf of the Grantee, in the name of the Grantee or other appropriate recipient, evidence of ownership for the number of Shares purchased under the Stock Option.
(d) Transfer of Stock Options. Subject to Section 7.4, during the lifetime of a Grantee, each Stock Option granted to the Grantee will be exercisable only by the Grantee (or his or her legal guardian in the event of his or her Disability) or by a broker-dealer acting on his or her behalf pursuant to a cashless exercise under the foregoing provisions of this Section 2.4(a).
(e) Restrictions on Share Transferability. The Committee may impose such restrictions on any grant of Stock Options or on any Shares acquired pursuant to the exercise of a Stock Option as it may deem advisable, including, without limitation, restrictions under (i) any shareholders’ agreement, buy/sell agreement, right of first refusal, non-competition, and any other agreement between the Company and any of its securities holders or employees or (ii) any Applicable Law. Any certificate issued to evidence Shares issued upon the exercise of an Incentive Award may bear such legends and statements as the Committee will deem advisable to assure compliance with Applicable Law.
Any Grantee or other Person exercising an Incentive Award will be required, if requested by the Committee, to give a written representation that the Incentive Award and the Shares subject to the Incentive Award will be acquired for investment and not with a view to public distribution; provided, however, that the Committee, in its discretion, may release any Person receiving an Incentive Award from any such representations either prior to or subsequent to the exercise of the Incentive Award.
(f) Notification of Disqualifying Disposition of Shares from ISOs. Notwithstanding any other provision of the Plan, a Grantee who disposes of Shares acquired upon the exercise of an ISO by a sale or exchange either (i) within two (2) years after the date of the grant of the ISO under which the Shares were acquired or (ii) within one (1) year after the transfer of such Shares to him or her pursuant to exercise, will promptly notify the Company of such disposition, the amount realized and his or her adjusted basis in such Shares.
(g)Proceeds of Option Exercise. The proceeds received by the Company from the sale of Shares pursuant to Stock Options exercised under the Plan will be used for general corporate purposes.
SECTION 3
RESTRICTED STOCK AWARDS
Section 3.1 Award of Restricted Stock
(a)Grant. Each grant of an RSA will be evidenced by an Incentive Agreement. Shares of Restricted Stock may be awarded by the Committee with such restrictions during the Restriction Period as the Committee will designate in its discretion. Any such restrictions may differ with respect to a particular Grantee. Restricted Stock will be awarded for no additional consideration or such additional consideration as the Committee may determine, which consideration may be less than, equal to or more than the Fair Market Value of the shares of Restricted Stock on the Date of Grant. Any RSA may, at the time of grant, be designated by the Committee as a Performance-Based Award.
(b)Immediate Transfer without Immediate Delivery of Restricted Stock. Unless otherwise specified in the Grantee’s Incentive Agreement, each RSA will constitute an immediate transfer of the record and beneficial ownership of the Shares of Restricted Stock to the Grantee. Shares subject to an RSA may be issued in the name of the Grantee and held, together with a stock power endorsed in blank, by the Committee or Company (or their delegates) or in trust or in escrow pursuant to an agreement satisfactory to the Committee or Company, until such time as the restrictions on transfer have expired. All such terms and conditions will be set forth in the Grantee’s Incentive Agreement.
The Company or Committee (or their delegates) will issue to the Grantee a receipt evidencing the certificates held by it which are registered in the name of the Grantee.
(c)Dividends. A Grantee holding an RSA will be entitled to all ordinary cash dividends paid with respect to such Shares without regard to any vesting requirements, unless the Committee provides otherwise in the Incentive Agreement. In addition, unless the Committee provides otherwise, if any dividends or distributions are paid in Shares, or consist of a dividend or distribution to holders of Common Stock of property other than an ordinary cash dividend, the Shares or other property will be subject to the same restrictions on transferability and forfeitability as the shares of Restricted Stock with respect to which they were paid.
(d)Stock Certificates. The Company may require that the Grantee deposit in escrow with the Company (or its designee) any stock certificates issued in respect of Shares of Restricted Stock, together with a stock power endorsed in blank.
(e)Voting Rights. A Grantee holding Shares of Restricted Stock will be entitled to all voting rights in such Shares, unless the Committee provides otherwise in the Incentive Agreement.
(f)Other Terms and Conditions. Unless provided otherwise in the Grantee’s Incentive Agreement for an RSA, (i) the Grantee will not be entitled to delivery of the stock certificate until the forfeiture restrictions have expired, (ii) the Company will retain custody of the Shares until the forfeiture restrictions have expired, (iii) the Grantee may not sell, transfer, pledge, exchange, hypothecate, or otherwise dispose of or encumber the Shares until the forfeiture restrictions have expired, (iv) a breach of the terms and conditions in the Grantee’s Incentive Agreement will result in a forfeiture of the RSA, and (v) with respect to the payment of any dividend (or Dividend Equivalent Right) with respect to Shares subject to an RSA directly to the Grantee, each such dividend (or Dividend Equivalent Right) will be paid no later than the end of the calendar year in which the dividends (or Dividend Equivalent Rights) are paid to shareholders of such class of shares or, if later, the fifteenth day of the third month following the date the dividends (or Dividend Equivalent Rights) are paid to shareholders of such class of shares. At the time an RSA is granted, the Committee may, in its discretion, prescribe in the Grantee’s Incentive Agreement such additional terms, conditions, or restrictions relating to RSAs, including, but not limited to, rules pertaining to the termination of Employment (by retirement, disability, death, or otherwise) of the Grantee prior to expiration of the forfeitures restrictions.
(g)Committee’s Discretion to Accelerate Vesting of RSAs. Upon the event that the Committee exercises its discretion to fully vest any or all Shares subject to an RSA, all forfeiture restrictions applicable to such RSA will terminate as of such date. Any action by the Committee pursuant to this paragraph may vary among individual Grantees and may vary among the RSAs held by any individual Grantee.
(h)Requirement to Enter into Tax Election. Where a Grantee is resident in the United Kingdom, the Committee may require the Grantee to make or enter into a valid election with his or her or her employer under Section 431 of the UK Income Tax (Earnings and Pensions) Act 2003 to disapply the provisions of Chapter 2 of Part 7 of that Act in respect of any Shares awarded as part of an RSA.
Section 3.2 Restrictions
(a) Issuance of Certificates. Reasonably promptly after the Date of Grant with respect to Shares of Restricted Stock, the Company may cause to be issued a stock certificate, which is registered in the name of the Grantee to whom such Shares of Restricted Stock were granted, evidencing such Shares; provided, however, that the Company will not cause to be issued such a stock certificate unless it has received a stock power duly endorsed in blank with respect to such Shares. Each such stock certificate will bear the following legend or any other legend approved by the Company:
The transferability of this certificate and the shares of stock represented hereby are subject to the restrictions, terms and conditions (including forfeiture and restrictions against transfer) contained in the Ensco plc 2018 Long-Term Incentive Plan and an Incentive Agreement entered into between the registered owner of such shares and Ensco plc. A copy of the Plan and Incentive Agreement are on file in the main corporate office of Ensco plc.
Such legend will not be removed from the certificate evidencing such Shares of Restricted Stock unless and until such Shares vest pursuant to the terms of the Incentive Agreement.
(b) Removal of Restrictions. The Committee, in its discretion, will have the authority to remove any or all of the restrictions on the Restricted Stock if it determines that, by reason of a change in Applicable Law or another change in circumstance arising after the Date of Grant of the Restricted Stock, such action is necessary or appropriate.
Section 3.3 Delivery of Shares
Subject to Withholding Taxes under Section 8.3 and to the terms of the Incentive Agreement, a stock certificate evidencing the Shares of Restricted Stock with respect to which the restrictions in the Incentive Agreement have been satisfied will be delivered to the Grantee or other appropriate recipient free of restrictions.
SECTION 4
RESTRICTED STOCK UNITS
Section 4.1 Grant of RSUs
The Committee may grant RSUs to a Grantee, as selected in the discretion of the Committee, in such amounts as will be determined by the Committee in its discretion. Each grant of RSUs will be evidenced by an Incentive Agreement that sets forth the number of RSUs covered by the Incentive Award and the terms, conditions, restrictions and other provisions applicable to the RSUs as may be specified by the Committee consistent with the terms of the Plan, including, as applicable, provisions relating to compliance with, or exemption under, Code Section 409A. The Committee may award RSUs to a Grantee that are payable in Shares or cash, or in a combination thereof. Any RSU may, at the time of grant, be designated by the Committee as a Performance-Based Award.
Section 4.2 Restrictions and Lapse of Restrictions on RSUs
RSUs will be subject to such restrictions on transferability, risk of forfeiture and other restrictions as the Committee may impose in the Grantee’s Incentive Agreement. These restrictions may lapse separately or in combination at such times, under such circumstances, in such installments, upon the satisfaction of Performance Criteria, upon the satisfaction of continued service requirements, or otherwise, as determined by the Committee and set forth in the Grantee’s Incentive Agreement.
Section 4.3 Settlement of RSUs
RSUs will become payable to a Grantee at the time or times set forth in the Incentive Agreement, which may be upon or following vesting of the Incentive Award. RSUs may be paid in cash, Shares or a combination thereof, as determined by the Committee and set forth in the Grantee’s Incentive Agreement, subject to any applicable Withholding Taxes.
Section 4.4 No Rights as a Shareholder
The Grantee will have no rights as a shareholder with respect to any Incentive Award of RSUs until such time as Shares are paid and delivered to the Grantee in settlement of the RSUs pursuant to the terms of Grantee’s Incentive Agreement.
Section 4.5 Dividend Equivalents
If the Committee provides in the Grantee’s Incentive Agreement, a grant of RSUs may include Dividend Equivalent Rights. Dividend Equivalent Rights (a) may be paid currently or credited to an account for the Grantee, (b) may be settled in cash or Shares, (c) need not be subject to the same restrictions on transferability and forfeitability as the RSUs with respect to which the Dividend Equivalent Rights are granted, and (d) will be subject to such terms and conditions as prescribed for the Dividend Equivalent Rights in the Grantee’s Incentive Agreement.
SECTION 5
OTHER AWARDS
Section 5.1 Grant of Other Stock-Based Awards
Other Stock-Based Awards may be awarded by the Committee to any Grantee that are payable in Shares or in cash, as determined in the discretion of the Committee. Other types of Stock-Based Awards that are payable in Shares include, without limitation, purchase rights, Shares awarded that are not subject to any restrictions or conditions, Shares
awarded subject to the satisfaction of specified Performance Criteria, convertible or exchangeable debentures, other rights convertible into Shares, Incentive Awards valued by reference to the performance of a specified Affiliate, or a division, business unit, or department of the Company or an Affiliate, and settlement in cancellation of rights of any Person with a vested interest in any other plan, fund, program or arrangement that is or was sponsored, maintained or participated in by the Company or any Affiliate. The purchase price, if any, for Shares issued pursuant to an Other Stock-Based Award will be determined by the Committee in its discretion.
As is the case with other types of Incentive Awards, Other Stock-Based Awards may be awarded either alone or in addition to, or in tandem with, any other Incentive Awards. Other Stock-Based Awards that are payable in Shares are not intended to be deferred compensation subject to taxation under Code Section 409A, unless otherwise determined by the Committee at the time of grant.
Section 5.2 Grant of Cash Awards
Cash Awards may be awarded by the Committee to any Grantee as determined in the discretion of the Committee to be consistent with the goals of the Company or Affiliate. Any Cash Award may be granted as an element of, or supplement to, any other Incentive Award under the Plan.
Section 5.3 Cash Award and Other Stock-Based Award Terms
(a) Grant. Each grant of a Cash Award or Other Stock-Based Award will be evidenced by an Incentive Agreement. All terms and conditions of a Cash Award or Other Stock-Based Award will be determined by the Committee and set forth in the Grantee’s Incentive Agreement. An Other Stock-Based Award or Cash Award will also be available as a payment form in the settlement of other Incentive Awards, as standalone payments and as payment in lieu of compensation to which a Grantee is otherwise entitled. Any Other Stock-Based Award or Cash Award may be paid in Shares, cash or other property, as the Committee determines and, subject to the provisions of the Plan, the Committee will determine the terms and conditions of each such Incentive Award, including any purchase price, Performance Criteria, transfer restrictions, vesting conditions, and payment terms, which will be set forth in the Incentive Agreement.
(b) Purchase Price. Except if a Cash Award or Other Stock-Based Award is (i) granted in substitution for an outstanding Incentive Award or (ii) delivered upon exercise of a Stock Option, but only to the extent permitted under the Plan, the amount of consideration required to be received by the Company will be either (A) no consideration other than services rendered (in the case of authorized and unissued Shares), or to be rendered, by the Grantee, or (B) as otherwise specified in the Incentive Agreement; provided however, that any such grant is permitted under Applicable Law.
(c) Performance Criteria and Other Terms. The Committee may specify Performance Criteria or other terms for (i) vesting of a Cash Award or Other Stock-Based Award and (ii) payment thereof to the Grantee, as the Committee may determine in its discretion pursuant to Section 6.
Section 5.4 Dividend Equivalent Rights
The Committee may grant a Dividend Equivalent Right to any Grantee, either as a component of another Incentive Award or as a separate Incentive Award. Dividend equivalents credited to the holder of a Dividend Equivalent Right may be paid currently or may be deemed to be reinvested in additional Shares (which may thereafter accrue additional dividend equivalents). Any such reinvestment will be at the Fair Market Value at the time thereof. Dividend Equivalent Rights may be settled in cash or Shares, or a combination thereof, in a single payment or in installments. The terms and conditions of a Dividend Equivalent Right will be specified in the respective Incentive Agreement.
SECTION 6
PERFORMANCE BASED AWARDS AND PERFORMANCE CRITERIA
Section 6.1 Performance Criteria
As determined by the Committee at the time of grant, a Performance-Based Award may be granted subject to performance objectives relating to one or more of the following Performance Criteria:
(a)earnings (including, without limitation, total shareholder return, earnings per Share or earnings before or after taxes);
(b)return measures (including, without limitation, return on invested capital, return on assets, capital, equity, investment or sales);
(c)cash flow (including, without limitation, operating cash flow, free cash flow or cash flow return on capital or investments);
(d)share price (including, without limitation, growth measures and total shareholder return);
(e)operating metrics; (including, without limitation, operational downtime, rig utilization, days sales outstanding, project completion time, budget goals, and similar matters);
(f)safety performance and/or incident rate;
(g)technology, efficiency, corporate responsibility or human resources management targets;
(h)strategic team goals; and
(i)any other performance criteria, objective or goal that has been approved by the Committee in its discretion.
Performance Criteria may be (1) applied to the Company, any Subsidiary, or any division or operating unit of the Company or a Subsidiary; and (2) stated in absolute terms or relative to comparison companies or indices.
The Performance Criteria (1) will be specified in the applicable Incentive Agreement; (2) need not be applicable to all Incentive Awards; and (3) may be particular to an individual Grantee’s function, Affiliate or business unit. The Committee may establish the Performance Criteria of the Company, any Affiliate or business unit, as determined and designated by the Committee, in its discretion, in the Grantee’s Incentive Agreement for the Performance-Based Award.
Section 6.2 Adjustments of Performance-Based Awards
The Committee may provide in any Performance-Based Award that any evaluation of performance will exclude or otherwise objectively adjust for any specified event that occurs during a Performance Period, including, without limitation, the following: (a) asset write-downs or impairment charges; (b) litigation or claim judgments or settlements; (c) the effect of changes in tax laws, accounting principles or other Applicable Law, or provisions affecting reported results; (d) accruals and charges for reorganization and restructuring programs; (e) acquisitions or divestitures; (f) foreign exchange gains and losses; (g) extraordinary nonrecurring items as described in Financial Accounting Standards Board Accounting Standards Codification Topic 225.20, “Income Statement - Extraordinary and Unusual Items” (or any successor thereto); (h) extraordinary nonrecurring items as described in management’s discussion and analysis of financial condition and results of operations appearing in the Company’s annual report to shareholders for the applicable year; (i) any gain or loss from a discontinued operation; (j) goodwill impairment charges; (k) any amounts accrued by the Company or Subsidiaries pursuant to management bonus plans or cash profit sharing plans and related employer payroll taxes for the fiscal year; (l) any discretionary or matching contributions made to a savings and deferred profit-sharing plan or deferred compensation plan for the fiscal year; (m) interest, expenses, taxes, depreciation and depletion, amortization and accretion charges; (n) mark-to-market adjustments for financial instruments; and (o) changes in business strategy impacting timing and magnitude of financial operating goals, including, but not limited to, expenses, operating cash flow, and balance sheet goals.
Unless otherwise determined by the Committee, the Performance Criteria in respect of a Performance-Based Award will be deemed to exclude the impact of the following events or occurrences for such Performance Period: (i) the effect of changes in tax law or other such laws or regulations affecting reported results; (ii) any change in accounting principles; and (iii) events of force majeure beyond the Company’s control, such as acts of God, wars (declared or undeclared), insurrections, hostilities, strikes, lockouts, riots, floods, fires, storms, industrial disturbances, acts of the public enemy, sabotage, blockades, landslides, lightning, earthquakes, washouts, arrests and restraints of rulers and peoples, civil disturbances, explosions, breakage or accidents to machinery, equipment, facilities or lines of pipe and subsequent repairs, freezing of wells, pipe or other facilities, partial or entire failure of wells, pipe or other facilities, and action or restraint by court order or public or governmental authority.
Section 6.3 Discretionary Adjustments
The Committee may increase or decrease the payment for any Performance-Based Award after the commencement of the Performance Period. The Committee may exercise discretion to determine that the portion of a Performance-Based Award actually earned, vested or payable (as applicable) will be more or less than the portion that would be earned, vested or payable based solely upon application of the applicable Performance Criteria as set forth in the Grantee’s Incentive Agreement.
SECTION 7 PROVISIONS RELATING TO PLAN PARTICIPATION
Section 7.1 Incentive Agreement
(a) Terms. Each Grantee to whom an Incentive Award is granted will be required to enter into an Incentive Agreement with the Company, in such a form as is provided by the Committee. The Incentive Agreement will contain specific terms as determined by the Committee, in its discretion, with respect to the Grantee’s particular Incentive Award. Such terms need not be uniform among all Grantees or any similarly situated Grantees. The Incentive Agreement may include, without limitation, vesting, forfeiture and other provisions particular to the Grantee’s Incentive Award, as well as, for example, provisions to the effect that the Grantee (a) will not disclose any confidential information acquired during Employment with the Company, (b) will abide by all the terms and conditions of the Plan and such other terms and conditions as may be imposed by the Committee, (c) will not interfere with the employment or other service of any employee, (d) will not compete with the Company or become involved in a conflict of interest with the interests of the Company, (e) will forfeit an Incentive Award if terminated for Cause, (f) will not be permitted to make an election under Code Section 83(b) when applicable (or will be subject to certain restrictions or requirements if making such an election), and (g) will be subject to any other agreement between the Grantee and the Company regarding Shares that may be acquired under an Incentive Award including, without limitation, a shareholders’ agreement, buy-sell agreement, or other agreement restricting the transferability of Shares by Grantee. An Incentive Agreement will include such terms and conditions as are determined by the Committee, in its discretion, to be appropriate with respect to any individual Grantee.
(b) Clawback or Forfeiture. The Committee may specify in an Incentive Agreement that the Grantee’s rights, payments, and benefits with respect to an Incentive Award will be subject to reduction, cancellation, forfeiture, or recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions of the Incentive Award. Such events may include, but will not be limited to, termination of Employment with or without Cause, violation of material policies of the Company or its Affiliate, breach of noncompetition, confidentiality, or other restrictive covenants that may apply to the Grantee, or other conduct by the Grantee that is detrimental to the business or reputation of the Company or its Affiliate.
(c) Consideration. Unless otherwise determined by the Committee and set forth in the applicable Incentive Agreement, Incentive Awards will be granted for no cash consideration or for such minimal cash consideration as may be required by Applicable Law.
Section 7.2 No Employment Rights Conferred
Nothing in the Plan or any instrument executed pursuant to the Plan will create any Employment rights (including without limitation, rights to continued Employment) in any Grantee or affect the right of the Company to terminate the Employment of any Grantee at any time without regard to the existence of the Plan.
Section 7.3 Securities Requirements
The Company will be under no obligation to effect the registration or qualification, as applicable, of any Shares to be issued hereunder pursuant to the Securities Act or any other Applicable Law, or to effect similar compliance under any state securities laws. Notwithstanding anything herein to the contrary, the Company will not be obligated to cause to be issued or delivered any certificates evidencing Shares pursuant to the Plan unless and until the Company is advised by its counsel that the issuance and delivery of such certificates is in compliance with all Applicable Law and the requirements of any securities exchange on which Shares are traded. The Committee may require, as a condition of the issuance and delivery of certificates evidencing Shares pursuant to the terms hereof, that the recipient of such Shares make such covenants, agreements and representations, and that such certificates bear such legends, as the Committee, in its discretion, deems necessary or desirable.
The Committee may, in its discretion, defer the effectiveness of any exercise or settlement of an Incentive Award in order to allow the issuance of Shares to be made pursuant to a registered transaction or pursuant to an exemption from registration or other methods for compliance available under Applicable Law. The Committee will inform the Grantee in writing of its decision to defer the effectiveness of the exercise or settlement of an Incentive Award. During the period that the effectiveness of the exercise or settlement of an Incentive Award has been deferred, the Grantee may, by written notice to the Committee, withdraw any applicable exercise election and obtain the refund of any amount paid with respect thereto.
If the Shares issuable on exercise or settlement of an Incentive Award are not registered under the Securities Act or other Applicable Law, the Company may imprint on the certificate for such Shares the following legend or any other legend which counsel for the Company considers necessary or advisable to comply with the Securities Act or any other Applicable Law:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (“ACT”), OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO ANY APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS OR PURSUANT TO A WRITTEN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
Section 7.4 Transferability
Incentive Awards granted under the Plan will not be transferable or assignable other than: (a) by will or the laws of descent and distribution or (b) pursuant to a qualified domestic relations order (as defined under Code Section 414(p)); provided, however, that only with respect to Incentive Awards consisting of Nonstatutory Stock Options, the Committee may, in its discretion, authorize all or a portion of the Nonstatutory Stock Options to be granted on terms which permit transfer by the Grantee to (i) the members of the Grantee’s Immediate Family, (ii) a trust or trusts for the exclusive benefit of the Grantee’s Immediate Family members, (iii) a partnership in which the Grantee’s Immediate Family members are the only partners, or (iv) any other entity owned solely by the Grantee’s Immediate Family members; provided that (A) there may be no consideration for any such transfer, (B) the Incentive Agreement pursuant to which such Nonstatutory Stock Options are granted must be approved by the Committee, and must expressly provide for transferability in a manner consistent with this Section 7.4, (C) subsequent transfers of transferred Nonstatutory Stock Options will be prohibited except in accordance with clauses (a) and (b) (above) of this sentence, and (D) there may be no transfer of any Incentive Award in a listed transaction as described in IRS Notice 2003-47 (or its successor). Following any permitted transfer, the Nonstatutory Stock Option will continue to be subject to the same terms and conditions as were applicable immediately prior to transfer; provided, however, the term “Grantee” will be deemed to refer to the transferee. The events of termination of Employment, as set out in Section 7.7 and in the Incentive Agreement, will continue to be applied with respect to the original Grantee, and the Incentive Award will be exercisable by the transferee only to the extent, and for the periods, specified in the Incentive Agreement.
Except as may otherwise be permitted under the Code, in the event of a permitted transfer of a Nonstatutory Stock Option hereunder, the original Grantee will remain subject to Withholding Taxes upon exercise. In addition, the Company and the Committee will have no obligation to provide any notices to any Grantee or any permitted transferee of an Incentive Award, including, for example, notice of the expiration of an Incentive Award following the original Grantee’s termination of Employment.
Except as otherwise provided in Sections 421 or 422 of the Code, an ISO will not be transferable other than by will or the laws of descent and distribution.
The designation by a Grantee of a beneficiary of an Incentive Award will not constitute transfer of the Incentive Award. No transfer by will or by the laws of descent and distribution will be effective to bind the Company unless the Committee has been furnished with a copy of the deceased Grantee’s enforceable will or such other evidence as the Committee deems necessary to establish the validity of the transfer. Any attempted transfer in violation of this Section 7.4 will be void and ineffective. All determinations under this Section 7.4 will be made by the Committee in its discretion.
Except as provided in this Section 7.4, Incentive Awards may be exercised during the lifetime of the Grantee only by the Grantee or by the Grantee’s legally authorized representative as determined by the Committee.
Section 7.5 Rights as a Shareholder
(a) No Shareholder Rights. Except as otherwise provided in Section 3.1(b) for the grant of an RSA, a Grantee of an Incentive Award (or a permitted transferee of such Grantee) will have no rights as a shareholder with respect to any Shares covered by the Incentive Award until the issuance of a stock certificate or other record of ownership for such Shares.
(b) Representation of Ownership. In the case of the exercise of an Incentive Award by a Person acquiring the right to exercise such Incentive Award by reason of the death or Disability of a Grantee, the Committee may require
reasonable evidence as to the ownership of such Incentive Award or the authority of such Person. The Committee may also require such consents and releases of taxing authorities as it deems advisable.
Section 7.6 Change in Stock and Adjustments
(a) Changes in Law or Circumstances. Subject to (i) Section 7.8 (which only applies in the event of a Change in Control) and (ii) Section 7.6(c) (which relates to adjustments following a Recapitalization of the Company or a subdivision or consolidation of Shares), in the event of any change in Applicable Law or any change in circumstances which results in or would result in dilution of any rights granted under the Plan, or which otherwise warrants an equitable adjustment because it interferes with the intended operation of the Plan, then, if the Board or Committee should so determine, in its discretion, that such change equitably requires an adjustment in the number or kind of capital stock or other securities or property theretofore subject, or which may become subject, to issuance or transfer under the Plan or in the terms and conditions of outstanding Incentive Awards, such adjustment will be made in accordance with such determination. Such adjustments may include changes with respect to (i) the aggregate number of Shares that may be issued under the Plan, (ii) the number of Shares subject to Incentive Awards, and (iii) the Option Price or other price per Share for outstanding Incentive Awards, but will not result in the grant of any Stock Option with an exercise price that is less than 100% of the Fair Market Value per Share on the Date of Grant. The Board or the Committee will give notice to each applicable Grantee of such adjustment, which will be effective and binding.
(b) Exercise of Corporate Powers. The existence of the Plan or outstanding Incentive Awards hereunder will not affect in any way the right or power of the Company or its shareholders to make or authorize any or all adjustments, recapitalization, reorganization or other changes in the Company’s capital structure or its business or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stocks ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Company or an Affiliate, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding whether of a similar character or otherwise.
(c) Recapitalization of the Company or Subdivision or Consolidation of Shares.
(1)In the event that the Company subdivides or consolidates Shares as discussed in the following paragraphs of this Section 7.6(c)(1), then the terms of an Incentive Award and the number of Shares authorized pursuant to Section 1.4 will be subject to adjustment in accordance with the following provisions:
(A)If, at any time, or from time to time, the Company will subdivide as a whole (by reclassification, by a Share split, by the issuance of a distribution on Shares payable in Shares, or otherwise) the number of Shares then outstanding into a greater number of Shares, then: (1) the maximum number of Shares available for the Plan or in connection with Incentive Awards as provided in Section 1.4 will be increased proportionately, and the kind of shares or other securities available for the Plan will be appropriately adjusted, (2) the number of Shares (or other kind of shares or securities) that may be acquired under any then outstanding Incentive Award will be increased proportionately, and (3) the price (including the exercise price) for each Share (or other kind of shares or securities) subject to then outstanding Incentive Awards will be reduced proportionately, all without changing the aggregate purchase price or value as to which outstanding Incentive Awards remain exercisable or subject to restrictions; or
(B)If, at any time, or from time to time, the Company will consolidate as a whole (by reclassification, by reverse Share split, or otherwise) the number of Shares then outstanding into a lesser number of Shares, then: (1) the maximum number of Shares available for the Plan or in connection with Incentive Awards as provided in Section 1.4 will be decreased proportionately, and the kind of Shares or other securities available for the Plan will be appropriately adjusted, (2) the number of Shares (or other kind of Shares or securities) that may be acquired under any then outstanding Incentive Award will be decreased proportionately, and (3) the price (including the exercise price) for each Share (or other kind of Shares or securities) subject to then outstanding Incentive Awards will be increased proportionately, all without changing the aggregate purchase price or value as to which outstanding Incentive Awards remain exercisable or subject to restrictions.
(C)Whenever the number of Shares subject to outstanding Incentive Awards and the price for each Share subject to outstanding Incentive Awards are required to be adjusted as provided in this Section 7.6(c)(1) the Committee will promptly prepare a notice setting forth, in reasonable detail, (1) the event requiring adjustment, (2) the amount of the adjustment, (3) the method by which such adjustment was calculated, and (4) the change in price and the number of Shares, other securities, cash or property purchasable subject to each Incentive Award, after giving effect to such adjustments. The Committee will promptly provide each affected Grantee with such notice.
(D)Adjustments under Section 7.6(c)(1)(A) and (B) above will be made by the Committee, and its determination as to what adjustments will be made and the extent thereof, will be final, binding and conclusive. No fractional interest will be issued under the Plan on account of any such adjustments.
(2)If the Company undergoes a Recapitalization without the occurrence of a Change in Control, the number and class of Shares covered by an Incentive Award previously granted and outstanding at such time will be adjusted so that such Incentive Award will thereafter cover the number and class of Shares 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 then covered by such Incentive Award and, moreover, the Share limitations provided in Section 1.4 will be adjusted in a manner consistent with the Recapitalization.
(d) Issue of Common Stock by the Company. Except as hereinabove expressly provided in this Section 7.6 and subject to Section 7.8 in the event of a Change in Control, the issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services, either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon any conversion of shares or obligations of the Company convertible into such shares or other securities, will not affect, and no adjustment by reason thereof will be made with respect to, the number of, or Option Price or Fair Market Value of, any Incentive Awards then outstanding under previously granted Incentive Awards; provided, however, in such event, Shares attributable to RSAs will be treated in the same manner for such purpose as outstanding unrestricted Shares.
(e) Assumption under the Plan of Outstanding Stock Options. Notwithstanding any other provision of the Plan, the Board or the Committee, in its discretion, may authorize the assumption and continuation under the Plan of outstanding and unexercised stock options or other types of stock-based incentive awards that were granted under a stock option plan (or any other type of stock incentive plan or agreement) that is or was maintained by a corporation or other entity that was merged into, consolidated with, or whose stock or assets were acquired by, the Company as the surviving corporation. Any such action will be upon such terms and conditions as the Board or the Committee, in its discretion, may deem appropriate, including provisions to preserve the holder’s rights under the previously granted and unexercised stock option or other stock-based incentive award; such as, for example, retaining an existing exercise price under an outstanding stock option. Any such assumption and continuation of any such previously granted and unexercised incentive award will be treated as an outstanding Incentive Award under the Plan and will thus count against the number of Shares reserved for issuance pursuant to Section 1.4. In addition, any Shares issued by the Company through the assumption or substitution of outstanding grants from an acquired company will reduce the Shares available for grants as provided in Section 1.4.
(f) Assumption of Incentive Awards by a Successor. Subject to the accelerated vesting and other provisions of Section 7.8 that apply in the event of a Change in Control, in the event of an Equity Restructuring, the Committee may determine that each Grantee will be entitled to receive, in lieu of the number of Shares subject to Incentive Awards, such shares of capital stock or other securities or property as may be issuable or payable with respect to or in exchange for the number of Shares which the Grantee would have received had the Grantee exercised the Incentive Award immediately prior to such Equity Restructuring, together with any adjustments (including, without limitation, adjustments to the Option Price and the number of Shares issuable on exercise of outstanding Stock Options). For this purpose, Shares attributable to RSAs will be treated in the same manner as unrestricted outstanding Shares.
Notwithstanding the previous paragraphs of this Section 7.6(f), but subject to the accelerated vesting and other provisions of Section 7.8 that apply in the event of a Change in Control, to the extent applicable, in the event of an Equity Restructuring, the Committee will have the right and power to effectuate one or more of the following alternatives in its discretion, with respect to outstanding Incentive Awards, which may vary among individual Grantees and may vary among Incentive Awards held by any individual Grantee:
(1) cancel, effective immediately prior to the occurrence of the Equity Restructuring, an outstanding Incentive Award (whether or not then exercisable) and, in full consideration of such cancellation, pay to the Grantee an amount in cash equal to the excess of (A) the value, as determined by the Board or the Committee, of the property (including cash) received by the holders of Common Stock as a result of such Equity Restructuring over (B) the exercise price of such Incentive Award, if any; provided, however, this subsection (i) will be inapplicable to an Incentive Award granted within six (6) months before the occurrence of the Equity Restructuring if (A) the Grantee is an Insider, (B) the Company is subject to Section 16 of the Exchange Act, and (C) such disposition is not exempt under Rule 16b-3 (or other rules preventing liability of the Insider under Section 16(b) of the Exchange Act) and, in
that event, the provisions hereof will be applicable to such Incentive Award after the expiration of six (6) months from the Date of Grant; or
(2) provide for the exchange or substitution of each Incentive Award outstanding immediately prior to such Equity Restructuring (whether or not then exercisable) for another award with respect to the Common Stock or other property for which such Incentive Award is exchangeable and, incidental thereto, make an equitable adjustment as determined by the Board or the Committee, in its discretion, in the Option Price or exercise price of the Incentive Award, if any, or in the number of Shares or amount of property (including cash) subject to the Incentive Award; or
(3)provide that thereafter upon the exercise of an Incentive Award that was previously granted, the Grantee will be entitled to purchase or receive under such Incentive Award, in lieu of the number of Shares then covered by such Incentive Award, the number and class of shares of stock or other securities or property (including, without limitation, cash) to which the Grantee would have been entitled pursuant to the terms of the agreement of the Equity Restructuring if, immediately prior to such Equity Restructuring, the Grantee had been the holder of record of the number of Shares then covered by such Incentive Award; provided, however, if such consideration is not solely common stock of the successor corporation, the Board or the Committee may, with the consent of the successor corporation, provide for the consideration to be received to be solely common stock of the successor corporation that is equal to the Fair Market Value of the per Share consideration received by the holders of Shares as the result of the Equity Restructuring; or
(4)effect one or more of the following alternatives in an equitable and appropriate manner to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, which alternatives may vary among individual Grantees and which may vary among Incentive Awards held by any individual Grantee: (A) accelerate the time at which Stock Options or SARs then outstanding may be exercised so that such Incentive Awards may be exercised in full for a limited period of time on or before a specified date (before or after the Equity Restructuring) fixed by the Committee, after which specified date all such unexercised Incentive Awards and all rights of Grantees thereunder will terminate, or (B) require the mandatory surrender by all or selected Grantees of some or all of the outstanding Stock Options or SARs held by such Grantees (irrespective of whether such Incentive Awards are then exercisable under the provisions of the Plan) as of a date, before or after such Equity Restructuring, that is specified by the Board or the Committee, in which event the Board or the Committee will thereupon cancel such Incentive Awards and the Company will pay (or cause to be paid) to each Grantee an amount of cash per share equal to the excess, if any, of the amount calculated by the Board or the Committee, in its discretion as exercised in good faith, as the then Fair Market Value of the Shares subject to such Incentive Awards over the exercise price(s), if any, under such Incentive Awards for such Shares; or
(5)provide for assumption of the Plan and such outstanding Incentive Awards by the surviving entity or its parent.
The Board or Committee, in its discretion, will have the authority to take whatever action it deems to be necessary or appropriate to preserve the rights of Grantees holding outstanding Incentive Awards and to effectuate the provisions of this Section 7.6(f).
Section 7.7 Termination of Employment
(a) Committee Discretion. Pursuant to the terms of the Incentive Agreement or otherwise, the Committee will determine how the disability, death, retirement, authorized leave of absence or any other change or purported change in a Grantee’s Employment status affects an Incentive Award (including acceleration or waiver of vesting requirements) and the extent to which, and the period during which, the Grantee, the Grantee’s legal representative, conservator, guardian or beneficiary may exercise rights under the Incentive Award, if applicable. Subject to the conditions and limitations of the Plan and Applicable Law, in the event that a Grantee ceases to be an Employee for whatever reason, the Committee and Grantee may mutually agree with respect to any outstanding Incentive Award then held by the Grantee (i) for an acceleration or other adjustment in any vesting schedule applicable to the Incentive Award; (ii) for a continuation of the exercise period following termination for a longer period than is otherwise provided under such Incentive Award; or (iii) to any other change in the terms and conditions of the Incentive Award. In the event of any such change to an outstanding Incentive Award, a written amendment to the Grantee’s Incentive Agreement will be required. No amendment to a Grantee’s Incentive Award will be made to the extent compensation payable pursuant thereto as a result of such amendment would be considered deferred compensation that is subject to taxation under Code Section 409A, unless otherwise determined by the Committee.
Unless expressly provided in the Grantee’s Incentive Agreement or as otherwise determined by the Committee:
(1) Termination of Employment for Cause. If the Grantee’s Employment is terminated for Cause, any unvested portion of any Incentive Award and any vested but unexercised Incentive Award will immediately expire, and will not be exercisable to any extent, effective immediately upon such termination of Employment.
(2) Termination of Employment for Disability or Death. Unless otherwise expressly provided in the Grantee’s Incentive Agreement, upon termination of Employment as a result of the Grantee’s Disability or death, any unvested portion of any Incentive Award will automatically expire and terminate and no further vesting will occur after the termination date, and any vested but unexercised Incentive Award will expire on the earlier of either (i) the expiration date set forth in the Incentive Agreement or (ii) the one (1) year anniversary date of the Grantee’s termination of Employment date.
In the case of any vested ISO held by an Employee following termination of Employment, notwithstanding the definition of “Disability” in this Plan, whether the Employee has incurred a “Disability” for purposes of determining the length of the Stock Option exercise period following termination of Employment under this Section will be determined by reference to Code Section 22(e)(3) to the extent required by Code Section 422(c)(6). The Committee will determine whether a Disability for purposes of this Section has occurred.
(3) Termination of Employment not for Cause, Disability or Death. If the Grantee’s Employment is terminated for any reason other than for Cause, Disability or death, any unvested portion of any Incentive Award will automatically expire and terminate and no further vesting will occur after the termination date and any vested but unexercised Incentive Award will expire on the earlier of (i) the expiration date set forth in the Incentive Agreement or (ii) ninety (90) days after the date of his or her termination of Employment.
Section 7.8 Effect of Termination of Employment for Certain Reasons Following a Change in Control
Except as may otherwise be specifically provided in a Grantee’s Incentive Agreement, and notwithstanding any contrary provision in the Plan, if, during the two-year period immediately following the effective date of a Change in Control of the Company (a) a Grantee’s Employment is terminated by the Company or any Affiliate without Cause or (b) the Grantee resigns from his or her Employment for Good Reason in accordance with the process set out below, the following actions will automatically occur as of the date of the Grantee’s termination of Employment:
(a) all of the Grantee’s Stock Options and SARs then outstanding will become 100% vested and immediately and fully exercisable;
(b) all of the restrictions and conditions of any of the Grantee’s RSAs, RSUs and any Other Stock-Based Awards or Cash Awards then outstanding will be deemed satisfied, and the Restriction Period with respect thereto will be deemed to have expired, and thus each such Incentive Award will become free of all restrictions and fully vested; and
(c) all of the Grantee’s Performance-Based Awards will become fully vested and deemed earned in full at 100% of the target level.
In the event that any acceleration of vesting pursuant to an Incentive Award or any other payment or benefit received or to be received by a Grantee under the Plan in connection with a Change in Control would subject a Grantee to an excise tax pursuant to Code Section 4999 (which excise tax would be the Grantee’s obligation) due to the characterization of such acceleration of vesting, payment or benefit as an “excess parachute payment” under Code Section 280G, the Grantee may elect, in his or her sole discretion, to reduce the amount of any acceleration of vesting, payment or benefit called for under the Incentive Award in order to avoid such characterization.
Section 7.9 Exchange of Incentive Awards
Subject to Section 7.10, the Committee may, in its discretion, grant Incentive Awards to Grantees on the condition that such Grantees surrender to the Committee for cancellation such other Incentive Awards (including, without limitation, Incentive Awards with higher exercise prices) as the Committee directs. Incentive Awards granted on the condition precedent of surrender of outstanding Incentive Awards will not count against the limits set forth in Section 1.4 until such time as such previous Incentive Awards are surrendered and cancelled. No surrender of Incentive Awards will be made under this Section 7.9 if such surrender causes any Incentive Award to provide for the deferral of compensation in a manner that is subject to taxation under Code Section 409A, unless otherwise determined by the Committee.
Section 7.10 Repricing Prohibited
Except as provided in Section 7.6, all outstanding Stock Options and SARs will not be “repriced” for any reason without the prior approval of the Company’s shareholders. For purposes of the Plan, a “repricing” means lowering the Option Price of an outstanding Stock Option or SAR or any other action that has the same effect or is treated as a repricing under generally accepted accounting principles, and includes a tandem cancellation of a Stock Option or SAR at a time when its Option Price exceeds the fair market value of the underlying Shares and exchange for another Stock Option, SAR, other Incentive Award, other equity security or a cash payment.
Section 7.11 Lock-Up Period
The Company may, at the request of any underwriter representative or otherwise, in connection with registering the offering of any Company securities under the Securities Act, prohibit Grantees from, directly or indirectly, selling or otherwise transferring any Shares or other Company securities during a period of up to 180 days following the effective date of a Company registration statement filed under the Securities Act, or such longer period as determined by the underwriter.
Section 7.12 Section 83(b) Elections Prohibited
No Grantee may make an election under Code Section 83(b), or any successor section thereto, with respect to any Incentive Award without the consent of the Committee, which the Committee may grant or withhold in its discretion.
SECTION 8
GENERAL
Section 8.1 Effective Date and Grant Period
The Plan will be effective upon the Effective Date, provided that it has been approved by the shareholders of the Company within twelve (12) months after the Effective Date. Incentive Awards may be granted under the Plan at any time prior to receipt of such shareholder approval; provided, however, if the requisite shareholder approval is not obtained within such 12-month period, any Incentive Awards granted hereunder will automatically become null and void and of no force or effect. No Incentive Awards may be granted under the Plan on or after the date which is ten (10) years following the Effective Date. The Plan will remain in effect until all Incentive Awards granted under the Plan have been satisfied or expired.
Section 8.2 Funding and Liability of Company
No provision of the Plan will require the Company, for the purpose of satisfying any obligations under the Plan, to purchase assets or place any assets in a trust or other entity to which contributions are made, or otherwise to segregate any assets. In addition, the Company will not be required to maintain separate bank accounts, books, records or other evidence of the existence of a segregated or separately maintained or administered fund for purposes of the Plan. Although bookkeeping accounts may be established with respect to Grantees who are entitled to cash, Common Stock or rights thereto under the Plan, any such accounts will be used merely as a bookkeeping convenience.
Section 8.3 Withholding Taxes
(a)Tax Withholding. Each Grantee must pay the Company, or make provision satisfactory to the Company for payment of, any taxes required by law to be withheld in connection with such Grantee’s Incentive Awards by the date of the event creating the tax liability. The Company may deduct an amount sufficient to satisfy such tax obligations based on the minimum statutory withholding rates (or such other rate as may be determined by the Company after considering any accounting consequences or costs) from any payment of any kind otherwise due to a Grantee. Subject to any Company insider trading policy (including blackout periods), Grantees may satisfy such tax obligations (i) in cash, by wire transfer of immediately available funds, by check made payable to the order of the Company, provided that the Company may limit the use of the foregoing payment forms if one or more of the payment forms below is permitted, (ii) to the extent permitted by the Committee, in whole or in part by delivery of Shares, including Shares retained from the Incentive Award creating the tax obligation, valued at their Fair Market Value, (iii) if there is a public market for Shares at the time the tax obligations are satisfied, unless the Company otherwise determines, (A) delivery (including telephonically to the extent permitted by the Company) of an irrevocable and unconditional
undertaking by a broker acceptable to the Company to deliver promptly to the Company sufficient funds to satisfy the tax obligations, or (B) delivery by the Grantee to the Company of a copy of irrevocable and unconditional instructions to a broker acceptable to the Company to deliver promptly to the Company cash or a check sufficient to satisfy the tax withholding; provided that such amount is paid to the Company at such time as may be required by the Committee, or (iv) to the extent permitted by the Company, any combination of the foregoing payment forms approved by the Committee. If any tax withholding obligation will be satisfied under clause (ii) of the immediately preceding sentence by the Company’s retention of Shares from the Incentive Award creating the tax obligation and there is a public market for Shares at the time the tax obligation is satisfied, the Company may elect to instruct any brokerage firm determined acceptable to the Company for such purpose to sell on the applicable Grantee’s behalf some or all of the Shares retained and to remit the proceeds of the sale to the Company or its designee, and each Grantee’s acceptance of an Incentive Award under the Plan will constitute the Grantee’s authorization to the Company and instruction and authorization to such brokerage firm to complete the transactions described in this sentence.
(b)ISOs. With respect to Shares received by a Grantee pursuant to the exercise of an ISO, if such Grantee disposes of any such Shares within (i) two years from the Date of Grant of such Stock Option or (ii) one year after the transfer of such Shares to the Grantee, the Company will have the right to withhold from any salary, wages or other compensation payable by the Company to the Grantee an amount equal to the Withholding Taxes determined by the Company to be owed by the Grantee with respect to such disqualifying disposition.
(c)Employer NICs. In respect of a Grantee who is resident in the United Kingdom, the Committee may, to the extent it is lawful to do so, require that that Grantee’s Incentive Agreement includes the Grantee’s irrevocable agreement that: (i) the Company may recover the whole or any part of any secondary class 1 (employer) National Insurance Contributions from the Grantee; and (ii) at the request of the Company, the Grantee will elect (using a form approved by Her Majesty’s Revenue and Customs) that the whole or any part of the liability for any secondary class 1 (employer) National Insurance Contributions will be transferred to the Grantee.
Section 8.4 No Guarantee of Tax Consequences
The Company, Affiliates, Board and the Committee do not make any commitment or guarantee that any United States federal, state, local, or foreign tax treatment will apply or be available to any Person participating or eligible to participate hereunder.
Neither the Company, any Affiliate, the Board, nor the Committee will be liable to any Grantee or any other Person as to any expected or realized tax consequences for any Grantee or other Person due to the grant, exercise, lapse of restriction, vesting, distribution, payment or other taxable event involving any Incentive Award. Although the Company and its Affiliates may endeavor to (a) qualify an Incentive Award for favorable tax treatment in a jurisdiction or (b) avoid adverse tax treatment for an Incentive Award, the Company makes no representation to that effect and expressly disavows any covenant to maintain favorable or avoid unfavorable tax treatment.
Section 8.5 Designation of Beneficiary by Grantee
Each Grantee may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case of his or her death before he or she receives any or all of such benefit. Each such designation will revoke all prior designations by the same Grantee, must be in the form prescribed by the Committee, and will be effective only when filed by the Grantee in writing with the Committee (or its delegate), and received and accepted during the Grantee’s lifetime. In the absence of any such valid beneficiary designation, benefits remaining unpaid at the Grantee’s death will be paid as follows: (i) if a Grantee leaves a surviving spouse, payment will be made to such surviving spouse on behalf of the Grantee; and (ii) if a Grantee leaves no surviving spouse, payment will be made to (A) if there is administration of such Grantee’s estate, the executor or administrator of such estate, upon receipt by the Committee of supporting evidence from the estate that is satisfactory to the Committee, or (B) if there is no administration of such Grantee’s estate, such Grantee’s heirs at law as determined by a court of competent jurisdiction, in such proportion as determined by such court in its signed court order that is received by, and satisfactory to, the Committee.
Section 8.6 Deferrals
Subject to any requirements that apply to preclude taxation under Code Section 409A, the Committee, in its discretion, may permit a Grantee to defer the receipt of the payment of cash or the delivery of Shares under the terms of his or
her Incentive Agreement that would otherwise be due and payable by virtue of the lapse or waiver of restrictions with respect to RSAs, RSUs or another form of Incentive Award.
Section 8.7 Amendment and Termination of Plan
The Board or Committee will have the power and authority to terminate or amend the Plan at any time in its discretion; provided, however, the Company will obtain shareholder approval of any Plan amendment to the extent necessary or desirable to comply with Applicable Law. For example, the Board or Committee will not, without the approval of the shareholders of the Company within the time period required by Applicable Law:
(a) except as provided in Section 7.6, increase the maximum number of Shares that may be issued under the Plan pursuant to Section 1.4;
(b) amend the requirements as to the class of Grantees eligible to purchase Shares under the Plan;
(c) extend the term of the Plan; or
(d)while the Company is a Publicly Held Corporation (i) decrease the authority granted to the Committee under the Plan in contravention of Rule 16b-3 under the Exchange Act (to the extent Section 16 of the Exchange Act is applicable to the Company) or (ii) delete or limit the provisions of Section 7.10 (repricing prohibition).
In addition, to the extent that the Committee determines that (a) the listing qualification requirements of any United States or foreign national securities exchange or quotation system on which the Common Stock is then listed or quoted, if applicable, or (b) any provision of the Code or other Applicable Law, require shareholder approval in order to maintain compliance with such listing requirements or to maintain any favorable tax advantages or qualifications, then the amendment of the Plan will not be effective unless approved by the requisite vote of the shareholders of the Company entitled to vote thereon.
Subject to the provisions of the last paragraph of this Section 8.7, no amendment, modification, suspension, discontinuance or termination of the Plan will impair the rights of any Grantee under any Incentive Award previously granted under the Plan without such Grantee’s consent; provided, however, such consent will not be required with respect to any Plan amendment, modification or other such action if the Committee determines, in its sole discretion, that such amendment, modification or other such action is not reasonably likely to significantly reduce or diminish the benefits provided to the Grantee under such Incentive Award.
The Committee may waive any conditions or restrictions under, amend or modify the terms and conditions of, or cancel or terminate any outstanding Incentive Award at any time and from time to time; provided, however, subject to Section 7.10 and the provisions of the last paragraph of this Section 8.7 and the provisions of the applicable Incentive Agreement, no such amendment, modification, cancellation or termination will impair the rights of a Grantee under an Incentive Award without such Grantee’s consent; provided, however, such consent will not be required with respect to any amendment, modification or other such action if the Committee determines, in its sole discretion, that such amendment, modification or other such action is not reasonably likely to significantly reduce or diminish the benefits provided to the Grantee under such Incentive Award.
Notwithstanding any other provision of the Plan or any Incentive Agreement to the contrary, the Committee may, in its sole discretion and without the consent of any Grantee, amend the Plan or any Incentive Agreement, to take effect retroactively or otherwise, as it deems to be necessary in order for the Company, the Plan, the Incentive Award or the Incentive Agreement to satisfy or conform to any Applicable Law, or to meet the requirements of any applicable accounting standard.
Section 8.8 Requirements of Law and Securities Exchanges
The granting of Incentive Awards and the issuance or delivery of Shares under the Plan will be subject to all Applicable Law, and to such approvals by any governmental agencies or national securities exchanges as may be required. Certificates evidencing Shares delivered under the Plan (to the extent that such Shares are so evidenced) may be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the rules and regulations of the Securities and Exchange Commission, any securities exchange or transaction reporting system upon which the Common Stock is then listed or to which it is admitted for quotation, and any other Applicable Law. The Committee may cause a legend or legends to be placed upon such certificates to make appropriate reference to such restrictions.
The Company will not be required to sell or issue any Shares under any Incentive Award if the sale or issuance of such Shares would constitute a violation by the Grantee or any other individual exercising the Incentive Award, or the Company, of any provision of any Applicable Law. If at any time the Company will determine, in its discretion, that the listing, registration or qualification of any Shares subject to an Incentive Award upon any securities exchange or under any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the issuance, purchase or sale of Shares hereunder, no Shares may be issued, purchased or sold to the Grantee or any other individual pursuant to an Incentive Award unless such listing, registration, qualification, consent or approval will have been effected or obtained free of any conditions not acceptable to the Company, and any delay caused thereby will in no way affect the date of termination of the Incentive Award. The Company will not be obligated to take any affirmative action in order to cause the exercise of an Incentive Award or the issuance of Shares pursuant to the Plan to comply with any Applicable Law. As to any jurisdiction that expressly imposes the requirement that an Incentive Award will not be exercisable until the Shares covered thereby are registered or are exempt from registration, the exercise of such Incentive Award (under circumstances in which the Applicable Law of such jurisdiction apply) will be deemed conditioned upon the effectiveness of such registration or the availability of such an exemption.
The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Committee or the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, will relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority has not been obtained.
Section 8.9 Clawback
All Incentive Awards (including any proceeds, gains or other economic benefit the Grantee actually or constructively receives upon receipt or exercise of any Incentive Award or other receipt or resale of any Shares underlying the Incentive Award) will be subject to any Company clawback policy as may be notified to the Grantee from time to time, including any clawback policy adopted to comply with any Applicable Law (including, without limitation, the Dodd-Frank Wall Street Reform and Consumer Protection Act) as set forth in such clawback policy or the Incentive Agreement. Any such policy may subject a Grantee’s Incentive Awards, and amounts paid or realized with respect to Incentive Awards, under the Plan to reduction, cancelation, forfeiture or recoupment if certain specified events or wrongful conduct occur, such events 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.
Section 8.10 Treatment for Other Compensation Purposes
The amount of any compensation received or deemed to be received by a Grantee pursuant to an Incentive Award will not be deemed part of a Grantee’s regular, recurring compensation for purposes of any termination, indemnity or severance pay laws, and will not be included in or have any effect on the determination of benefits under any other compensation or benefit plan, program or arrangement of the Company or an Affiliate, including any retirement, severance, group insurance, welfare benefits or other benefits plan, unless otherwise expressly provided in writing in such other plan, program or arrangement.
Section 8.11 No Obligation to Exercise Awards; No Right to Notice of Expiration Date
An Incentive Award of a Stock Option or a SAR imposes no obligation upon the Grantee to exercise the Incentive Award. The Company, its Affiliates and the Committee have no obligation to inform a Grantee of the date on which a Stock Option or SAR is no longer exercisable except for including such expiration date in the Grantee’s Incentive Agreement.
Section 8.12 Rule 16b-3 Securities Law Compliance for Insiders
While the Company is a Publicly Held Corporation, transactions under the Plan with respect to Insiders are intended to comply with all applicable conditions of Rule 16b-3 under the Exchange Act to the extent Section 16 of the Exchange Act is applicable to the Company. Any ambiguities or inconsistencies in the construction of an Incentive Award or the Plan will be interpreted to give effect to such intention, and to the extent any provision of the Plan or action by the Committee fails to so comply, it may be deemed null and void by the Committee, in its discretion, to the extent permitted by Applicable Law.
Section 8.13 Compliance with Code Section 409A
(a) General. The Company intends that all Awards be structured to comply with, or be exempt from, Code Section 409A (“Section 409A”), such that no adverse tax consequences, interest, or penalties under Section
409A apply. Notwithstanding anything in the Plan or any Incentive Agreement to the contrary, the Committee may, without a Grantee’s consent, amend this Plan or Incentive Awards, adopt policies and procedures, or take any other actions (including amendments, policies, procedures and retroactive actions) as are necessary or appropriate to preserve the intended tax treatment of Incentive Awards, including any such actions intended to (i) exempt the Plan or any Incentive Award from Section 409A, or (ii) comply with Section 409A, including regulations, guidance, compliance programs and other interpretative authority that may be issued after an Incentive Award’s grant date. The Company makes no representations or warranties as to an Incentive Award’s tax treatment under Section 409A or otherwise. The Company and its Subsidiaries will have no obligation under this Section 8.13 or otherwise to avoid the taxes, penalties or interest under Section 409A with respect to any Incentive Award and will have no liability to any Grantee or any other Person if any Award, compensation or other benefits under the Plan are determined to constitute noncompliant “nonqualified deferred compensation” subject to taxes, penalties or interest under Section 409A.
(b) Separation from Service. If an Award constitutes “nonqualified deferred compensation” under Section 409A, any payment or settlement of such Incentive Award upon a termination of a Grantee’s Employment relationship will, to the extent necessary to avoid taxes under Section 409A, be made only upon the Grantee’s “separation from service” (within the meaning of Section 409A), whether such “separation from service” occurs upon or after the termination of the Grantee’s Employment relationship. For purposes of the Plan or any Incentive Agreement relating to any such payments or benefits, references to a “termination,” “termination of employment” or like terms means a “separation from service.”
(c) Payments to Specified Employees. Notwithstanding any contrary provision in the Plan or any Incentive Agreement, any payment(s) of “nonqualified deferred compensation” required to be made under an Incentive Award to a “specified employee” (as defined under Section 409A as determined by the Committee) due to his or her “separation from service” will, to the extent necessary to avoid taxes under Code Section 409A(a)(2)(B)(i), be delayed for the six-month period immediately following such “separation from service” (or, if earlier, until the specified employee’s death) and will instead be paid (as set forth in the Incentive Agreement) on the day immediately following such six-month period or as soon as administratively practicable thereafter (without interest) but not later than 60 days following the end of such six-month period. Any payments of “nonqualified deferred compensation” under such Incentive Award payable more than six months following the Grantee’s “separation from service” will be paid at the time or times the payments are otherwise scheduled to be made.
Section 8.14 Persons Residing Outside of the United States and United Kingdom
Notwithstanding any provision of the Plan to the contrary, in order to comply with the Applicable Law or customs in other countries in which the Company or any of its Affiliates operates or has employees, the Committee, in its discretion, will have the power and authority to (a) determine which Affiliates will be covered by the Plan; (b) determine which Persons employed outside the United States and United Kingdom are eligible to participate in the Plan; (c) amend or vary the terms and provisions of the Plan and the terms and conditions of any Incentive Award granted to Persons who reside outside the United States and United Kingdom; (d) establish subplans and modify exercise procedures and terms and procedures to the extent such actions are deemed to be necessary or advisable; and any such subplans and modifications to the terms and procedures of the Plan that are established under this Section 8.14 will be attached to the Plan document as appendices or annexes; and (e) take any action, before or after an Incentive Award is made, that it deems advisable to obtain or comply with any Applicable Law or regulatory exemptions or approvals.
Section 8.15 No Restriction on Corporate Action
Nothing contained in the Plan will be construed to prevent the Company or any Affiliate from taking any action which is deemed by the Company or such Affiliate to be appropriate or in its best interest, whether or not such action would have an adverse effect on the Plan or any Incentive Award made under the Plan. No Grantee or other Person will have any claim against the Company, any Affiliate, the Board or the Committee as a result of any such action.
Section 8.16 Successors to Company
All obligations of the Company under the Plan with respect to Incentive Awards granted hereunder will be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.
Section 8.17 Miscellaneous Provisions
(a) No Grantee or other Person will have any claim or right to be granted an Incentive Award under the Plan. Neither the Plan, nor any action taken hereunder, will be construed as giving any Grantee any right to be retained in the Employment or other service of the Company or any Parent or Subsidiary.
(b) By accepting any Incentive Award, each Grantee and each Person claiming by or through a Grantee will be deemed to have indicated his or her complete acceptance of all the terms and conditions of the Plan and the Incentive Agreement. Each Grantee acknowledges that the Plan is intended to conform to the extent necessary with Applicable Law. Notwithstanding anything herein to the contrary, the Plan and all Incentive Awards will be administered only in conformance with Applicable Law. To the extent Applicable Law permit, the Plan and all Incentive Agreements will be deemed amended as necessary to conform to Applicable Law.
(c) The proceeds received from the sale of Shares pursuant to the Plan will be used for general corporate purposes of the Company.
(d) No fractional Shares will be issued or delivered pursuant to the Plan or any Incentive Award, and the Company or Committee will determine whether cash, other securities or other property will be paid or transferred in lieu of any fractional Shares, or whether such fractional Shares or any rights thereto will be cancelled, terminated or otherwise eliminated.
Section 8.18 Severability
If any provision of the Plan or any Incentive Agreement is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction as to any Person or Incentive Award, or would disqualify the Plan or Incentive Award under any Applicable Law, such provision will be (a) construed or deemed amended to conform to Applicable Law or (b) if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Incentive Award, such provision will be stricken as to such jurisdiction, Person or Incentive Agreement, and thereafter the remainder of the Plan and any such Incentive Agreement will remain in full force and effect.
Section 8.19 Third Parties under UK’s Contracts (Rights of Third Parties Act 1999)
No third party has any rights under the United Kingdom’s Contracts (Rights of Third Parties) Act 1999 to enforce any term of the Plan.
Section 8.20 Rules of Construction
In the interpretation of the Plan, except where the context otherwise requires:
(a) “including” or “include” does not denote or imply any limitation;
(b) “or” has the inclusive meaning “and/or”;
(c) the singular includes the plural, and vice versa, and each gender includes each of the others;
(d) captions or headings are only for reference and are not to be considered in interpreting the Plan;
(e)any grammatical form or variant of a term defined in the Plan will be construed to have a meaning corresponding to the definition of the term set forth herein;
(f)the terms “hereof,” “hereto,” “hereunder” and similar terms in the Plan refer to the Plan as a whole and not to any particular provision of the Plan;
(g)“Section” refers to a Section of the Plan, unless otherwise stated in the Plan; and
(h)a reference to any statute, rule, or regulation includes any amendment thereto or any statute, rule, or regulation enacted or promulgated in replacement thereof.
Section 8.21 Governing Law
The Plan will be interpreted, construed and constructed in accordance with the laws of England and Wales, without regard to conflict of laws principles.
Section 8.22 Shareholder Approval
The Plan will be subject to approval by the shareholders of the Company within twelve (12) months after the date the Plan is adopted by the Board. Such shareholders’ approval will be obtained in the manner and to the degree required under Applicable Law.
ANNEX 1
TO THE ENSCO PLC 2018 LONG-TERM INCENTIVE PLAN
This Annex 1 to the Plan is intended to be a separate plan which governs Incentive Awards granted to Consultants and Outside Directors of the Company. Awards granted pursuant to this Annex 1 are subject to all of the terms and conditions set forth in the Plan except as modified by the following terms and provisions which will replace and/or supplement certain terms and provisions of the Plan as indicated herein.
SECTION 1.
GENERAL PROVISIONS RELATING TO PLAN GOVERNANCE, COVERAGE AND BENEFITS
Section 1.1Background and Purpose
The following will replace the second paragraph of Section 1.1 of the Plan but only with respect to Awards to Consultants and Outside Directors:
The purpose of this Annex 1 is to foster and promote the long-term financial success of the Company and to increase shareholder value by: (a) encouraging the commitment of selected key Consultants and Outside Directors, (b) motivating superior performance of key Consultants and Outside Directors by means of long-term performance related incentives, (c) encouraging and providing key Consultants and Outside Directors with a program for obtaining ownership interests in the Company which link and align their personal interests to those of the Company’s shareholders, (d) attracting and retaining key Consultants and Outside Directors by providing competitive compensation opportunities, and (e) enabling key Consultants and Outside Directors to share in the long-term growth and success of the Company.
Section 1.2Definitions
The following definitions replace or supplement the definitions in Section 1.2 of the Plan but only with respect to Awards to Consultants and Outside Directors:
“Consultant” means an independent agent, consultant, attorney, or any other individual who is not an Outside Director or an Employee and who, in the opinion of the Committee, is (i) in a position to contribute to the growth or financial success of the Company (or any Affiliate), (ii) is a natural person and (iii) provides bona fide services to the Company (or any Affiliate), which services are not in connection with the offer or sale of securities in a capital raising transaction, and do not directly or indirectly promote or maintain a market for the Company’s securities.
“Employment” means that the individual is engaged as a Consultant or Outside Director, by the Company (or any Parent or Subsidiary), or by any corporation issuing or assuming an Incentive Award in any transaction described in Code Section 424(a), or by a parent corporation or a subsidiary corporation of such corporation issuing or assuming such Incentive Award, as the parent-subsidiary relationship will be determined at the time of the corporate action described in Code Section 424(a). The term “Employment” will include (i) active performance of agreed services by a Consultant for the Company (or any Parent or Subsidiary) or (ii) current membership on the Board by an Outside Director, and termination of Employment will mean that such Services are no longer being provided by such Consultant or the individual is no longer an Outside Director, as applicable. Notwithstanding anything herein to the contrary, for purposes of the Plan, the termination of Employment of an Consultant or Outside Director will not result in the payment of any amount hereunder that is subject to, and not exempt under, Code Section 409A, unless such termination constitutes a “separation from service” as defined under Code Section 409A.
All determinations hereunder regarding Employment or termination of Employment, and separation from service for purposes of Code Section 409A, will be made by the Committee in its discretion.
“Grantee” will mean any Outside Director or Consultant who is granted an Incentive Award under the Plan.
“Outside Director” will mean a Director who, at the time of grant of an Incentive Award, is not an Employee.
“Stock Option” will mean a Nonstatutory Stock Option. For the avoidance of doubt, in accordance with Code Section 422, only an Employee may be granted an ISO.
The following definitions in Section 1.2 of the Plan will be amended in the following ways with respect to Awards to Consultants and Outside Directors:
At the end of the definition of “Committee,” the following paragraph will be added:
Notwithstanding any other provision of the Plan, any Incentive Awards that are to be granted under the Plan to Outside Directors will be approved by the Board, or made in accordance with a policy or program that is approved by the Board; provided, however, the Committee may recommend such Incentive Awards, policy or program to the Board for its approval. With respect to grants of Incentive Awards to Outside Directors, all rights, powers and authorities vested in the Committee under the Plan with respect thereto will instead be exercised by the Board, and thus any reference in the Plan to the Committee will be deemed to include a reference to the Board when acting in such capacity. When the Board exercises its authority to act in its capacity as the Committee hereunder with respect to an Incentive Award for an Outside Director, it will so designate with respect to any action that it undertakes in such capacity.
Section 1.3Share Reserve of Common Stock Available for Incentive Awards
Shares offered or subject to Incentive Awards granted under this Annex 1 will count towards the limits set forth in Section 1.4 and Section 1.5. No Incentive Awards may be granted under this Annex 1 which would cause the limits set forth in Section 1.4 and Section 1.5 to be exceeded.
Section 1.4Eligibility
The following provision will replace Section 1.7(a) of the Plan with respect to Awards to Outside Directors and Consultants:
Incentive Awards may be granted only to an individual who, at the time of grant, is an Outside Director or Consultant. The Committee will from time to time designate those Outside Directors and Consultants, if any, to be granted Incentive Awards under the Plan, the type of Incentive Awards granted, the number of Shares, Stock Options, rights or units, as the case may be, which will be granted to each such individual, and any other terms or conditions relating to the Incentive Awards as it may deem appropriate to the extent consistent with the provisions of the Plan. A Grantee who has been granted an Incentive Award may, if otherwise eligible, be granted additional Incentive Awards at any time.
SECTION 2.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
Section 2.1Grant of Stock Options
The following provision will replace Section 2.1 of the Plan with respect to Awards to Outside Directors and Consultants:
The Committee is only authorized to grant Nonstatutory Stock Options to Outside Directors and Consultants, in accordance with the terms and conditions of the Plan, and with such additional terms and conditions, not inconsistent with the Plan, as the Committee will determine in its discretion. Successive grants may be made to the same Grantee regardless of whether any Stock Option previously granted to such person remains unexercised. For the avoidance of doubt, the Committee cannot grant ISOs to Outside Directors and/or Consultants under this Plan.
FIRST AMENDMENT TO
ENSCO PLC
2018 LONG-TERM INCENTIVE PLAN
THIS AMENDMENT is effective as of the fifteenth day of June 2020, by Valaris plc, having its principal office in London, England (hereinafter referred to as the “Company”).
WITNESSETH:
WHEREAS, the Company adopted the Ensco plc 2018 Long-Term Incentive Plan (the “Plan”), effective 21 May 2018;
WHEREAS, the Plan provides that it may be amended at any time in whole or in part by the Board of Directors of the Company (the “Board”);
WHEREAS, Section 8.7 of the Plan provides that the Board may amend the Plan, provided that no such amendment shall be made without the approval of the Company’s shareholders to the extent such approval is otherwise required to comply with Applicable Law (as defined in the Plan);
WHEREAS, the Board has determined that it is advisable and appropriate to amend the Plan to provide for an increase in the number of Shares (as defined in the Plan) that may be granted under the Plan and to make certain administrative changes thereto to reflect the current name of the Company;
WHEREAS, the Board now desires to adopt this First Amendment to the Plan for the purpose of (i) renaming the Plan as the “Valaris plc 2018 Long-Term Incentive Plan”; (ii) amending Section 1.4 of the Plan to increase the aggregate number of Shares available for issuance under the Plan, such amendment to be subject to approval by the Company’s shareholders at the Annual General Meeting of Shareholders on 16 June 2020; (iii) making certain administrative changes thereto to reflect the current name of the Company and (iv) amending the minimum vesting provisions with respect to awards granted to non-employee directors;
NOW, THEREFORE, in consideration of the premises and covenants herein contained, the Company hereby adopts the following First Amendment to the Plan:
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1. | The name of the Plan is hereby changed to the “Valaris plc 2018 Long-Term Incentive Plan”. |
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2. | All references in the Plan to “Ensco plc” are hereby amended to refer to “Valaris plc”. |
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3. | Section 1.4 of the Plan is hereby amended in its entirety to read as follows: |
Section 1.4 Share Reserve of Common Stock Available for Incentive Awards
(a) Subject to adjustment under Section 7.6, there will be available for Incentive Awards that are granted wholly or partly in Shares (including rights or Stock Options that may be exercised for or settled in Shares) any Unallocated Prior Plan Shares and any Released Prior Plan Shares, plus an additional fourteen million, nine hundred thousand (14,900,000)Shares (together, the aggregate number of such Shares is referred to as the “Plan Maximum”). Pursuant to Section 1.5(c), the number of such reserved Shares for Incentive Awards granted under the Plan that are forfeited or terminated, expire unexercised, are settled in cash in lieu of Shares or in a manner such that all or some of the Shares covered by an Incentive Award are not issued to a Grantee or are exchanged for Incentive Awards that do not involve Common Stock, will again immediately become available for grants of Incentive Awards hereunder.
(b) Any Shares that are subject to Awards of Stock Options will be counted against the Plan Maximum as one (1) Share for every one (1) Share granted. Any Shares that are subject to Awards other than Stock Options will be counted against the Plan Maximum as two (2) Shares for every one (1) Share granted.
(c) Subject to adjustment under Section 7.6, the aggregate number of Shares that may be issued upon exercise of ISOs will be fourteen million, nine hundred thousand (14,900,000)of the Shares reserved pursuant to the previous paragraph. The Committee may from time to time adopt and observe such procedures
concerning the counting of Shares against the Share reserve as it deems appropriate but only to the extent consistent with the foregoing provisions of this Section 1.4.
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4. | Section 1.9 of the Plan is hereby amended in its entirety to read as follows: |
Section 1.9 Minimum Vesting Requirements
Except with respect to Shares not to exceed five percent (5%) of the Plan Maximum, no award settled in Shares which vests on the basis of the Grantee’s continued Employment shall vest earlier than one year following its Date of Grant, and no such award which vests on the basis of attainment of Performance Criteria shall provide for a Performance Period of less than one year; provided, however, that such awards granted to non-Employee Directors shall vest no earlier than one year following its Date of Grant or, if earlier, the next annual meeting of the Company’s shareholders (provided that such annual meetings are at least fifty (50) weeks apart).
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ATTN: INVESTOR RELATIONS 5847 SAN FELIPE SUITE 3300 HOUSTON, TX 77057
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VOTE DEADLINE – 3:00 p.m. Eastern Time on 127 June 2020 (or 11:59 p.m. Eastern Time on 9 June 2020 for employees holding shares in our Savings Plan).2022.
VOTE BY INTERNET – www.proxyvote.com Have your proxy card in hand when you access the website and follow the instructions.
VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
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The "Abstain" option is provided to enable you to refrain from voting on any particular resolution. However, it should be noted that selecting "Abstain" will not be counted in the calculation of the proportion of the votes "For" and "Against" a resolution, except for Resolution 5. For Resolution 5, an abstention counts as a vote "Against."resolution. |
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | | x Valaris1 | | KEEP THIS PORTION FOR YOUR RECORDS |
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THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. |
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Valaris plc | | | | | | | | | |
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The Board of Directors recommends you vote "For" each nominee in Resolution 1 and "For" Resolutions 2 through 12. |
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1. | To re-elect Directors to serve until the 2021 Annual General Meeting of Shareholders | | | | | | | | | |
| Nominees: | For | Against | Abstain | | | | For | Against | Abstain |
| 1a. William E. Albrecht | ¨ | ¨ | ¨ | | 5. | To approve an amendment to the 2018 Long-Term Incentive Plan | ¨ | ¨ | ¨ |
| 1b. Frederick Arnold | ¨ | ¨ | ¨ | |
| 1c. Thomas P. Burke | ¨ | ¨ | ¨ | | 6. | To approve the Directors' Remuneration Policy | ¨ | ¨ | ¨ |
| 1d. Mary E. Francis CBE | ¨ | ¨ | ¨ | |
| 1e. Georges J. Lambert | ¨ | ¨ | ¨ | |
| 1f. Suzanne P. Nimocks | ¨ | ¨ | ¨ | | 7. | A non-binding advisory vote to approve the Directors Remuneration Report for the year ended 31 December 2019. | ¬ | ¬ | ¬ |
| 1g. Thierry Pilenko | ¨ | ¨ | ¨ | | 8. | A non-binding advisory vote to approve the compensation of our named executive officers. | ¬ | ¬ | ¬ |
| 1h. Paul E. Rowsey, III | ¨ | ¨ | ¨ | | 9. | A non-binding advisory vote to approve the reports of the auditors and the directors and the U.K. statutory accounts for the year ended 31 December 2019. | ¬ | ¬ | ¬ |
| 1i. Charles L. Szews | ¨ | ¨ | ¨ | |
| | | | | | 10. | To authorise the Board of Directors to allot shares, the full text of which can be found in "Resolution 10" of the accompanying proxy statement. | ¬ | ¬ | ¬ |
| 1j. Adam Weitzman | ¨ | ¨ | ¨ | |
2. | To ratify the Audit Committee's appointment of KPMG LLP (U.S.) as our U.S. independent registered public accounting firm for the year ending 31 December 2020. | ¨ | ¨ | ¨ | | 11. | To approve the general disapplication of pre-emption rights, the full text of which can be found in "Resolution 11" of the accompanying proxy statement. | ¬ | ¬ | ¬ |
| 12. | To approve the disapplication of pre-emption rights in connection with an acquisition or specified capital investment, the full text of which can be found in "Resolution 12" of the accompanying proxy statement. | ¬ | ¬ | ¬ |
3. | To appoint KPMG LLP (U.K.) as our U.K. statutory auditors under the U.K. Companies Act 2006 (to hold office from the conclusion of the Annual General Meeting of Shareholders until the conclusion of the next Annual General Meeting of Shareholders at which accounts are laid before the Company). | ¨ | ¨ | ¨ | |
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4. | To authorise the Audit Committee to determine our U.K. statutory auditors' remuneration. | ¨ | ¨ | ¨ | | | | | | |
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Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation, limited liability company or partnership, please sign in full corporate, limited liability company or partnership name by authorised officer. The completion and return of this form will not preclude a shareholder from attending the meeting and voting in person. |
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Valaris Limited | | | | | | | | | |
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The Board of Directors of Valaris (the "Board") recommends you vote "For" each nominee in Resolution 1 and "For" Resolutions 2 and 3 |
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1. | To elect Directors to serve until the 2023 Annual General Meeting of Shareholders | | | | | | | | | |
| Nominees: | For | Against | Abstain | | | | For | Against | Abstain |
| 1a. Anton Dibowitz | ¨ | ¨ | ¨ | | 2. | To approve the appointment of KPMG LLP as our independent registered public accounting firm until the close of the 2023 Annual General Meeting of Shareholders and to authorize the Board, acting by its Audit Committee, to set KPMG LLP's remuneration. | ¨ | ¨ | ¨ |
| 1b. Gunnar Eliassen | ¨ | ¨ | ¨ | |
| 1c. Dick Fagerstal | ¨ | ¨ | ¨ | |
| 1d. Joseph Goldschmid | ¨ | ¨ | ¨ | | 3. | To approve on a non-binding advisory basis the compensation of our named executive officers. | ¨ | ¨ | ¨ |
| 1e. Elizabeth D. Leykum | ¨ | ¨ | ¨ | | | | | | |
| 1f. Deepak Munganahalli | ¨ | ¨ | ¨ | | | | | | |
| 1g. James W. Swent, III | ¨ | ¨ | ¨ | | | | | | |
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Please sign exactly as your name(s) appear(s) herein. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation, limited liability company or partnership, please sign in full corporate, limited liability company or partnership name by an authorized officer. The completion and return of this form will not preclude a shareholder from attending the meeting and voting in person provided such shareholder has specifically requested for this proxy to be revoked. |
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Signature [PLEASE SIGN WITHIN BOX] | | Date | | | Signature (Joint Owners) | | Date |
ANNUAL GENERAL MEETING OF SHAREHOLDERS OF
Valaris plcLimited
158 June 20202022
Please mark, date, sign and mail
the proxy card in the
envelope provided as soon as possible
TO BE RECEIVED NO LATER THAN 3:00 P.M. EASTERN TIME 127 JUNE 2020
(OR 11:59 P.M. EASTERN TIME 9 JUNE 2020 FOR EMPLOYEES HOLDING SHARES
IN OUR SAVINGS PLANS)2022
to ensure that your vote is counted.
Important Notice Regarding the Availability of Proxy Materials for the Annual General Meeting of Shareholders to be Held on 158 June 2020:2022:
The Notice, Proxy Statement and Annual Report and United Kingdom Statutory Accounts are available at www.proxyvote.com.
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If voting by mail, please detach along perforated line and mail in the envelope provided. |
PROXY
Valaris plcLimited
Board of Directors Proxy for the Annual General Meeting of Shareholders
at 12:8:00 p.m. Londona.m. Bermuda Time, Monday, 15Wednesday, 8 June 20202022
110 Cannon Street London EC4N 6EU, United KingdomThe Rooftop Room at The Loren at Pink Beach,
116 South Shore Road, Tucker's Town, Smiths HS 01, Bermuda
The undersigned shareholder of Valaris plcLimited hereby revokes all previous proxies and appoints Thomas P. BurkeAnton Dibowitz, President and Michael T. McGuintyChief Executive Officer, and Davor Vukadin, Company Secretary, or the Chair of the Meeting, or any oneeither of them, as proxies, each with full power of substitution and authority, to represent and vote as designated in this proxy all the shares that the undersigned shareholder is entitled to vote the following number of shares of the undersigned at the above-stated Annual General Meeting of Shareholders and any adjournment(s)adjournments or postponements thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF VALARIS LIMITED AND WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATIONS MADE HEREIN. IF A CHOICE IS NOT INDICATED WITH RESPECT TO RESOLUTIONS 1, THROUGH 12,2 AND 3, THIS PROXY WILL BE VOTED "FOR" EACH NOMINEE IN RESOLUTION 1 AND "FOR" EACH OF THE RESOLUTIONS 2 THROUGH 12AND 3 AND AT THE DISCRETION OF THE PERSONS DESIGNATED BY THE BOARD OF DIRECTORS AS YOUR PROXIES UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING AND ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF. (INCLUDING, IF APPLICABLE, ON ANY MATTER WHICH THE BOARD OF DIRECTORS DID NOT KNOW WOULD BE PRESENTED AT THE MEETING BY A REASONABLE TIME BEFORE THE PROXY SOLICITATION WAS MADE OR FOR THE ELECTION OF A PERSON TO THE BOARD OF DIRECTORS IF ANY NOMINEE NAMED IN RESOLUTION 1 BECOMES UNABLE TO SERVE OR FOR GOOD CAUSE WILL NOT SERVE). THIS PROXY IS REVOCABLE AT ANY TIME BEFORE IT IS EXERCISED.
Your Board of Directors recommends a vote "FOR" each nominee in Resolution 1 and "FOR" Resolutions 2 through 12.and 3.
Continued and to be marked, dated and signed on the reverse side