(iv) purchase or otherwise acquire for additional share-settled equity-based awards that may be issued in the future. In addition,consideration any shares of common stock that are either forfeited,Series A Preferred Stock, or tendered or withheld in order to satisfy
payment of the withholding tax obligations of a participant in connection with such participant's awards, will be available for future awards under the Plan. The Company anticipates that the requested number of shares for the Plan will be sufficient to settle the Outstanding Awards, as well as future awards, withany shares of common stock and to meet the needs of our long-term incentive program for at least three years assuming an average stock price of $5.00 or greater, an average tax withholding rate of 31% or greater, and performance-based vestings of Outstanding Awards at projected levels of 113%. The Company may also continue to issue cash-settled awards in the future, as necessary or deemed advisable by our compensation committee.
Material Terms of the Plan
The following isranking on a summary of the key provisions of the Plan, and the summary and descriptions are qualified by reference to the terms of the Plan.
Purpose. The purposes of the Plan are to (i) promote the interests of the Company and its stockholders by enabling the Company and each of its subsidiaries to attract, motivate and retain their respective employees and non-employee members of the Board of Directors by offering such employees and non-employee directors time-based or performance-based stock incentives and other equity interests in the Company, along with other incentive awards; (ii) compensate certain consultants providing services to the Company by offering such consultants performance-based stock incentives and other equity interests in the Company, along with other incentive awards that recognize the creation of value for the stockholders of the Company and (iii) promote the Company’s long-term growth and success.
Types of Awards and Eligibility. Under the Plan, employees of the Company and its subsidiaries, non-employee directors, and consultants are eligible to participate in the Plan and receive awards. As of March 31, 2019, 1,074 employees, seven non-employee directors and an advisory director were eligible to participate in the Plan. Awards can take the form of options, stock appreciation rights, or SARS, stock (including restricted stock), restricted stock units, phantom stock units and other awards, any of which may be performance-based awards. An option issued under the Plan may take the form of an incentive stock option, or ISO, which compliesparity with the requirementsSeries A Preferred Stock (either as to dividends or upon liquidation, dissolution or winding up), except in accordance with a purchase offer made to all holders of Section 422 of the Code, or a nonqualified stock option, or NQSO. Options and SARs may be granted to any individual eligible to participate in the Plan except that ISOs may only be granted to employees of the Company or its subsidiaries. SARs may be granted to participants alone or in tandem with concurrently or previously issued stock options. A SAR issued in tandem with an option will only be exercisable to the extent that the related option is exercisable and when a tandem SAR is exercised, the option to which it relates shall cease to be exercisable, to the extent of the number ofsuch shares with respect to which the tandem SAR is exercised. Similarly, when the option is exercised, the tandem SARs relating to the shares covered byupon such option exercise shall terminate. The payment of the appreciation associated with the exercise of a SAR may be made by the Company in shares of common stock of the Company, cash or a combination of both common stock and cash at the Company’s discretion.
A stock award may be granted to any individual eligible to participate in the Plan. A stock award will entitle a recipient to receive shares of common stock of the Company subject to such forfeiture restrictions as our Board of Directors or the compensation committee may determine at the time of grant. Such forfeiture restrictions or conditions may be based on the continued employment or service of the award recipient and/or the achievement of pre-established performance goals or objectives.
A PSU is a grant representing the right to receive the fair market value of a specified number of shares of common stock of the Company, subject to such vesting requirementsterms as the Board of Directors,
or the compensation committee may determine. These requirements may include continued service or employment for a specified period and/or achievement of pre-established performance goals or objectives. PSUs may be granted to any individual eligible to participate in the Plan. PSUs will be settled upon vesting by paying the cash equivalentafter consideration of the
valuerespective annual dividend rates and other relative rights and preferences of the
awardrespective series and classes, shall determine in good faith will result in fair and equitable treatment among therespective series or in the discretionclasses.(B) The Company shall not permit any Subsidiary (as hereinafter defined) of the Company by issuingto purchase or otherwise acquire for consideration any shares of common stock of the Company on a one-for-one basis.unless the Company could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. A participant to whom PSUs are granted will not have any rights as a stockholder with respect to the units, unless and until they are settled in shares of common stock of the Company.
A restricted stock unit is a grant representing a specified number of hypothetical shares of common stock“Subsidiary” of the Company the vestingshall mean any corporation orother entity of which is subjectsecurities or other ownership interests having ordinary voting power sufficient to such requirements as the Board of Directors or the compensation committee may determine, and may be granted to any individual eligible to participate in the Plan. These requirements may include continued service or employment forelect a specified period and/or achievement of pre-established performance goals or objectives. Upon or after vesting, restricted stock units will be settled in shares of common stock of the Company, cash, or a combination of both common stock and cash at the Company’s discretion. A participant to whom restricted stock units are granted will not have any rights as a stockholder with respect to the units, unless and until they are settled in shares of common stock of the Company, although at the discretionmajority of the Board of Directors or other persons performing similar functions are beneficially owned, directly or indirectly, by the compensation committee,Company or by any corporation or other entity that is otherwise controlled by the recipient of a restricted stock unit award may be entitled to a dividend equivalent right.
Performance awards may be denominated or payable in cash,Company.(C) The Company shall not issue any shares of common stockSeries A Preferred Stock except upon exercise of Rights issued pursuant to that certain Rights Agreement dated as of July 15, 2013 between the Company and Computershare Inc., as Rights Agent, a copy of which is on file with the Secretary of the Company (including,at its principal executive office and shall be made available to stockholders of record without limitation,charge upon written request therefor addressed to said Secretary. Notwithstanding the foregoing sentence, nothing contained in the provisions hereof shall prohibit or restrict the Company from issuing for any purpose any series of Preferred Stock with rights and privileges similar to, different from or greater than those of the Series A Preferred Stock.
Section 5.Reacquired Shares. Any shares of restricted stock), other securities, other awards,SeriesA Preferred Stock purchased or other property. Performance awards confer onotherwise acquired by the award recipientCompany in any manner whatsoever shall be retired and canceled promptly after the right to receive a dollar amount or number ofacquisition thereof. All such shares upon the attainmenttheir retirement and cancellationshall become authorized but unissued shares of performance measures duringPreferred Stock, without designation as to series, and such shares may be reissued as part of a specified performance period, as establishednew series of Preferred Stock to be created by resolution or resolutions of the Board of DirectorsDirectors.
Section 6.Liquidation, Dissolution or the compensation committee.
Performance GoalsWinding Up. The performance goals for awards have traditionally intended to qualify as “performance-based compensation” under Section 162(m)Upon any voluntary or involuntary liquidation, dissolution or winding up of the Code. For taxable years beginning after December 31, 2017,Company, no distribution shall be made (i) to the exemption from the Section 162(m) deduction limit for performance-based compensation has been repealed, such that compensation paid to our named executive officers in excess of $1,000,000 per fiscal year will not be deductible unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017. For all outstanding awards that still qualify for transition relief under section 162(m), as amended, the performance goals were established by our compensation committee in accordance with Section 162(m) of the Code and the applicable Treasury regulations. At the end of the applicable performance period, our compensation committee will approve the attainment of the performance goals and the numberholders of shares of stock ranking junior (either as to dividends or cash payable upon attainmentliquidation, dissolution or winding up) to the Series A Preferred Stock unless the holders of such goals.
Shares Available for Award. A total of 4,950,000 shares of our common stockSeries A Preferred Stock shall have been authorized by the stockholders for issuance under the Plan. If Proposal No. 2 is approved by the stockholders, an additional 7,000,000 shares of our common stock will be authorized for issuance under the Plan.
Common stock that is related to awards that (i) are forfeited or canceled or terminate or expire prior to the issuance of the common stock, or (ii) are settled in cash will again be available for future awards under the Plan. In addition, common stock that is tendered or withheld in order to satisfy payment of (i) the exercise price of an option, or (ii) the withholding tax obligations of a participant, will be available for future awards under the Plan. To the extent any such add back rule constitutes a “formula” that would result in a “material revision” of the Plan, as defined in the NYSE listing rules applicable to equity-based compensation plans of the Plan, the “formula” has been limited to a period of not more than ten years following the stockholder approval of the Plan in order to comply with such listing rules.
The Plan provides for appropriate adjustments to the shares available under the Plan and the awards under the Plan in the event of a merger, consolidation, conversion, recapitalization, stock split, combination of shares, stock dividend or similar transaction involving the Company.
Termination and Amendment. The Plan may be amended or terminated by the Board of Directors at any time. However, no award that is outstanding under the Plan may be modified, impaired or canceled adversely to the participant without the participant’s consent, including in the event of such a Plan amendment or termination. In addition, our stockholders must approve any amendment to increase the number of authorized shares under the Plan, to change the individuals eligible to participate in the Plan, or to adopt any amendment which requires stockholder approval under NYSE rules.
Acceleration of Awards. The compensation committee has the discretion to amend or modify outstanding awards, including the discretion to accelerate the vesting of unvested awards in the case of termination of employment and to waive vesting conditions under certain circumstances, provided that such amendment or modification would not violate the requirements of Section 409A of the Code.
Transferability. Awards are generally not transferable except by will or by the laws of descent and distribution; however, the Plan provides that awards may be transferable pursuant to a valid court order incident to a divorce. In addition, the compensation committee may, in its discretion, authorize all or a portion of any award that is not an ISO to be granted on terms that permit certain limited transfers. The Company has not issued incentive stock options, or ISOs, in the past 10 years.
Federal Income Tax Consequences
Under current federal tax law, the following are the United States federal income tax consequences generally arising with respect to awards granted under the Plan. This summary is not intended to be exhaustive and the exact tax consequences to any participant will depend on various factors and the participant’s particular circumstances. This summary is based on present laws, regulations and interpretations and is not a complete description of federal tax consequences. This summary of federal tax consequences may change in the event of a change in the Code or regulations thereunder or interpretations thereof. We urge participants in the Plan to consult their tax advisors with respect to any state, local and foreign tax considerations or particular federal tax implications of awards made under the Plan prior to taking action with respect to an award. The Plan is not intended to be a “qualified plan” under Section 401(a) of the Code.
Non-qualified Stock Options (NQSOs). An award recipient will not bereceived, subject to tax at the time an NQSO is granted, and no tax deduction is then available to the Company. Upon the exercise of an NQSO,adjustment as hereinafter provided, (A) $100.00 per share plus an amount equal to the difference between the exercise priceaccrued and the fair market value of the shares acquired onunpaid dividends and distributions thereon, whether or not declared, to the date of exercise will be includedsuch payment, or (B) if greater than the amount specified in the holder’s ordinary income, and the Company will generally be entitled to deduct the same amount. Upon dispositionclause (i)(A) of shares acquired upon exercise, appreciation or depreciation after the date of exercise will generally be treated by the award recipient as either capital gain or capital loss.
ISOs. An award recipient will not be subject to regular income tax at the time an ISO is granted or exercised, and no tax deduction is then available to the Company; however, the recipient may be subject to the alternative minimum tax, or AMT, on the excess of the fair market value of the shares received upon exercise of the ISO, or the ISO Shares, over the exercise price. Upon disposition of the shares acquired upon exercise of an ISO, capital gain or capital loss will generally be recognized inthis sentence, an amount equal to 100 times the difference betweenaggregate amount to be distributed per share to holders of Common Stock, as the sale pricesame may be adjusted as hereinafter provided, and (ii) to the holders of stock ranking on a parity upon liquidation, dissolution or winding up with the Series A Preferred Stock, unless simultaneously therewith distributions are made ratably on the Series A Preferred Stock and allother shares of such parity stock in proportion to the total amounts to which the holders of shares of Series A Preferred Stock are entitled under clause (i)(A) of this sentence and to which the holders of such parity shares are entitled, in each case upon such liquidation, dissolution or winding up.The amount to which holders of Series A Preferred Stock may be entitled upon liquidation, dissolution or winding up of the Company pursuant to clause (i)(B) of the foregoing sentence is hereinafter referred to as the“Participating Liquidation Amount” and the exercise price, as long as the recipient has not disposed of the shares within two years after the date of grant or within one year after the date of exercise and has been employed by the Company or a subsidiary at all times from the grant date until the date three months before the date of exercise (one year in the case of disability). If the recipient disposes of the ISO Shares without satisfying both the holding period and employment requirements, the recipient will recognize ordinary income at the time of the disposition equal to the excessmultiple of the amount realized overto be distributed to holders of shares of Common Stock upon the exercise price but, in the case of a failure to satisfy the holding period requirement, not more than the excessliquidation, dissolution or winding up of the fair market valueCompany applicable pursuant to said clause to the determination of the ISO SharesParticipating Liquidation Amount, as said multiple may be adjusted from time to time as hereinafter provided, is hereinafter referred to as the“Liquidation Multiple”.If the Company shall at any time after July 15, 2013 declare or pay any dividend on the date the ISO is exercised over the exercise price, with any remaining gainCommon Stock payable in shares of Common Stock, or loss being treated as capital gaineffect a subdivision or loss, respectively. The Company is not entitled tosplit or a tax deduction upon either the exercise of an ISOcombination, consolidation or upon dispositionreverse split of the ISO Shares acquired pursuant to such exercise, except to the extent that the recipient recognizes ordinary income upon dispositionoutstanding shares of the shares. The difference between the exercise price of an ISO and the fair market value of the ISO Shares on the date of exercise is an adjustment to income for purposes of the AMT. The AMT (imposed to the extent it exceeds the taxpayer’s regular tax) isCommon Stock into a certain percentage of an individual taxpayer’s alternative minimum taxable income. The AMT is lower than regular tax rates but covers more income. Taxpayers determine their alternative minimum taxable income by adjusting regular taxable income for certain items, increasing that income by certain tax preference items, and reducing this amount by the applicable exemption amount. If a disqualifying disposition of the ISO Shares occurs in the same calendar year as exercise of the ISO, there is no AMT adjustment with respect to those ISO Shares. Also, upon a sale of ISO Shares that is not a disqualifying disposition, alternative minimum taxable income is reduced when the participant sells the ISO Shares by the excess of the fair market value of the ISO Shares as of the date of exercise over the amount paid for the ISO Shares.
Payment of the Exercise Price With Stock. If an award recipient surrenders common stock which the award recipient already owns as payment for the exercise price of a stock option, the award recipient will not recognize gaingreater or loss as a result of such surrender. Thelesser number of shares received upon exerciseof Common Stock, then in each such case the Liquidation Multiple thereafter applicable to the determination of the option equalParticipating Liquidation Amount to the numberwhich holders of shares surrendered will have a tax basis equal to the tax basis of the surrendered shares. The holding period for such shares will include the holding period for the shares surrendered. The remaining shares received will have a basis equal to the amount includible in the award recipient’s taxable income upon receipt of such shares. The award recipient’s holding period for such shares will commence on the day of such exercise. However, if the award recipient surrenders ISO shares as payment for the exercise price of a stock option and the award recipient has not held the ISO shares for at least two years following the date of grant of the ISO and at least one year following the date of exercise of the ISO, the award recipient will generally recognize ordinary compensation income with respect to the surrender of the ISO Shares equal to the excess of the fair market value of the surrendered ISO Shares (determined as of the date on which the ISO relating to the ISO Shares was exercised) over the exercise price of the ISO relating to the surrendered ISO Shares. The tax basis of that number of shares received upon exercise of the stock option equal to the number of ISO Shares surrendered will equal the award recipient’s basis in the surrendered ISO Shares, plus the amount of ordinary compensation income recognized by the award recipient. The award recipient will recognize no gain with respect to the remaining shares received, the tax basis of such shares will be equal to the amount includible in the award recipient’s taxable income upon receipt of such shares, and the holding period of such shares will begin on the day of such exercise. Upon disposition of the shares acquired upon exercise of the option, the award recipient will recognize gain or loss, depending on the value of the shares at disposition.
Series A Preferred Stock Awards. An award recipient will be taxed on the fair market value of the shares of stock in the taxable year in which the date of grant occurs, unless the underlying shares are substantially nonvested (i.e. both nontransferable and subject to a substantial risk of forfeiture). However, an award recipient who wishes to recognize compensation income with respect to substantially non-vested shares in the taxable year in which the date of grant occurs may do so by making a Section 83(b) Election. A Section 83(b) Election is made by filing a written notice with the IRS office where the award recipient files his or her federal income tax return. The notice must be filed within 30 days of the award recipient’s receipt of the stock and must meet certain technical requirements. An award recipient who is subject to Section 16(b) of the Exchange Act who receives stock will recognize ordinary income equal to the fair market value of
the shares of stock received at the later of (i) the applicable date on which the Section 16(b) restrictions expire or (ii) the earlier of: (a) the date on which the shares are transferable or (b) the date on which the restrictions lapse, unless the award recipient makes a Section 83(b) Election to report the fair market value of such shares received as ordinary income in the taxable year of receipt. The Company may deduct an amount equal to the income recognized by the award recipient at the time the award recipient recognizes the income, provided that the award recipient’s compensation is within the statutory limitations of Section 162(m) of the Code. Upon the sale or disposition of shares of stock, an award recipient will recognize taxable income equal to the difference between the amount realized by the award recipient on the disposition of the stock and the award recipient’s basis in the stock. The basis of the restricted shares in the hands of the award recipient will be equal to the fair market value of the shares of stock on the date the award recipient recognizes ordinary income as described above. The gain or loss will be taxable to the award recipient as a capital gain or deductible by the award recipient as a capital loss (either short-term or long-term, depending on the holding period of the stock), provided that the award recipient held the stock as a capital asset. During the period in which an award recipient holds stock, prior to the lapse of the restrictions, if dividends are declared but not distributed to the award recipient until the restrictions lapse, the dividends will be treated for tax purposes by the award recipient and the Company in the following manner: (i) if the award recipient makes a Section 83(b) Election to recognize income at the time of receipt of the stock, the dividends will be taxed as dividend income to the award recipient when the restrictions lapse and the Company will notshall be entitled toafter such event shall be the Liquidation Multiple applicable immediately before such event multiplied by a deduction and will not be required to withhold income tax, or (ii) iffraction the award recipient does not make a Section 83(b) Election, the dividends will be taxed as compensation to the award recipient when the restrictions lapse and will be deductible by the Company and subject to applicable federal income tax withholding at that time. If, instead, the Company pays dividends to the award recipient prior to the lapsenumerator of the restrictions and the award recipient makes a Section 83(b) Election, the dividends will be taxed as dividend income at the time of payment and will not be deductible by the Company. Conversely, if the award recipient does not make a Section 83(b) Election, the dividends will be taxed as compensation to the award recipient at the time of payment and will be deductible by the Company and subject to applicable federal income tax withholding at that time.
Restricted Stock Unit Awards. An award recipient whowhich is awarded restricted stock units will not recognize taxable income at the time of grant. An award recipient is taxed upon receipt of payment for an award of restricted stock units, which payment may be in shares of the Company’s common stock or cash. Upon receipt of payment for an award of restricted stock units, the fair market value of the shares or the amount of cash received will be taxed to the award recipient at ordinary income rates. However, if any shares used as payment for restricted stock units are nontransferable and subject to a substantial risk of forfeiture, the taxable event is deferred until either the restriction on transferability or the risk of forfeiture lapses. The basis of any shares used as payment for restricted stock units will be equal to the fair market value of the shares on the date the award recipient recognizes ordinary income as described above. The Company may deduct an amount equal to the income recognized by the award recipient at the time the award recipient recognizes the income, provided that the award recipient’s compensation is within the statutory limitations of Section 162(m) of the Code. If the award recipient receives a dividend equivalent right, such dividend equivalent right will be taxed as compensation to the award recipient (1) at the time of receipt (if the dividend equivalent right is not subject to a substantial risk of forfeiture, such as vesting conditions), or (2) at the time the applicable restrictions lapse (if the dividend equivalent right is subject to a substantial risk of forfeiture), and will be deductible by the Company and subject to applicable federal income tax withholding at the time it is taxed to the recipient. Upon the sale or disposition of shares of the Company’s common stock used as payment for an award of restricted stock units, an award recipient will recognize taxable income or loss equal to the difference between the amount realized by the award recipient on the disposition of the stock and the award recipient’s basis in the stock. The gain or loss will be taxable to the award recipient as a capital gain or deductible by the award recipient as a capital loss (either short-term or long-term, depending on the holding period of the shares of common stock), provided that the award recipient held the shares as a capital asset.
Stock Appreciation Rights and Phantom Stock Units. Award recipients will not realize taxable income upon the grant of a SAR or PSU. The federal income tax consequences to a participant of the exercise of a SAR or settlement of a PSU will vary depending on the form of payment. If the SAR or PSU is settled in cash or shares of the Company’s common stock that are substantially vested, the award recipient must include in gross income an amount equal to the value of the consideration received upon such exercise or settlement. If the SAR or PSU is settled in shares of the Company’s common stock and the shares are substantially nonvested, then the results discussed above under “Restricted Stock” regarding the taxation of restricted stock and “Section 83(b) Elections” will apply. The Company may deduct an amount equal to the income recognized by the award recipient at the time the award recipient recognizes the income, provided the award recipient’s compensation is within the statutory limitations of Section 162(m) of the Code.
Performance Awards. Historically, in order for awards granted under the Plan to qualify as performance-based awards under Section 162(m) of the Code, the grant or vesting of such awards must be subject to the achievement of performance goals based upon the attainment of specified levels of one or more performance measures, as specified in the Plan. In addition, for taxable years beginning after December 31, 2017, the award must also have been granted pursuant to a written, binding contract in effect on or before November 2, 2017. Otherwise, performance-based awards are treated identically to non performance-based awards under Section 162(m) of the code. Performance measures may be absolute in their terms or measured against or in relationship to other companies comparably, similarly or otherwise situated and may be based on or adjusted for any other objective goals, events, or occurrences established by the compensation committee for a performance period. Such performance measures may be particular to a line of business, subsidiary or other unit or may be based on the performance of the Company generally.
Section 162(m) of the Code
Under Section 162(m) of the Code, the Company may not deduct, for federal income tax purposes, compensation paid in excess of $1,000,000 per fiscal year to a named executive officer employed by the Company at year-end. For taxable years beginning after December 31, 2017, the exemption from the Section 162(m) deduction limit for performance-based compensation has been repealed, such that compensation paid to our named executive officers in excess of $1,000,000 per fiscal year will not be deductible unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017.
As part of its responsibilities, the compensation committee has historically reviewed and considered the deductibility of compensation paid to executive officers under Section 162(m) of the Code, and, generally, has endeavored to design the compensation payable to the Company’s executive officers so that it is fully deductible by the Company. The compensation committee believes that, in order to ensure competitive levels of total compensation for its executive officers, the Company’s interests are best served by approving compensation for its executive officers that does not meet the requirements of Section 162(m) of the Code, as amended by the Tax Cuts and Jobs Act of 2017. The amount of compensation paid to an officer that exceeds $1,000,000 for a given fiscal year will not be deductible by the Company for federal income tax purposes. Accordingly, the compensation committee has approved and will likely approve in the future, compensation for one or more of its executive officers that is not deductible for federal income tax purposes. Further, the compensation committee reserves the right to modify compensation that was initially intended to be exempt from section 162(m) if it determines that such modifications are consistent with the Company's business needs.
Section 409A of the Code
Section 409A of the Code, which was enacted as part of the American Jobs Creation Act in late 2004, substantially changes the federal income tax law applicable to nonqualified deferred compensation, including certain equity-based compensation. It is the intent of the Company that no awards under the Plan be subject to Section 409A of the Code unless and to the extent that the compensation committee specifically determines otherwise. The terms and conditions of any award made that the compensation committee determines will be subject to Section 409A of the Code will be set forth in the applicable award agreement and will be designed to comply in all respects with Section 409A of the Code.
Future Plan Benefits
The table below sets forth the following information regarding equity awards granted under the Incentive Compensation Plan: (i) the total number of shares needed to settle all of the currently Outstanding Awards held by the persons or groups of persons set forth below, and the value of such Outstanding Awards, and (ii) the number of shares subject to equity awards granted solely during the year ended December 31, 2018 to the persons or group of persons set forth below, and the value of such 2018 awards. Except with respect to non-employee directors (as further described below), no determination has yet been made as to the awards, if any, that any eligible individuals will be granted in the future and, therefore, the benefits to be awarded under the Plan, which are subject to the discretion of the compensation committee, are not determinable at this time.
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| | | | |
| Name and Position | Value of Outstanding Awards ($)(1) | Total Shares (#)(3) | Value of 2018 Grants ($)(1) | 2018 Shares (#)(3) |
| Named Executive Officers: | | | | |
| Todd M. Hornbeck, Chairman, President and Chief Executive Officer | $3,034,792 | 2,447,413 | $1,055,564 | 851,261 |
| Carl G. Annessa, Executive Vice President and Chief Operating Officer | 1,151,005 | 928,230 | 430,504 | 347,181 |
| James O. Harp, Jr., Executive Vice President and Chief Financial Officer | 1,151,005 | 928,230 | 430,504 | 347,181 |
| Samuel A. Giberga, Executive Vice President, General Counsel and Chief Compliance Officer | 935,193 | 754,188 | 349,785 | 282,085 |
| John S. Cook, Executive Vice President, Chief Commercial Officer and Chief Information Officer | 935,193 | 754,188 | 349,785 | 282,085 |
| All current executive officers as a group (including Named Executive Officers identified above) as a group | 7,998,505 | 6,450,407 | 2,912,115 | 2,348,480 |
| All current non-employee directors who are not executive officers, as a group (2) | - | - | - | - |
| Each other person who has received 5% or more of the options, warrants or rights | - | - | - | - |
| All employees who are not executive officers, as a group | 283,943 | 228,986 | 136,013 | 109,688 |
(1) The Value of Outstanding Awards and Value of 2018 Grants were calculated using (i) a stock price of $1.24 per share, which was the closing price of the Company's common stock on the New York Stock Exchange on March 29, 2019, and (ii) with respect to performance-based awards, assuming target level of performance.
(2) Non-employee directors were each granted $90,000 in cash in lieu of equity-based compensation in 2018, paid quarterly. Assuming the New Shares are approved by our stockholders, should the Company decide to resume settling such directors' quarterly grants in the Company's common stock, the number of shares that would be granted and awarded each quarter would be calculated by dividing $22,500 by the closing stock price on the date of the grant. No longevity awards for our non-employee directors are scheduled to be granted until 2020.
(3) Represents the number of shares underlying the Outstanding Awards reflected in the above table.
With respect to non-employee directors, under the equity compensation program of the non-employee director compensation policy, as currently in effect, each non-employee director is entitled to receive quarterly grants comprised of the number of shares of
common stock equal to $25,000 divided byCommon Stock outstanding immediately after such event and the
closing stock price on the applicable grant date. In February 2015, due to weak market conditions, the non-employee directors voluntarily elected to reduce such quarterly grants for the perioddenominator of
the industry downturn by 10% to $22,500. The current policy provides that the compensation committee may determine to issue cash awards in lieu of the equity awards otherwise provided for. As noted above, similar to the recent awards to executive officers, the compensation committee has been making these quarterly awards to non-employee directors as cash awards due to the near depletion of the authorized pool of shares available for award. The non-employee director compensation policy also provides for longevity service awards to non-employee directors. Upon completion of three years of service as a non-employee director, a director would be granted shares of restricted stock, restricted stock units, options to purchase shares of common stock and cash paid under the equity compensation program equaling 25% of the shares of restricted stock, restricted stock units, options and cash granted or paid to such director under the equity compensation program over the previous three years. Upon completion of five years of service as a non-employee director, a director would be granted shares of restricted stock, restricted stock units, options to purchase shares of common stock and cash paid under the equity compensation program equaling 50% of the shares of restricted stock, restricted stock units, options and cash granted or paid to such director under the equity compensation program over the previous five years lesswhich is the number of shares of
restricted stock, restricted stock units, optionsCommon Stock that were outstanding immediately before such event.Section 7.Certain Reclassifications and cash granted or paid under the equity compensation program after three yearsOther Events.
(A) If holders of service as a longevity award. Thereafter, upon completion of each successive period of five years of service, a non-employee director would be granted shares of restricted stock, restricted stock units, options to purchaseCommon Stock of the Company receive after July 15, 2013 in respect of their shares of commonCommon Stock any share of capital stock of the Company (other than any share of Common Stock of the Company), whether by way of reclassification, recapitalization, reorganization, dividend or other distribution or otherwise (a“Transaction”), then
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and cash paid underin each such event the equity compensation program equaling 50%dividend rights, voting rights and rights upon the liquidation, dissolution or winding up of the Company of the shares of restricted stock, restricted stock units, options and cash granted or paidSeries A Preferred Stock shall be adjusted so that after such event the holders of Series A Preferred Stock shall be entitled, in respect of each share of Series A Preferred Stock held, in addition to such director overrights in respect thereof to which such holder was entitled immediately before such adjustment, to (i) such additional dividends as equal the previous five years.
The Company has not granted any stock options since 2011. All currently outstanding stock options are held by our named executive officers. The following table sets forth the number of shares subject to the options held by each of our named executive officers:
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| |
Name and Position(1) | Total Shares Subject to Options (#) |
Named Executive Officers | |
Todd M. Hornbeck, Chairman, President and Chief Executive Officer | 83,266 |
Carl G. Annessa, Executive Vice President and Chief Operating Officer | 36,605 |
James O. Harp, Jr., Executive Vice President and Chief Financial Officer | 36,605 |
Samuel A. Giberga, Executive Vice President, General Counsel and Chief Compliance Officer | 17,699 |
John S. Cook, Executive Vice President, Chief Commercial Officer and Chief Information Officer | 10,727 |
(1) The following persons and group of persons do not hold options: (i) current directors who are not executive officers, (ii) nominees for election as a non-employee director, (ii) associates of any of the Company’s directors, executive officers or nominees for election as a director has been granted any stock option, and (iii) employees (other than our named executive officers).
Securities Authorized for Issuance Under Equity Compensation Plans
In addition to the Incentive Compensation Plan discussed above, the Hornbeck Offshore Services, Inc. 2005 Employee Stock Purchase Plan, or the ESPP, was adoptedDividend Multiple in 2005. On June 18, 2015, our stockholders amended the ESPP to (i) increase the number of shares available for sale under the ESPP to 2,200,000 shares of common stock to eligible employees of the Company and its designated subsidiaries and (ii) extend the term of the ESPP to June 18, 2025. The ESPP is a separate plan from the Company’s Incentive Compensation Plan, and shares available for issuance under the ESPP may not be issued under the Incentive Compensation Plan. As of December 31, 2018, the Company had available 697,219 shares for future issuance under the ESPP.
The following table summarizes information as of December 31, 2018, about our Incentive Compensation Plan and ESPP:
|
| | | | | | | | |
| Plan Category | | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (1) | | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights (2) | | Weighted Average Remaining Term of Outstanding Options, Warrants and Rights (3) | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (4) |
| | | (a) | | (b) | | (c) | | (d) |
| Equity compensation and purchase plans approved by security holders | | 573,362 | | $24.86 | | 2.1 | | 966,924 |
| Equity compensation plans not approved by security holders | | — | | — | | — | | — |
| Total | | 573,362 | | | | | | 966,924 |
184,902 shares issuable upon the exercise of outstanding stock options; and
388,460 shares governed by RSUs granted in 2016 and 2017.
| |
(2) | The weighted average exercise price of outstanding options, warrants and rights does not take into account RSUs, since these awards have no exercise price. |
| |
(3) | The weighted average remaining term of outstanding options, warrants and rights does not take into account RSUs. |
| |
(4) | This amount includes 269,705 and 697,219 shares of common stock available for future issuance under the Incentive Compensation Plan and the ESPP, respectively, as of December 31, 2018. |
The following table summarizes information as of March 31, 2019, about our Incentive Compensation Plan and ESPP: |
| | | | | | | | |
| Plan Category | | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (1) | | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights (2) | | Weighted Average Remaining Term of Outstanding Options, Warrants and Rights (3) | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (4) |
| | | (a) | | (b) | | (c) | | (d) |
| Equity compensation and purchase plans approved by security holders | | 324,483 | | $24.86 | | 2.0 | | 1,041,806 |
| Equity compensation plans not approved by security holders | | — | | — | | — | | — |
| Total | | 324,483 | | | | | | 1,041,806 |
184,902 shares issuable upon the exercise of outstanding stock options; and
139,581 shares governed by RSUs granted in 2017.
| |
(2) | The weighted average exercise price of outstanding options, warrants and rights does not take into account RSUs, since these awards have no exercise price. |
| |
(3) | The weighted average remaining term of outstanding options, warrants and rights does not take into account RSUs. |
| |
(4) | This amount includes 344,587 and 697,219 shares of common stock available for future issuance under the Incentive Compensation Plan and the ESPP, respectively, as of March 31, 2019. |
Vote Required and Board of Directors Recommendation
The affirmative vote of a majority of the shares of common stock entitled to vote and represented in person or by proxy at a meeting at which a quorum is present is required for approval of the amendment to the Plan.
The Board of Directors unanimously recommends that the stockholders vote “FOR” approval of the fifth amendment to the Second Amended and Restated Hornbeck Offshore Services, Inc. Incentive Compensation Plan.
Proposal No. 3 – Selection and Ratification of the Independent Registered Public Accountants and Auditors
Our audit committee and Board of Directors seek stockholder ratification of the reappointment of Ernst & Young LLP to act as the independent registered public accountants and auditors of our consolidated financial statements for the 2019 fiscal year. If the stockholders do not ratify the appointment of Ernst & Young LLP, the audit committee will reconsider this appointment. Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting to respond to appropriate questions, and those representatives will also have an opportunity to make a statement if they desire to do so.
Independent Auditors and Fees
Ernst & Young LLP, certified public accountants, began serving as the Company’s independent auditors in 2002. The audit committee approved the reappointment of Ernst & Young LLP as independent registered public accountants and auditors for the 2019 fiscal year, subject to ratification by the stockholders.
The following table presents fees for professional audit services rendered by Ernst & Young LLP for the audit of the Company’s annual financial statements for the years ended December 31, 2018 and 2017, and fees billed for other services rendered by Ernst & Young LLP during those periods. |
| | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 |
| Audit fees (1) | $ | 539,011 |
| | $ | 563,600 |
|
| Audit related fees (2) | 16,700 |
| | 54,375 |
|
| Tax fees (3) | 202,535 |
| | 200,464 |
|
| Total | $ | 758,246 |
| | $ | 818,439 |
|
| |
(1) | Audit fees: Consists of fees billed for professional services rendered for the audit of the Company’s consolidated financial statements, for the review of the interim condensed consolidated financial statements included in quarterly reports, services that are normally provided by Ernst & Young LLP in connection with statutory and regulatory filings or engagements and attest services, except those not required by statute or regulation. |
| |
(2) | Audit related fees: Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s consolidated financial statements and are not reported under “Audit Fees.” These services include accounting consultations in connection with acquisitions, attest services that are not required by statute or regulation, and consultations concerning financial accounting and reporting standards. |
| |
(3) | Tax fees: Consists of tax compliance and preparation and other tax services. Tax compliance and preparation consists of fees billed for professional services related to federal, state and international tax compliance, assistance with tax audits and appeals, assistance related to the impact of mergers and acquisitions, and tax return preparation. Other tax services consist of fees billed for other miscellaneous tax consulting and planning. |
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors.
The audit committee is responsible for appointing, setting compensation, and overseeing the work of the independent auditors. The audit committee’s policy is to pre-approve all audit and permissible non-audit services provided by the independent auditors. Requests for approval are generally submitted at a meeting of the audit committee. The audit committee may delegate pre-approval authority to a committee member, provided that any decisions made byeffect immediately before such member shall be presented to the full committee at its next scheduled meeting.
Vote Required and Board of Directors Recommendation
The affirmative vote of a majority of the shares of common stock entitled to vote and represented in person or by proxy at a meeting at which a quorum is present is required to ratify the selection of the independent auditors.
The Board of Directors unanimously recommends that the stockholders vote “FOR” the ratification of the reappointment of Ernst & Young LLP as the Company’s independent registered public accountants and auditors for fiscal year 2019.
EXECUTIVE OFFICERS
The names, ages as of April 22, 2019, position and other information concerning our executive officers are set forthbelow. |
| | | | |
Name | | Age | | Position |
Todd M. Hornbeck | | 50 | | Chairman, President and Chief Executive Officer (CEO) |
Carl G. Annessa | | 62 | | Executive Vice President and Chief Operating Officer (COO) |
James O. Harp, Jr. | | 58 | | Executive Vice President and Chief Financial Officer (CFO) |
Samuel A. Giberga | | 57 | | Executive Vice President, General Counsel (GC) and Chief Compliance Officer (CCO) |
John S. Cook | | 50 | | Executive Vice President, Chief Commercial Officer (CCO) and Chief Information Officer (CIO) |
Timothy P. McCarthy | | 51 | | Executive Vice President and Chief Human Resources Officer (CHRO) |
Todd M. Hornbeck has served as our President and as a director since he co-founded the Company in June 1997. Until February 2002, he also served as Chief Operating Officer. In February 2002, he was appointed Chief Executive Officer. In May 2005, he was appointed Chairman of the Board. Until February 2007, he also served as our Secretary. Please refer to “Proposal No. 1 - Election of Directors - Director Nominees and Voting” above for additional information with respect to Mr. Todd Hornbeck’s background and experience.
Carl G. Annessa has served as our Chief Operating Officer since February 2002. Mr. Annessa was appointed Executive Vice President in February 2005. Prior to that time, Mr. Annessa served as our Vice President of Operations beginning in September 1997. Mr. Annessa is responsible for executive oversight of our fleet operations and for oversight of design and implementation of our vessel construction programs. Prior to joining us, he was employed for 17 years by Tidewater Inc. (NYSE:TDW) in various technical and operational management positions, including management of large fleets of offshore supply vessels in the Arabian Gulf, Caribbean and West African markets, and was responsible for the design of several of Tidewater’s vessels. Mr. Annessa was employed for two years by Avondale Shipyards, Inc. as a naval architect before joining Tidewater. Mr. Annessa received a degree in naval architecture and marine engineering from the University of Michigan in 1979.
James O. Harp, Jr. has served as our Chief Financial Officer since January 2001. Mr. Harp was appointed Executive Vice President in February 2005. Prior to that time, Mr. Harp served as our Vice President beginning in January 2001. Before joining us, Mr. Harp served as Vice President in the Energy Group of RBC Dominion Securities Corporation, an investment banking firm, from August 1999 to January 2001, and as Vice President in the Energy Group of Jefferies & Company, Inc., an investment banking firm, from June 1997 to August 1999. During his investment banking career, Mr. Harp worked extensively with marine-related oil service companies, including as our investment banker in connection with our private placement of common stock in November 2000. From July 1982 to June 1997, he held roles of increasing responsibility in the tax section of Arthur Andersen LLP, ultimately serving as a Tax Principal, and had a significant concentration of international clients in the oil service and maritime industries. Since April 1992, he has also served as Treasurer and Director of SEISCO, Inc., a privately held seismic brokerage company that he co-founded. Mr. Harp is an inactive certified public accountant in Louisiana.
Samuel A. Giberga has served as our General Counsel since January 2004. Mr. Giberga was appointed Executive Vice President and Chief Compliance Officer in June 2011. Prior to that time, Mr. Giberga served as our Senior Vice President beginning in February 2005. Prior to joining us, Mr. Giberga was engaged in the private practice of law for 14 years. Mr. Giberga was a partner in the New Orleans-based law firm of Correro, Fishman, Haygood, Phelps, Walmsley & Casteix from February 2000 to December 2003 and served as a partner at Rice, Fowler, Kingsmill, Vance & Flint, LLP from March 1996 to February 2000. During his legal career, Mr. Giberga has worked extensively with marine and energy service companies in a variety of contexts with a significant concentration in general business, international and intellectual property matters. He was also a co-founder of Maritime Claims Americas, L.L.C., which operates a network of correspondent offices for marine protection and indemnity associations throughout Latin America. From June 2005 through February 2007, Mr. Giberga served as a director of the American Steamship Owners Mutual Protection and Indemnity Association Inc. (the American Club), a mutual protection and indemnity association in which the Company’s principal operating subsidiaries were then entered as members. Mr. Giberga occasionally serves as an adjunct professor in intellectual property law matters at Loyola University Law School in New Orleans.
John S. Cook has served as our Chief Information Officer since May 2002. Mr. Cook was appointed Executive Vice President and Chief Commercial Officer in February 2013. Prior to that time, Mr. Cook served as our Senior Vice President beginning in May 2008. Mr. Cook was initially designated an executive officer and appointed a Vice President in
February 2006. Before joining us, Mr. Cook held roles of increasing responsibility in the business consulting section of Arthur Andersen LLP from January 1992 to May 2002, ultimately serving as a Senior Manager. During his consulting career, Mr. Cook assisted numerous marine and energy service companies in various business process and information technology initiatives, including strategic planning and enterprise software implementations. Mr. Cook is an inactive certified public accountant in Louisiana and is a member of the American Institute of Certified Public Accountants and the Society of Louisiana Certified Public Accountants.
Timothy P. McCarthy has served as our Chief Human Resources Officer since 2012. Mr. McCarthy was appointed Executive Vice President in June 2015. Prior to that time, Mr. McCarthy served as our Senior Vice President beginning in July 2012. Mr. McCarthy served as our Vice President and Chief Accounting Officer from March 2008 to July 2012. He joined us in May 2002 as Corporate Controller and served in that capacity until March 2008. Before joining us, Mr. McCarthy held roles of increasing responsibility in the assurance practice section of Arthur Andersen LLP from July 1994 to May 2002, ultimately serving as an Experienced Manager. Previously, he served in the foreign joint interest accounting group with Ocean Drilling and Exploration Company. He is an inactive certified public accountant in Louisiana and is a member of the American Institute of Certified Public Accountants, the Society of Louisiana Certified Public Accountants and the Society for Human Resource Management.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
This Compensation Discussion and Analysis, or CD&A, describes important elements of our executive compensation program and compensation decisions for our named executive officers, or NEOs, in fiscal year 2018. The compensation committee of our Board of Directors, or the Committee, working with management, oversees these programs and determines compensation for our NEOs. This CD&A should be read together with the compensation tables and related disclosures set forth elsewhere in this proxy statement.
Fiscal Year 2018 Named Executive Officers |
| | | |
| | | Todd M. Hornbeck; Chairman, President, and Chief Executive Officer |
| | | Carl G. Annessa; Executive Vice President and Chief Operating Officer |
| | | James O. Harp, Jr.; Executive Vice President and Chief Financial Officer |
| | | Samuel A. Giberga; Executive Vice President, General Counsel and Chief Compliance Officer |
| | | John S. Cook; Executive Vice President, Chief Commercial Officer and Chief Information Officer |
Philosophies and objectives of the Company’s executive compensation program
The Company’s executive compensation programs reflect its entrepreneurial culture and philosophy that executives, including our named executive officers, 1) are hired to devise and execute strategies that create long-term stockholder value consistent with the Company’s mission statement and our core values; and 2) are appropriately rewarded for doing so. The objectives of our executive compensation programs are 1) to attract and retain executives that possess abilities essential to the Company’s long-term competitiveness and success; 2) to support a performance-oriented environment; and 3) to create a culture of ownership allowing executives to share meaningfully with stockholders in the long-term enhancement of stockholder value. All of this is considered with a view toward the industry's ultimate return to more normal operating conditions.
The Company’s compensation program for executive officers rewards the following attributes:
Financial Performance. The Company rewards decision-making that is designed to achieve operating results that increase stockholder value over the long-term and compare favorably to the operating results of our peers.
Excellence. The Company expects its executive officers to discharge their duties with excellence and professionalism. The Company expects a high level of enthusiasm, integrity, diligence, analytical rigor, business acumen and attention to detail.
Leadership. Executives of the Company are expected to demonstrate leadership.
Teamwork. Executives are evaluated as members of a team, not merely as individuals.
Loyalty. We promote a culture of ownership throughout the Company and reward employees, including our named executive officers, who remain dedicated to the Company over the long-term with equity ownership opportunities as well as other forms of long-term compensation.
Prudent Operating Practices. The Company expects executive decision-making that promotes safe, effective, compliant and prudent work practices.
The elements of compensation used by the Company
The Company’s executive compensation program is comprised of the following elements:
Base Salary
Cash Incentive Compensation and, when appropriate, Cash Bonuses
Equity Incentive Compensation
Benefits and Certain Perquisites
General. The compensation committee considers Company information, historical compensation information about each executive officer, data derived from market sources, including data regarding peer companies and current industry conditions, as points of reference for the appropriate mix of compensation elements. Historically, total annual cash compensation, which consists of base salary, cash incentive compensation and bonuses, has been targeted above the median of the Industry Peer Group (as defined below) while equity incentive compensation has been targeted at or above the seventy-fifth percentile of the Industry Peer Group. Total direct compensation, which includes both total annual cash compensation and equity incentive compensation, but excludes other compensation, has been targeted historically between the sixtieth and seventy-fifth percentiles of the Industry Peer Group for our named executive officers. During 2018, the compensation committee relied less on peer group information, given that two of the three Direct Peer Group companies had recently emerged from bankruptcy, which resulted in their compensation arrangements being made outside of the ordinary course.
A discussion concerning how we conduct comparisons with other companies, including our use of compensation consultants and our Industry Peer Group, is provided in the sections entitled “How and when we have used a compensation consultant” and “How and why we benchmark executive compensation against our peers” below.
Base Salary. The Company pays base salary to executive officers in order to compensate them for day-to-day services rendered to the Company over the course of each year. Salaries for executive officers are reviewed annually by the compensation committee. In determining individual salaries, the compensation committee considers the scope of the executive’s job responsibilities, unique skill sets and experience, individual contributions, market conditions, current compensation as compared to peer and competitor companies, including the Industry Peer Group, and the Company’s annual financial budget. In addition, the compensation committee considers the overall performance of the Company and the recommendations of the Chief Executive Officer concerning the compensation of the other executive officers.
As a result of weak market conditions that began in 2014 and are continuing, effective January 1, 2015, the named executive officers voluntarily offered to reduce their base salaries. Such reduction was subsequently ratified by the compensation committee. For the period of the industry downturn, the chief executive officer voluntarily agreed to reduce his base salary by 15%, whereas, each of the other executive officers voluntarily reduced his base salary by 10%. These base salary reductions also have the effect of reducing each officer's annual non-equity incentive compensation and long-term incentive grants, which are based on a multiple of base salary. The 2018 and 2017 base salaries in the table below reflect the reduced base salaries for the Company's named executive officers. |
| | | | | | | | | | |
| Executive | | Title | | 2018 Base
Salary | | 2017 Base
Salary |
| Todd M. Hornbeck | | Chairman, President & CEO | | $ | 637,500 |
| | $ | 637,500 |
|
| Carl G. Annessa | | Executive Vice President & COO | | 360,000 |
| | 360,000 |
|
| James O. Harp, Jr. | | Executive Vice President & CFO | | 360,000 |
| | 360,000 |
|
| Samuel A. Giberga | | Executive Vice President, GC & CCO | | 292,500 |
| | 292,500 |
|
| John S. Cook | | Executive Vice President, CCO & CIO | | 292,500 |
| | 292,500 |
|
Cash Incentive Compensation and Bonuses. The Company utilizes non-equity incentive compensation, also referred to herein as "cash incentive compensation," in order to incentivize the achievement of specific results each year and the relative out-performance of our peers for the applicable measurement period. The percentage of base salary that can be achieved and the program for awarding annual cash incentive compensation is identical for all of our executive officers, as set forth in the table below. The Company's compensation program historically called for the award of target cash incentive compensation for relative achievement based on four components: (i) EBITDA, (ii) operating margin, (iii) total
recordable incident rate, or TRIR, and (iv) the discretion of the compensation committee. However, due to the market downturn and our changing industry landscape, EBITDA and operating margin have become less relevant as short-term measures while our TRIR remains vital to our commercial competitiveness. Accordingly, in 2018, the EBITDA and Operating Margin components remained suspended, and the Company maintained the increased weighting of the discretionary component and TRIR at 75% and 25%, respectively. The discretionary component allows the compensation committee to examine management's performance using full hindsight and knowledge of the most relevant performance metrics under extraordinary industry conditions. These changes, which were implemented in 2017, are intended to motivate management to continue to make decisions that advance the long-term success of the Company and prevent decision making motivated by unrealistic business plan targets in order to achieve short-term compensation targets. The compensation committee will annually revisit whether to change the vesting criteria or otherwise adjust the weighting of the discretionary and TRIR components as market conditions evolve. We refer to each of the discretionary component and the TRIR component percentages herein as an "Applicable Percentage."
For the non-discretionary component, achievement of a component "threshold" metric earns cash incentive compensation of 50% of base salaryTransaction multiplied by the Applicable Percentage, achievement ofadditional dividends which the component "target" metric earns cash incentive compensation of 100% of base salary multiplied by the Applicable Percentage, and achievement of the component "maximum" metric earns cash incentive compensation of 150% of base salary multiplied by the Applicable Percentage, with the cash incentive compensation interpolated on a straight-line basis for target results between the threshold metric and the target metric, or the target metric and the maximum metric, as applicable.
The Safety target uses annual industry safety benchmarks of IADC, OMSA, ISOA and IMCA. Because the Company has usually outperformed these industry safety benchmarks, the compensation committee has historically conditioned the maximum incentive for this component on the Company outperforming by 10% its own trailing three-year average TRIR. However, in 2018, in an effort to place an even greater emphasis on the preservation of our executive team's focus on efficient, safe and environmentally sound operations, the compensation committee changed the methodology for determining the maximum safety metric to be 10% better than the average of the three best annual TRIRs achieved by the Company in the most recent ten years. This change in methodology for determining the maximum safety metric resulted in a more difficult standard of TRIR necessary to achieve the maximum potential vesting for that factor.
The following table sets forth the threshold, target and maximum metrics as a percentage of base salary and relative weighting that were used for the non-discretionary component of cash incentive compensation for 2018.
|
| | | | |
Component | Weighting | Threshold Metric (50%) | Target Metric (100%) | Maximum Metric (150%) |
Safety | 25% | TRIR less than the lowest average of all four annual safety benchmarks for any year falling within the most recent three years compiled by IADC, OMSA, ISOA and IMCA. | TRIR less than the lowest of any one of the four annual safety benchmarks for any year falling within the most recent three years compiled by IADC, OMSA, ISOA or IMCA. | TRIR at least 10% less than the Company's three best annual TRIRs achieved in the last ten years. |
A discussion concerning our use of the total recordable incident rate in connection with compensation-related matters is found in the section entitled “How and why we use our performance measures to determine whether incentive cash compensation has been earned.”
For 2018, the Company’s total recordable incident rate was 0.12, which was one of the best annual TRIRs in the Company's history. This performance entitled each of the executive officers to receive cash incentive compensation at the maximum metric in accordance with the TRIR vesting criteria.
The second component of cash incentive compensation, comprising 75% of the aggregate potential cash incentive pay that can be earned, is awarded at the discretion of the compensation committee. For 2018 performance, the compensation committee considered the performance of each executive individually as well as the executive team as a whole, together with recommendations of the chief executive officer, in determining whether, and if so, to what extent the discretionary award would be made. The compensation committee took into account the continued progress toward the completion of the fifth newbuild program, the Company's overall performance in relation to its peers, the continued actions taken by the executive management team to reduce costs as the current down cycle persisted, the implementation of incentive programs which resulted in one of the best TRIRs in the Company's history and the progress made thus far in on-going liability management efforts. The compensation committee elected to award 50% of the discretionary component of cash incentive compensation for 2018, which resulted in a combined weighted-average cash incentive compensation payout of 75% of base salaries for 2018.
In extraordinary circumstances, such as the Company’s initial public offering of common stock in 2004, the Sea Mar acquisition in 2007 and the 2013 sale of the Downstream segment, the compensation committee can, and has, awarded event-driven or accomplishment-specific bonuses to the executive officers independent of the cash incentive compensation derived under the formulaic approach. No such bonuses were awarded to the named executive officers for 2018.
Equity Incentive Compensation. The Company believes that the interests of stockholders are best served when a meaningful portion of executive and management compensation is tied to equity ownership. Pursuant to the Company’s Incentive Compensation Plan, discussed in further detail in Proposal No. 2, above, the compensation committee is authorized to grant stock options, stock appreciation rights, RSUs, PSUs and other equity-based awards. The Company has historically used a combination of stock options, RSUs and PSUs as a means to incentivize long-term employment and performance and to align individual compensation with the objective of building long-term stockholder value. The Company uses equity incentive compensation, with vesting based on time, performance or both, as a means of encouraging a “culture of ownership” among employees, including our named executive officers. The compensation committee believes that by using equity-based forms of incentive compensation, the interests of the Company’s stockholders and the Company’s management employees remain aligned over the long-term. The compensation committee exercises discretion in determining the number and type of equity awards to be given to our executive officers as long-term incentive compensation. In exercising its discretion, the compensation committee considers a number of factors, including individual responsibilities, industry conditions, competitive market data, stock price performance, and individual and Company performance. Subject to the express provisions of the incentive compensation plan and direction from the Board, the compensation committee is authorized, among other things, (i) to select the executive officers to whom equity awards will be granted; (ii) to determine the type, size, terms and conditions of equity awards to executive officers including vesting provisions and whether such equity awards will be time or performance-based; and (iii) to establish the terms for treatment of equity awards upon a termination of employment of executive officers.
The compensation committee’s practice has been to award RSUs and PSUs based on a price equal to the NYSE’s closing price of the Company’s common stock on the effective date of the grant. Such grants are typically made to executive officers at the February meetings of the Board and the compensation committee each year, which usually precede the public announcement of the Company’s fourth quarter results for the prior year by a few days.
For awards made in the February 2018 grant process, the compensation committee considered two significant developments. First, given the significant decline in the market price of the Company's common stock, the Company's depleted level of shares available to be granted and the significant dilution likely to result from large quantities of RSU grants, the compensation committee deemed it in the best interest of the Company to solely grant PSUs in 2018. As in 2017, when the compensation committee began to issue larger quantities of PSUs as part of its executive long-term incentive compensation structure, the compensation committee again considered the potential for large cash payments to our named executive officers should the Company's stock price recover significantly by the PSU vest dates. The committee maintained its previous view that such an event was only likely to coincide with a market recovery, mitigating the impactholder of a cash payout. Nevertheless, the compensation committee also reserved its right to settle the awards in stock should the committee deem stock-settlement of the awards to be in the best interest of the Company at the time of vesting. Second, the compensation committee considered that two of the Company's three Direct Peers and one of its significant privately held direct peers sought and received bankruptcy protection during 2017 or 2018, which resulted in a significant loss to their stockholders while also resulting in replenished executive management compensation agreements and substantial management retention and emergence bonuses for such peers. Recognizing that was not the case for the Company, and in light of management’s success thus far in the negotiation and implementation of various phases of the Company's on-going liability management efforts, the compensation committee concluded to continue recognizing management's alignment with stockholders through the retentive qualities of long-term incentive compensation. The compensation committee also considered a study previously conducted by our compensation consultant, Pearl Meyer & Partners, or PMP, in late 2013 relative to our Industry Peer Group. In February 2014, the compensation committee changed the ratio of time-based to performance-based awards from 70%-30% to 60%-40% and this ratio has been maintained since such change. The ratio of time-based to performance-based awards, while reduced, still favors time-based awards, emphasizing the retentive quality of equity-based compensation. Given the voluntary base salary and cash incentive compensation reductions in 2015 that have continued through 2016, 2017 and 2018 and considering the large number of PSUs awarded on account of the low stock price, the compensation committee decided to retain the 60%-40% ratio, which supports the Company's need to retain executive talent in the short and long-term.
Performance-based PSUs granted to executive officers in February 2018 vest from 0% to 150% of the target number of units, on the third anniversary of the grant date, based on the achievement of pre-defined performance criteria discussed below. While historically, these awards have been based on Adjusted ROIC, relative operating margin and
relative safety metrics, the current market conditions have presented management with challenges not measurable by ROIC or operating margins. Accordingly, in 2017, the compensation committee suspended our relative ROIC and relative Operating Margin criteria, kept the Safety criteria and added a new, event-driven performance-vest metric of successfully refinancing our 2019 and 2020 senior notes without utilizing a court-supervised restructuring on or before the 3-year cliff vesting date of February 14, 2020. For the awards made in the 2018 grant process, this event-driven performance-vest metric was expanded to include the successful refinancing of all three of our 2019, 2020 and 2021 senior notes without a court-supervised restructuring by the 3-year cliff vesting date of February 6, 2021 (collectively, the "Refinancing" criteria). The compensation committee adopted these measures in order to incentivize a resolution of debt maturities in a manner that protects the long-term interests of stockholders as much as prudently possible. These awards are weighted 75% and 25% for the Refinancing and relative Safety criteria, respectively.
For the Refinancing criteria, the award shall vest at 150% of the target number of units based on a successful refinancing; provided, however, that the Committee retains the discretion to reduce the Refinancing vesting percentage to any percentage between 150% and 50%, inclusive of such percentages, which strengthens incentives for a resolution most favorable to the Company.
For the Safety criteria, the performance-based unit awards granted in February 2018 will vest based on the achievement during the three-year measurement period of the following threshold, target and maximum vesting metrics. Achievement of a TRIR equal to or less than the lowest three-year average of all four of the comparable industry safety benchmarks set forth by IADC, OMSA, ISOA and IMCA for the three fiscal years ended during the measurement period would result in the threshold vesting of 50% of the target number of units. Achievement of a TRIR equal to or less than the lowest three-year average of any one of the four comparable industry safety benchmarks set forth by IADC, OMSA, ISOA or IMCA for the three fiscal years ended during the measurement period would result in the target vesting of 100% of the target number of units. Because the Company has usually outperformed these industry safety benchmarks, the compensation committee has historically conditioned the maximum incentive for this component on the Company outperforming by 10% its own trailing three-year average TRIR. However, in 2018, in an effort to place an even greater emphasis on the preservation of our executive team's focus on efficient, safe and environmentally sound operations, the compensation committee changed the methodology for determining the maximum safety metric to a more difficult standard of TRIR necessary to achieve the maximum potential vesting for that factor. Accordingly, achievement of a TRIR that is 10% better than the average of the three best annual TRIRs achieved for the immediate prior ten-year measurement period ended December 31, 2017, comprised of the ten consecutive fiscal-year periods ended December 31, 2008 through 2017, would result in the maximum vesting of 150% of the target number of units. The specific amount of vesting is interpolated on a straight-line basis for results between the threshold metric and the target metric, or the target metric and the maximum metric, as applicable.
The February 2017 and 2018 awards of time-based and performance-based RSUs and PSUs to our named executive officers were apportioned as set forth in the table below. The quantity of time-based and performance-based RSUs and PSUs granted is determined by dividing the grant date value of such awards by the then-current stock price. The long-term incentive compensation opportunities in terms of grant date values for each of our named executive officers, which are a function of target multiples of their base salaries, have been the same each year since 2015. Therefore, during times in which the stock price is high, the quantity of such awards will be lower; and, conversely, during times in which the stock price is low, the quantity of such awards will be higher. While the target grant values of the February 2017 and 2018 awards as of the respective grant dates were equal, the quantity of time-based and performance-based RSUs and PSUs granted increased in 2018, compared to 2017, due to a decrease in the Company's stock price from the 2017 grant date to the 2018 grant date. For these awards, the target grant values for our chief executive officer and other named executive officers were reduced by 15% and 10%, respectively, commensurate with their voluntarily reduced base salaries for 2017 and 2018. The time-based RSUs and PSUs vest in three equal tranches on the first, second and third anniversary dates of the grant. The performance-based awards cliff vest as described above.
The performance-based awards in the following table reflect target award levels. |
| | | | | | | | | | | | | | | |
| Executive | | 2017
Time-Based
RSUs | | 2017
Time-Based
PSUs | | 2017
Performance-Based
PSUs | | 2018
Time-Based
PSUs |
| 2018
Performance-Based
PSUs |
| Todd M. Hornbeck | | 123,653 |
| | 123,653 |
| | 164,871 |
| | 510,757 |
|
| 340,504 |
|
| Carl G. Annessa | | 50,431 |
| | 50,431 |
| | 67,241 |
| | 208,309 |
|
| 138,872 |
|
| James O. Harp, Jr. | | 50,431 |
| | 50,431 |
| | 67,241 |
| | 208,309 |
|
| 138,872 |
|
| Samuel A. Giberga | | 40,975 |
| | 40,975 |
| | 54,634 |
| | 169,251 |
|
| 112,834 |
|
| John S. Cook | | 40,975 |
| | 40,975 |
| | 54,634 |
| | 169,251 |
|
| 112,834 |
|
As of December 31, 2018, the Company had no outstanding performance-based RSUs. The Company had outstanding performance-based PSUs issued in February 2016, 2017 and 2018. These awards have vested or may vest over periods ranging from February 2019 to 2021. The table below illustrates the vesting of the performance-based awards for all named executive officers, as well as the estimated aggregate vesting that would have occurred for the outstanding awards if the performance measurement date was December 31, 2018 for the performance-based awards granted in February of 2016, 2017 and 2018. |
| | | | |
| Grant Year | | Target Units Granted | | % of Units To Vest |
| 2016 (1) | | 469,308 | | 113% |
| 2017 (2) | | 408,621 | | 113% |
| 2018 (3) | | 843,916 | | 113% |
| |
(1) | Performance-based PSUs granted to executive officers in February 2016 are dependent on 1) such officer’s service for three years from the date of grant and 2) the Company’s achievement of three 3-year average key performance indicators on the third anniversary of the grant date. This award may vest from 0% to 150% of the target number of units, based on the achievement of the pre-defined performance criteria. Based on internal forecasts as of December 31, 2018, these awards issued by the Company were projected to achieve and did, in fact, achieve an aggregate vesting of 113% in February 2019. The closing price of the Company's stock price on February 16, 2016 was $6.06. |
| |
(2) | Performance-based PSUs granted to executive officers in February 2017 are dependent on 1) such officer’s service for three years from the date of grant and 2) the Company’s achievement of two key performance indicators on the third anniversary of the grant date. This award may vest from 0% to 150% of the target number of units, based on the achievement of the pre-defined performance criteria. Based on internal forecasts as of December 31, 2018, these awards issued by the Company are currently projected to achieve an aggregate vesting of 113% in February 2020. The closing price of the Company's stock price on February 14, 2017 was $6.96. |
| |
(3) | Performance-based PSUs granted to executive officers in February 2018 are dependent on 1) such officer’s service for three years from the date of grant and 2) the Company’s achievement of two key performance indicators on the third anniversary of the grant date. This award may vest from 0% to 150% of the target number of units, based on the achievement of the pre-defined performance criteria. Based on internal forecasts as of December 31, 2018, these awards issued by the Company are currently projected to achieve an aggregate vesting of 113% in February 2021. The closing price of the Company's stock price on February 6, 2018 was $3.37. |
In addition to the performance-based PSUs discussed above, in February of 2016 and 2017, the executive officers were granted time-based RSUs, and in February of 2016, 2017 and 2018, the executive officers were granted time-based PSUs, all of which are reflected in both the 2018 Summary Compensation Table and the 2018 Outstanding Equity Awards at Fiscal Year End table, below.
Benefits and Perquisites. The Company provides the executive officers and other employees with certain perquisites and other personal benefits as part of providing a competitive executive compensation program and for employee retention. The Company does not gross-up for taxes payable in respect of perquisites received. The following table generally identifies the Company’s benefit plans and identifies those employees who may be eligible to participate. The executive officers participate in the following benefit plans in the same manner that our employees do, except where noted as below: |
| | | | | | | | |
Benefit Plan | | Executive
Officers
| | Certain
Managers
| | Full-time
Employees
| | Notes |
Medical Insurance | | X | | X | | X | | (1) |
Dental Insurance | | X | | X | | X | | (1) |
Vision Insurance | | X | | X | | X | | (1) |
Employee Assistance Plan | | X | | X | | X | | |
Life and Disability Insurance | | X | | X | | X | | (2) |
Flexible Spending Accounts | | X | | X | | X | | |
Employee Stock Purchase Plan (ESPP) | | X | | X | | X | | (3) |
401(k) Plan | | X | | X | | X | | (4) |
| |
(1) | In 2018, Messrs. Todd Hornbeck, Annessa, Harp, Giberga and Cook had a supplemental medical insurance policy that pays all eligible out-of-pocket medical, dental and vision expenses. |
| |
(2) | The executive officers, the Company’s Vice Presidents, and certain other officers have Company-paid basic life and accidental death and dismemberment insurance of 1.5 times their salary, up to $300,000. All other employees have Company-paid basic life and accidental death and dismemberment insurance of 1.5 times their salary, up to $100,000. In addition, the executive officers, the Company’s Vice Presidents, and certain other officers are eligible to receive disability benefits as long as they are disabled from performing their own occupation. For all other employees, they are entitled to disability benefits up to 36 months if they are disabled from performing their own occupation, and after 36 months they must be unable to work in any occupation. |
| |
(3) | The Company may offer to sell at a discount up to 2,200,000 shares of stock to eligible employees (including our executive officers). The ESPP is intended to encourage an equity stake in the Company, aligning employee interests with those of our our stockholders. |
| |
(4) | Prior to 2015, the Company offered a 401(k) Plan "matching contribution" to all eligible employees, however, the 401(k) matching contribution has been suspended since January 1, 2015 due to the industry downturn. |
The Company believes it should provide limited perquisites for executive officers. As a result, the Company has historically given nominal perquisites. The following table generally illustrates the perquisites we do and do not provide and identifies those employees who may be eligible to receive them: |
| | | | | | |
Type of Perquisite | | Executive
Officers
| | Certain
Managers
| | Certain
Full Time
Employees
|
Company Vehicle | | X | | Not offered | | X |
Vehicle Allowance | | Not offered | | X | | X |
Supplemental Medical Insurance | | X | | Not offered | | Not offered |
Country Club Memberships | | Not offered | | Not offered | | Not offered |
Dwellings for Personal Use | | Not offered | | Not offered | | Not offered |
Security Services | | Not offered | | Not offered | | Not offered |
Supplemental Executive Retirement Program (SERP) | | Not offered | | Not offered | | Not offered |
Deferred Compensation Plan | | X(1) | | Not offered | | Not offered |
| |
(1) | A Deferred Compensation Plan was adopted by the Board of Directors during 2007. However, no matching provision has been authorized under the plan and, to date, no executive has availed himself of plan participation. |
Changes to our Executive Compensation Program in 2019. The compensation committee continues to review our executive compensation program to ensure it meets the Company’s dual objectives of management retention and stockholder alignment. In light of sustained weak market conditions, in early 2019, the compensation committee, working in tandem with outside counsel retained to review the Company's compensation practices and with the CEO, has decided to modify the Company’s executive compensation program to continue to meet such objectives in the following respects:
Changed the ratio of long term-incentive awards from 60% time-vesting PSUs and 40% performance-vesting PSUs to 60% time-vesting PSUs and 40% time-vesting SARs. The PSUs and SARs will time-vest in three equal tranches on the 1st, 2nd and 3rd anniversary dates of the grant date, and may be settled in cash, stock or any combination thereof at the Company's discretion, subject to authorized share availability. We believe that granting SARs aligns interests of management and stockholders and promotes the retention of our executives through the inclusion of time-vesting elements.
Modified our short-term cash incentive compensation for cash payments to be earned and paid on a quarterly basis with quarterly goals based on specific revenue and safety metrics. We believe placing a greater emphasis on our quarterly results will lead to enhanced potential to achieve our full-year goals and promote retention of our executives.
Changed vesting range for short-term cash incentive compensation back to 0% to 200% from 50% to 150% and eliminated the maximum vesting opportunity to earn 150% under the long-term incentive compensation program.
Granted a bonus in March 2019 to each of our named executive officers equal to 100% of his base salary, offset by a commensurate reduction in the target grant value of such executive's long-term incentive opportunity for the March 2019 equity-based award. Such bonuses are subject to clawback in the event the executives voluntarily resign or are involuntarily terminated for cause before the one-year anniversary of the grant of such bonus. We believe such bonuses, subject to the clawback provision, are in-line with our philosophy of balancing our dual objectives of pay-for-performance and retention of our executives in light of prevailing market conditions currently facing the Company and the offshore energy industry.
How the elements of compensation fit into our overall compensation objectives
Consistent with the Company’s compensation philosophy and objectives discussed above, the compensation committee believes that its use of the primary components of compensation described above provides competitive salaries, allows opportunities for significant cash incentive compensation to encourage short-term performance and establishes significant long-term equity incentive opportunities aligned with stockholder interests.
The role of the compensation committee.
Our compensation committee is comprised solely of directors who (i) meet the independence requirements of Section 303A of the NYSE Listed Company Manual, the provisions of Section 952 of the Dodd-Frank Act, and any rules or regulations promulgated thereunder, (ii) qualify as “Non-Employee Directors” under Rule 16b-3 of the Exchange Act, and (iii) satisfy the requirements of an “outside director” for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code. The compensation committee is responsible for 1) establishing and administering an overall compensation program for our executive officers and approving all compensation for executive officers; 2) establishing and administering the Company’s policies governing annual cash compensation and equity incentive awards for employees other than executive officers and 3) administering the Company’s incentive compensation and certain employee benefit plans. The compensation committee meets multiple times each year to analyze and discuss the Company’s compensation plans, proposals and other compensation-related issues. From time to time, it also engages in informal sessions with and without executive management. These sessions usually coincide with the Company’s annual budget process. At the regular meeting of the compensation committee in February of each year, the compensation committee determines and approves the award, if any, of prior year cash incentive compensation. In addition, typically at its February meeting, the compensation committee determines the current year’s annual compensation for our executive officers, including the establishment of base salaries, determination of any potential cash incentive compensation targets and participation levels of each named executive officer and approval of long-term incentive compensation awards. The compensation awards approved by the committee are part of the annual budget approved by the Board. When appropriate, the compensation committee recommends to the full Board of Directors compensation or benefit policies or plans or amendments to existing policies or plans and amendments to employment agreements with executive officers. The Chief Executive Officer reviews the performance of the other executive officers and recommends to the compensation committee the base salary, cash incentive compensation, equity incentive compensation and other benefits for such officers. The compensation committee considers the Chief Executive Officer’s recommendations when establishing the base salary, cash incentive compensation, equity incentive compensation and other benefits for the other executive officers.
The compensation committee analyzes tally sheets that are prepared by management. The purpose of these tally sheets is to compile in one place, segregated by compensation elements, the amount of actual compensation that each of our executive officers was paid in the prior year and the potential compensation proposed to be paid in the current year. The tally sheets help ensure that there is a correlation between the Company’s compensation philosophy and objectives and the actual compensation of our executives. These tally sheets reflect all compensation and related commitments for
executive officers, including base salary, annual performance-based cash incentives, cash bonuses, if applicable, outstanding and proposed equity awards including, as applicable, stock options, restricted stock awards, RSUs and PSUs, benefits and perquisites. The tally sheets may also include the amounts that our executive officers would receive in the event of a termination in their employment or change in control of the Company. The tally sheets are intended to provide the compensation committee with a comprehensive single point of reference for all of the compensation earned by or proposed for our executives. The tally sheets are provided with benchmarking data for comparable executives in our Industry Peer Group and Direct Peer Group (as defined below). For more information about the companies contained in our Industry Peer Group and Direct Peer Group, please see the section below entitled, “How and why we benchmark executive compensation against our peers.”
How and when we have used a compensation consultant
The compensation committee has the authority to directly engage independent consultants. Generally, consultants have provided advice on compensation strategy and program design. Consultants have also been used to compare the Company’s compensation programs with those of other companies.
In late 2010, the compensation committee evaluated several independent consultants and engaged PMP to provide advice on the compensation strategy and program design as well as to review and recommend an updated peer group in 2011. PMP was engaged again in late 2013 to perform a full compensation review and analysis for 2014 recommendations, including an updated peer group analysis with recommended member changes. PMP has not been paid or engaged for the performance of any executive or non-executive compensation services subsequent to 2014.
The compensation committee may choose to retain outside compensation consultants, such as PMP, to review compensation issues again in the future.
How and why we benchmark executive compensation against our peers
We compete with other companies for executive talent. In doing so, we consider prevailing executive compensation trends in order to establish whether our compensation is appropriate, competitive and in-line with our overall executive compensation philosophy and objectives. The compensation committee considers competitive market data including compensation levels and other information derived from: 1) public filings of publicly traded energy service companies (including publicly traded marine service companies, some of which are direct competitors) identified by compensation consultants, other advisors or the compensation committee as having sufficiently similar operating characteristics with the Company so as to provide a source of meaningful comparison, or our Industry Peer Group; 2) public filings of publicly traded marine service companies that are our direct competitors, or our Direct Peer Group; and 3) published survey information for the energy industry as well as the broader commercial industry, when appropriate. Our competitive market is not comprised strictly of vessel owners because the competition we face for certain executive talent is not limited to marine companies and we believe that the number of such companies represents too small of a sample size for a reasonable comparison. Generally, the compensation committee considers how the compensation of our executives compares with the individual elements of, as well as the total direct compensation of, the named executive officers of the groups described above. During 2017 and 2018, comparisons with other companies became less meaningful given market conditions, mergers and bankruptcies of companies in our Industry Peer Group and in our Direct Peer Group. The compensation committee is cognizant that often, post-bankruptcy, management teams are retained under new or renegotiated employment agreements and/or compensation plans. Such agreements are reached after events that have potentially caused significant losses to some or all common stock holders. Accordingly, comparisons with other companies before and after their bankruptcy proceedings are additionally complex. The compensation committee has historically considered the median compensation levels determined at the fiftieth, sixtieth and seventy-fifth percentiles of the groups described above among the factors it uses when establishing executive compensation. As data from certain members of our Industry Peer Group loses comparability or becomes unavailable as a result of acquisitions, bankruptcies or other transactions, they will be removed from the list.
During 2013, PMP reviewed the Industry Peer Group to be used for February 2014 executive compensation analysis and recommended changes. At the compensation committee’s request, PMP identified and selected a new peer group with size and scope parameters more closely aligned with the Company’s revenues and operations. As of February 2018, the remaining companies that were included by PMP in the original public company Industry Peer Group consisted of the following:
Industry Peer Group Used to Benchmark 2018 Executive Compensation
Gulfmark Offshore Inc. (GLF)
Tidewater Inc. (TDW)
Seacor Holdings Inc. (CKH) / Seacor Marine Holdings Inc. (SMHI)
Superior Energy Services Inc. (SPN)
Oceaneering International, Inc. (OII)
Helix Energy Solutions Group, Inc. (HLX)
Bristow Group Inc. (BRS)
Kirby Corporation (KEX)
Newpark Resources, Inc. (NR)
Noble Corporation (NE)
Gulf Island Fabrication, Inc. (GIFI)
When establishing executive compensation to be paid in 2018, the compensation committee considered competitive market data of our Direct Peer Group, in addition to our Industry Peer Group. The public companies included in the Direct Peer Group used to benchmark 2018 executive compensation consisted of the following:
Direct Peer Group Used to Benchmark Executive Compensation
Gulfmark Offshore Inc. (GLF)
Tidewater Inc. (TDW)
Seacor Holdings Inc. (CKH)/ Seacor Marine Holdings Inc. (SMHI)
During 2016, 2017 and 2018, several members of our Industry Peer Group and our Direct Peer Group announced restructurings, mergers and/or bankruptcies. This resulted in the removal of Hercules Offshore, Inc. (HERO) from our peer group upon its Chapter 7 liquidation in 2017. Atwood Oceanics, Inc. (ATW) was acquired during 2017 and was removed from our peer group in 2018. Both Gulfmark Offshore Inc. (GLF) and Tidewater Inc. (TDW) underwent reorganization under Chapter 11 of the United States Bankruptcy Code in 2017 and later merged in 2018. Finally, Seacor Holdings Inc. (CKH) spun-off its offshore supply vessel division into Seacor Marine Holdings Inc. (SMHI), a new public company during 2017. We will continue to monitor the industry landscape and evaluate the manner in which these events continue to affect Peer Group usage or composition in 2019.
In 2018, total annual cash compensation, which consists of base salary, short-term cash incentive compensation and cash bonuses (if any), was targeted below the fiftieth percentile of the Industry Peer Group. Such a target seemed appropriate to the compensation committee given the current market conditions and the discretion retained by the compensation committee for up to 75% of the aggregate potential cash incentive compensation. Further, such a target also took into account the potential distortion in peer group information stemming from bankruptcies, mergers or restructurings resulted in less reliance upon peer group information, generally. In prior years, our named executive officers had the potential to earn equity incentive compensation at or above the seventy-fifth percentile of the Industry Peer Group. However, if the performance targets for such equity incentive compensation are not achieved by the vest date, some awards may not be earned at all. In 2018, our named executive officers, taken as a group, received equity incentive compensation between the sixtieth and seventy-fifth percentiles of our Industry Peer Group. The total direct compensation awarded by our compensation committee fell between the fiftieth and sixtieth percentile for our named executive officers in 2018. Additionally, the Company's stock price has been historically volatile and, since late 2014, has declined precipitously due to the industry downturn. There is frequently a significant difference, both positive and negative, between the value of an award at the grant date and its value upon vesting. We utilize a standard set of assumptions applied to the Black-Scholes model during the benchmarking process. The assumed term, volatility, dividend yield, and interest rate are derived from information found in our Grants of Plan-Based Awards Table and those of the companies that comprise our Industry Peer Group.
While our Industry Peer Group was traditionally used by our compensation committee to benchmark overall compensation levels, our Direct Peer Group is not used for compensation benchmarking. Our Direct Peer Group is used as a point of reference against which the Company’s performance is measured for the purpose of establishing certain relative performance targets used to award short and long-term incentive compensation.However, in assessing overall
appropriateness of compensation, the compensation committee considered the fact that two of the Company's three Direct Peers sought bankruptcy protection in 2017.
The role of executive management in the compensation process
The compensation committee works with executive management with respect to the practical aspects of the design and execution of our executive compensation programs. Because our executives’ cash compensation is derived, in part, from the Company’s annual operating performance, the annual budget process is a key component of the process by which compensation is determined. The Chief Executive Officer and other members of management also evaluate comparative data of the Industry Peer Group and the broader commercial industry in order to compare proposed compensation against such peer companies and provide such information to the compensation committee. Following proposals made by executive management, including the Chief Executive Officer’s recommendations regarding the other named executive officers, the compensation committee engages in one or more discussion sessions, with and without executive management, in order to make a final determination of compensation for the named executive officers.
How and why we use our performance measures to determine whether incentive cash compensation has been earned
From 2012 through 2016, the Company’s performance measures for incentive cash compensation generally consisted of EBITDA, relative operating margin and relative safety performance. In 2016, our compensation committee determined that EBITDA and operating margin were not as relevant of factors for performance given the prolonged industry downturn, which is presenting challenges for management not measured by EBITDA and operating margin. We expect that the compensation committee may return to EBITDA and operating margin as relevant measures once industry conditions improve. Please see the section entitled “Cash Incentive Compensation and Bonuses”, above, for a discussion of the compensation committee’s actions with respect to cash incentive compensation for 2018.
The reason that EBITDA was historically our most heavily weighted objective component (at double the weight of the other two objective performance measures) is because of the prominence given EBITDA in several facets of the Company’s operations. For instance, we disclose and discuss EBITDA as a non-GAAP financial measure in our public releases, including quarterly earnings releases, investor conference calls and other filings with the Commission. EBITDA is used by management (i) as a supplemental internal measure for planning and forecasting overall expectations and for evaluating actual results against such expectations; (ii) to compare to the EBITDA of other companies when evaluating potential acquisitions; and (iii) to assess our ability to service existing fixed charges and incur additional indebtedness. Adjustments that the compensation committee may make to EBITDA, including adjustments for gains or losses on early extinguishment of debt or other non-cash or non-recurring items, may be made in years in which they have relevance to our compensation analysis and/or are unpredictable for budgeting purposes. In setting the EBITDA target used as a component of our cash incentive compensation, the compensation committee historically set the EBITDA target based on expected performance for the year taking into account industry conditions, competitor performance, consensus Street estimates and expectations of the Board of Directors. This approach historically resulted in EBITDA targets that were designed to incentivize management to perform at demanding levels.
The EBITDA target was not necessarily the same as that which the Company from time to time included in earnings guidance. However, if guidance for a year was given, the EBITDA target established at the beginning of the year was within the initial range of earnings guidance announced by the Company for that year. While the Company has, from time to time, altered its guidance range during a given year, it has not, in the past, changed the EBITDA target for cash incentive compensation other than, on occasion, to adjust for significant acquisitions, dispositions or financings that had occurred that were unanticipated at the time the EBITDA target was originally set.
In normalized markets, the Operating Margin component is evaluated by comparing the Company's operating margin with that of our Direct Peer Group. Like the EBITDA component, the Operating Margin component tied executive compensation to financial performance, but unlike the EBITDA component, the Operating Margin component was directly tied to our financial performance relative to our Direct Peer Group. We believe that this helped us reward relative out-performance during cyclical industry fluctuations, including down cycles.
The Safety component is evaluated by comparing TRIR with various industry benchmarks and our own prior safety performance. When selecting service providers, we know that our customers make decisions based on the safety performance of the provider. Therefore, we believe that by using a Safety component in our objective performance measures we will not only reinforce the culture of safety within our Company, which benefits our employees, but should also optimize revenue and improve our long-term performance sustainability.
We believe that these metrics incentivize management to strive for operating results that increase stockholder value, while reaffirming our commitment to operating our business at the highest levels of safety and with the utmost care and protection of the environment.
Management of dilution caused by equity compensation
Under our Incentive Compensation Plan, as of March 31, 2019, the Company is authorized to issue a maximum of 4,950,000 shares of Common Stock as awards. As of that date, only 344,587 shares remain available for future grants. The Company remains mindful of and considers, among other things, dilution and the rate at which shares are used. The Company manages dilution and burn rate by tying some portion of equity awards to performance measures as well as, when appropriate, by mixing PSUs and RSUs. The actual annual usage rate based on shares granted divided by total shares outstanding is expected to vary from year to year, depending on the achievement of specified performance targets and objectives. In keeping with its overall compensation philosophy and entrepreneurial culture, the Company has historically granted stock-based compensation to employees other than its named executive officers. This stock-based compensation included RSUs, stock options and PSUs. More recently, executive officers and certain shoreside employees have received proportionately greater awards of PSUs, which are a derivative form of stock-based compensation that are more traditionally settled in cash. The 2016, 2017 and 2018 PSUs for certain shoreside employees are presently, absent approval of the New Shares, intended to be settled in cash at vesting. The Company will settle the 2016, 2017 and 2018 PSUs for the executive officers in cash unless it timely elects, in its discretion, to settle the 2016, 2017 and 2018 PSUs in the Company's common stock at vesting provided the New Shares have been approved. The Company does not presently have a sufficient number of shares to settle payments in the Company's common stock at current stock price levels. For a discussion of the Company's ability to settle in stock, please see discussion concerning Proposal No. 2 beginning on page 11, above. The value of each PSU is equal to the Company's 10-day trailing average closing stock price on the vesting date. Awards of PSUs do not affect the Company’s outstanding share count or available shares under the Plan unless, in the latter case, the Company settles such PSUs in common stock. Overall, the aggregate share-settled RSU grants to employees and non-employee directors in February 2016, February 2017 and February 2018 represented approximately 1.2%, 1.6% and 0% of the Company’s then-outstanding shares, respectively, all of which are within the tolerances for dilution recommended by our compensation consultants and other normalized external benchmarks.
The following table shows the quantity and type of equity and equity-based awards granted during the fiscal years ended December 31, 2016, 2017 and 2018. Only awards given to directors vest immediately. |
| | | | | | | | | |
Grant Year | | Grant Type | | Quantity Granted (1) | | Vesting Period | | Vesting Detail |
| 2016 |
| Time-based RSUs |
| 139,133 |
|
| Immediate |
| Immediate vest on grant date |
|
| Time-based RSUs |
| 391,802 |
|
| 3 years |
| Vesting at annual intervals throughout service period |
|
| Time-based RSUs |
| 6,078 |
|
| 3 years |
| Cliff vest after service period |
|
| Performance-based PSUs (2) |
| 469,308 |
|
| 3 years |
| Cliff vest after service period |
| | | Performance-based PSUs (3) |
| 53,094 |
|
| 3 years |
| Cliff vest after service period |
|
| Time-based PSUs (4) |
| 17,400 |
|
| 3 years |
| Cliff vest after service period |
| | | Time-based PSUs (5) | | 351,981 |
| | 3 years | | Vesting at annual intervals throughout service period |
| | | Time-based PSUs (6) | | 39,821 |
| | 3 years | | Vesting at annual intervals throughout service period |
|
| Time-based PSUs (4) |
| 58,570 |
|
| 3 years |
| Vesting at annual intervals throughout service period |
| | | | | | | | | |
| 2017 | | Time-based RSUs | | 274,679 |
| | Immediate | | Immediate vest on grant date |
| | | Time-based RSUs | | 341,136 |
| | 3 years | | Vesting at annual intervals throughout service period |
| | | Performance-based PSUs (7) | | 408,621 |
| | 3 years | | Cliff vest after service period |
| | | Performance-based PSUs (8) | | 46,228 |
| | 3 years | | Cliff vest after service period |
| | | Time-based PSUs (9) | | 64,500 |
| | 3 years | | Cliff vest after service period |
| | | Time-based PSUs (9) | | 4,000 |
| | 4 years | | Cliff vest after service period |
| | | Time-based PSUs (10) | | 306,465 |
| | 3 years | | Vesting at annual intervals throughout service period |
| | | Time-based PSUs (11) | | 34,671 |
| | 3 years | | Vesting at annual intervals throughout service period |
| | | Time-based PSUs (9) | | 52,891 |
| | 3 years | | Vesting at annual intervals throughout service period |
| | | Time-based PSUs (9) | | 1,766 |
| | 5 years | | Vesting at annual intervals throughout service period |
|
|
|
|
|
|
|
|
|
| 2018 |
| Time-based PSUs (12) |
| 1,265,877 |
|
| 3 years |
| Vesting at annual intervals throughout service period |
| | | Time-based PSUs (13) | | 143,212 |
| | 3 years | | Vesting at annual intervals throughout service period |
|
| Time-based PSUs (14) |
| 109,688 |
|
| 3 years |
| Vesting at annual intervals throughout service period |
|
| Performance-based PSUs (15) |
| 843,916 |
|
| 3 years |
| Cliff vest after service period |
| | | Performance-based PSUs (16) | | 95,475 |
| | 3 years | | Cliff vest after service period |
| |
(1) | Amounts listed in the Quantity Granted column represent target shares granted to executive officers and other employees and shares awarded to non-employee directors during the annual (or for non-employee directors, the quarterly) grant process in addition to those occasionally awarded to certain new-hire employees throughout the remainder of the year. The performance-based PSUs granted in February 2016, February 2017 and February 2018 provide that up to 150% of target shares awarded may be earned. Such potential additional shares are not reflected in this table. |
| |
(2) | Performance-based PSUs granted to named executive officers during 2016 were scheduled to vest on the third anniversary of the Grant Date, subject to the achievement of performance criteria defined in the respective grant agreements. The 2016 grant agreements provided for the potential to earn awards at a percentage up to 150% of target units awarded. In fact, such awards vested at 113% of the target units awarded. Each PSU has a value equal to the Company's 10-day trailing average closing stock price on the vesting date and were settled in cash. |
| |
(3) | Performance-based PSUs granted to certain employees (other than named executive officers) during 2016 were scheduled to vest on the third anniversary of the Grant Date, subject to the achievement of performance criteria defined in the respective grant agreements. The 2016 grant agreements provided for the potential to earn awards at a percentage up to 150% of target units awarded. In fact, such awards vested at 113% of the target units awarded. Each PSU has a value equal to the Company's 10-day trailing average closing stock price on the vesting date and were settled in cash. |
| |
(4) | Time-based PSUs were awarded in 2016 to certain employees (other than named executive officers). Each PSU has a value equal to the Company's 10-day trailing average closing stock price on the vesting date and were distributed in cash on the vesting dates defined in the respective grant agreements. |
| |
(5) | Time-based PSUs were awarded in 2016 to named executive officers. Each PSU has a value equal to the Company's 10-day trailing average closing stock price on the vesting date and were settled in cash. |
| |
(6) | Time-based PSUs were awarded in 2016 to certain employees (other than named executive officers). Each PSU has a value equal to the Company's 10-day trailing average closing stock price on the vesting date and were settled in cash. |
| |
(7) | Performance-based PSUs granted to named executive officers during 2017 are scheduled to vest on the third anniversary of the Grant Date, subject to the achievement of performance criteria defined in the respective grant agreements. The 2017 grant agreements provide for the potential to earn awards at a percentage up to 150% of target units awarded. Each PSU has a value equal to the Company's 10-day trailing average closing stock price |
on the vesting date and are currently intended to be settled in cash unless the Company elects in its sole discretion to settle the units in stock, subject to authorized share availability, on the vesting dates defined in the respective grant agreements.
| |
(8) | Performance-based PSUs granted to certain employees (other than named executive officers) during 2017 are scheduled to vest on the third anniversary of the Grant Date, subject to the achievement of performance criteria defined in the respective grant agreements. The 2017 grant agreements provide for the potential to earn awards at a percentage up to 150% of target units awarded. Each PSU has a value equal to the Company's 10-day trailing average closing stock price on the vesting date and are currently intended to be settled in cash unless the Company elects in its sole discretion to settle the units in stock, subject to authorized share availability, on the vesting dates defined in the respective grant agreements. |
| |
(9) | Time-based PSUs were awarded in 2017 to certain employees (other than named executive officers). Each PSU has a value equal to the Company's 10-day trailing average closing stock price on the vesting date and will be distributed in cash on the vesting dates defined in the respective grant agreements. |
| |
(10) | Time-based PSUs were awarded in 2017 to named executive officers. Each PSU has a value equal to the Company's 10-day trailing average closing stock price on the vesting date and are currently intended to be settled in cash unless the Company elects in its sole discretion to settle the units in stock, subject to authorized share availability, on the vesting dates defined in the respective grant agreements. |
| |
(11) | Time-based PSUs were awarded in 2017 to certain employees (other than named executive officers). Each PSU has a value equal to the Company's 10-day trailing average closing stock price on the vesting date and are currently intended to be settled in cash unless the Company elects in its sole discretion to settle the units in stock, on the vesting dates defined in the respective grant agreements. |
| |
(12) | Time-based PSUs were awarded in 2018 to named executive officers. Each PSU has a value equal to the Company's 10-day trailing average closing stock price on the vesting date and are currently intended to be settled in cash unless the Company elects in its sole discretion to settle the units in stock, subject to authorized share availability, on the vesting dates defined in the respective grant agreements. |
| |
(13) | Time-based PSUs were awarded in 2018 to certain employees (other than named executive officers). Each PSU has a value equal to the Company's 10-day trailing average closing stock price on the vesting date and are currently intended to be settled in cash unless the Company elects in its sole discretion to settle the units in stock, subject to authorized share availability, on the vesting dates defined in the respective grant agreements. |
| |
(14) | Time-based PSUs were awarded in 2018 to certain employees (other than named executive officers). Each PSU has a value equal to the Company's 10-day trailing average closing stock price on the vesting date and will be distributed in cash on the vesting dates defined in the respective grant agreements. |
| |
(15) | Performance-based PSUs granted to named executive officers during 2018 are scheduled to vest on the third anniversary of the Grant Date, subject to the achievement of performance criteria defined in the respective grant agreements. The 2018 grant agreements provide for the potential to earn awards at a percentage up to 150% of target units awarded. Each PSU has a value equal to the Company's 10-day trailing average closing stock price on the vesting date and are currently intended to be settled in cash unless the Company elects in its sole discretion to settle the units in stock, subject to authorized share availability, on the vesting dates defined in the respective grant agreements. |
| |
(16) | Performance-based PSUs granted to certain employees (other than named executive officers) during 2018 are scheduled to vest on the third anniversary of the Grant Date, subject to the achievement of performance criteria defined in the respective grant agreements. The 2018 grant agreements provide for the potential to earn awards at a percentage up to 150% of target units awarded. Each PSU has a value equal to the Company's 10-day trailing average closing stock price on the vesting date and are currently intended to be settled in cash unless the Company elects in its sole discretion to settle the units in stock, subject to authorized share availability, on the vesting dates defined in the respective grant agreements. |
Tax and accounting treatment issues
Under Section 162(m) of the Code, the Company may not deduct, for federal income tax purposes, compensation paid in excess of $1,000,000 to a named executive officer employed by the Company at year-end. For taxable years beginning after December 31, 2017, the exemption from Section 162(m)’s deduction limit for performance-based compensation has been repealed, such that compensation paid to our named executive officers in excess of $1,000,000 will not be deductible unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017.
The compensation committee believes that, in order to ensure competitive levels of total compensation for its executive officers, the Company’s interests will be best served by approving compensation for its executive officers that does not meet the requirements of Section 162(m) of the Code, as amended by the Act, and the amount of which the compensation to an officer exceeds $1,000,000 for a given year will not be deductible by the Company for federal income tax purposes. Accordingly, the compensation committee has approved and will likely approve in the future, compensation for one or more of its executive officers that is not deductible for federal income tax purposes. Further, the compensation committee reserves the right to modify compensation that was initially intended to be exempt from section 162(m) if it determines that such modifications are consistent with the Company's business needs.
Our review and analysis of the need for termination and change in control arrangements
The Company uses employment agreements and change in control agreements in the Company’s retention efforts for certain key executives and can, under appropriate circumstances, use them for recruiting purposes. The Company has entered into long-term employment agreements with its five named executive officers: Todd M. Hornbeck, who serves as our President and Chief Executive Officer; Carl G. Annessa, who serves as our Executive Vice President and Chief Operating Officer; James O. Harp, Jr., who serves as our Executive Vice President and Chief Financial Officer; Samuel A. Giberga, who serves as our Executive Vice President, General Counsel and Chief Compliance Officer; and John S. Cook, who serves as our Executive Vice President, Chief Commercial Officer and Chief Information Officer. Each long-term
employment agreement has a current term expiring December 31, 2021. The terms of each agreement automatically extend for an additional year every January 1, unless notice of termination is given before such date by the employee or us. Under the terms of our Incentive Compensation Plan, and such employment agreements, the Chief Executive Officer and the other four named executive officers are entitled to payments and benefits upon the occurrence of specified events including termination of employment without cause and upon a change in control of the Company.
In the case of each employment agreement, the terms of the termination and change in control arrangements were established through a process of arms-length negotiations between the Company and the applicable executive officer. The terms of the change in control agreements are substantially the same as the change in control provisions defined in the employment agreements discussed above except for the multiple regarding cash amounts received for salary and bonus and the time period for which medical and other insurance benefits would be provided after termination subsequent to a change in control. Several years ago, the compensation committee re-evaluated the terms of the employment agreements and determined to strengthen, and in the case of our Chief Executive Officer to add, provisions that restrict the ability of these individuals to compete with the Company following their termination of employment with the Company. In addition, the agreements were amended to add provisions that prohibit the solicitation of employees for a specified period following termination of employment and that enhance obligations concerning confidentiality of Company information. The foregoing restrictions were a significant factor considered by the compensation committee in agreeing to termination and change in control payments under the employment agreements. The age of our executives was also a factor in favor of our obtaining the foregoing restrictions in exchange for termination payments. All of our executive officers are of such an age that if terminated, could likely continue working. It is also likely that any future employment would be with a competitor. Consequently, the compensation committee determined that it was in the Company’s best interest to have obtained such enhanced restrictions in exchange for termination and change in control payment provisions and gross-up provisions for (a) income taxes, if any, payable with respect to extended medical benefits and for (b) excise taxes payable with respect to any excess payments under Section 280G of the Code and for (c) excise taxes and all other taxes with respect to any gross-up payments under (b).
To the extent that accelerated vesting provisions are not expressly addressed otherwise in the employment agreements or the change in control agreements, as applicable, each of our executive officers is entitled to accelerated vesting of incentive compensation awards in the event of retirement, death or disability pursuant to the terms of our Incentive Compensation Plan. The specific terms of the arrangements described in this section, as well as an estimate of the compensation that would have been payable had they been triggered as of fiscal year-end 2018, are described in detail in the section entitled “Potential Payments Upon Termination or Change in Control” below.
Our policies regarding trading in our securities by our executive officers
The Company has in effect a written Insider Trading Policy, which is applicable to all personnel. The policy forbids trading in our securities at any time the individual employee is in possession of material non-public information. In addition, irrespective of whether the individual employee is in possession of material non-public information, the policy prohibits trading at any time that the Company has closed its trading window. Since one effect of the trading window is to limit significantly the period of time in any given year in which trading in our securities may be undertaken by the Company’s officers, directors and certain of its shore-based employees, the Company has authorized the use of stock trading plans that comply with Rule 10b5-1 under the Exchange Act. Under such a plan, trading may occur at any time pursuant to a pre-approved trading plan over which the officer, director or employee has no discretion or control. In addition, the Insider Trading Policy contains a prohibition against writing or trading in options on our securities or otherwise engaging in derivative or hedging transactions involving our securities. The Insider Trading Policy also restricts the ability of officers or directors, including our named executive officers, from engaging in margin transactions impacting ownership of Company securities or from pledging or otherwise using our securities to collateralize indebtedness, without authorization. Additionally, the Company prohibits executive officers and directors from engaging in hedging transactions using the Company’s securities. While the Company encourages and promotes share ownership by all of its employees, it does not have a written policy concerning share ownership by named executive officers, directors or other employees other than the requirement that all directors own stock of the Company. See the section entitled “Principal Stockholders” below for information regarding share ownership by our executive officers.
Post year-end actions affecting compensation
As discussed above, in February of each year, the compensation committee determines the cash incentive compensation and/or bonuses for the executive officers for services provided during the previous fiscal year. The compensation committee also determines equity incentive compensation awards for the executive officers, taking into account services provided during the previous fiscal year and the intended incentive for long-term employment and performance.
All budgeted annual salaries, equity incentive awards, potential cash incentive awards and performance targets related thereto, applicable to the executive officers are addressed by the Board of Directors in its final approval of the Company’s annual budget.
Results from Say-on-Pay Advisory Vote
At the Company’s 2017 Annual Meeting of stockholders, approximately 71% of the votes cast with regard to Say-on-Pay were cast in favor of approving the compensation of the Company’s named executive officers. The compensation committee and the Board of Directors considers this vote to be indicative of broad stockholder support of the Company’s general compensation philosophies and objectives, which are detailed above. The compensation committee and the Board of Directors considered this support when deciding to maintain these philosophies and objectives for 2019.
The Dodd-Frank Act requires that at least once every six years companies allow stockholders to vote, on an advisory basis, as to the frequency of future Say-on-Pay votes. At the 2017 Annual Meeting, approximately 57% of the votes cast were in favor of Say-on-Pay votes to be conducted every three years. The Committee took stockholders’ feedback into consideration and intends to hold these votes every three years until the next stockholder non-binding advisory vote on the frequency of Say-on-Pay votes.
2018 SUMMARY COMPENSATION TABLE
The table below summarizes the total compensation paid or earned by each of the named executive officers for the three fiscal years ended December 31, 2018. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name and Principal Position | Year | | Salary ($) (1) | | Bonus ($) | | Stock Awards ($) (2) | | Option Awards ($) | | Non-Equity Incentive Plan Compensation ($) (3) | | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | | All Other Compensation ($) (4) | | Total |
| (a) | (b) | | (c) | | (d) | | (e) | | (f) | | (g) | | (h) | | (i) | | (j) |
| Todd M. Hornbeck | 2018 |
| $ | 637,500 |
|
| $ | — |
|
| $ | 3,442,499 |
|
| $ | — |
|
| $ | 478,125 |
|
| $ | — |
|
| $ | 36,326 |
|
| $ | 4,594,450 |
|
| Chairman, President & CEO | 2017 |
| 637,500 |
|
| — |
|
| 3,442,503 |
|
| — |
|
| 478,125 |
|
| — |
|
| 33,835 |
|
| 4,591,963 |
|
| 2016 |
| 637,500 |
|
| — |
|
| 3,442,492 |
|
| — |
|
| 318,750 |
|
| — |
|
| 32,422 |
|
| 4,431,164 |
|
| Carl G. Annessa | 2018 |
| $ | 360,000 |
|
| $ | — |
|
| $ | 1,403,999 |
|
| $ | — |
|
| $ | 270,000 |
|
| $ | — |
|
| $ | 38,404 |
|
| $ | 2,072,403 |
|
| Executive Vice President & COO | 2017 |
| 360,000 |
|
| — |
|
| 1,403,996 |
|
| — |
|
| 270,000 |
|
| — |
|
| 30,592 |
|
| 2,064,588 |
|
| 2016 |
| 360,000 |
|
| — |
|
| 1,404,005 |
|
| — |
|
| 180,000 |
|
| — |
|
| 31,606 |
|
| 1,975,611 |
|
| James O. Harp, Jr. | 2018 |
| $ | 360,000 |
|
| $ | — |
|
| $ | 1,403,999 |
|
| $ | — |
|
| $ | 270,000 |
|
| $ | — |
|
| $ | 40,340 |
|
| $ | 2,074,339 |
|
| Executive Vice President & CFO | 2017 |
| 360,000 |
|
| — |
|
| 1,403,996 |
|
| — |
|
| 270,000 |
|
| — |
|
| 33,113 |
|
| 2,067,109 |
|
| 2016 |
| 360,000 |
|
| — |
|
| 1,404,005 |
|
| — |
|
| 180,000 |
|
| — |
|
| 32,569 |
|
| 1,976,574 |
|
| Samuel A. Giberga | 2018 |
| $ | 292,500 |
|
| $ | — |
|
| $ | 1,140,752 |
|
| $ | — |
|
| $ | 219,375 |
|
| $ | — |
|
| $ | 26,396 |
|
| $ | 1,679,023 |
|
| Executive Vice President, General Counsel & CCO | 2017 |
| 292,500 |
|
| — |
|
| 1,140,751 |
|
| — |
|
| 219,375 |
|
| — |
|
| 22,737 |
|
| 1,675,363 |
|
| 2016 |
| 292,500 |
|
| — |
|
| 1,140,759 |
|
| — |
|
| 146,250 |
|
| — |
|
| 29,848 |
|
| 1,609,357 |
|
| John S. Cook | 2018 |
| $ | 292,500 |
|
| $ | — |
|
| $ | 1,140,752 |
|
| $ | — |
|
| $ | 219,375 |
|
| $ | — |
|
| $ | 31,020 |
|
| $ | 1,683,647 |
|
| Executive Vice President, CCO & CIO | 2017 |
| 292,500 |
|
| — |
|
| 1,140,751 |
|
| — |
|
| 219,375 |
|
| — |
|
| 29,934 |
|
| 1,682,560 |
|
| 2016 |
| 292,500 |
|
| — |
|
| 1,140,759 |
|
| — |
|
| 146,250 |
|
| — |
|
| 28,826 |
|
| 1,608,335 |
|
| |
(1) | As a result of weak market conditions, effective January 1, 2015, the named executive officers voluntarily offered to reduce their base salaries. Such reduction was subsequently ratified by the compensation committee. For the period of the industry downturn, the chief executive officer voluntarily agreed to reduce his base salary by 15%, whereas, each of the other executive officers voluntarily reduced his base salary by 10%. |
| |
(2) | The grant date fair values of these RSU and PSU awards are computed in accordance with FASB ASC Topic 718. The amounts in this column reflect the grant date fair values of RSUs and PSUs granted to the named executive officers during 2016, 2017 and 2018. The grant date fair values for time-based and performance-based awards that do not contain market-based conditions are calculated by multiplying the number of shares granted by the closing stock price on the date of grant. The maximum number of shares that could be earned under the 2016, 2017 and 2018 performance-based grant agreements is equivalent to 150% of the target shares granted, which is reflected in this table. For awards granted in 2016, 2017 and 2018, the target values for our chief executive officer and other named executive officers were reduced by 15% and 10%, respectively, commensurate with their voluntarily reduced base salaries. |
| |
(3) | The amounts in this column reflect the cash incentive payments to the named executive officers under all components of annual cash incentive compensation pursuant to the incentive compensation plan and the employment agreements for Messrs. Todd Hornbeck, Annessa, Harp, Giberga and Cook. Each of the named executive officers received cash incentive compensation according to the interpolated, straight-line-basis formula allowed under the objective components of the program, where applicable, and the compensation committee awarded a discretionary amount under the subjective component. For fiscal 2016, 2017 and 2018, the targeted cash incentive pay, which is a multiple of base salary, was impacted by the voluntary reductions in base salary for each named executive officer. |
| |
(4) | The amounts in this column reflect the following for each named executive officer during 2018: |
| |
▪ | Premiums paid by the Company for term life insurance policies for each named executive officer; |
| |
▪ | Premiums paid under the supplemental health insurance policies for Messrs. Todd Hornbeck, Annessa, Harp, Giberga and Cook. |
| |
▪ | Automobile, fuel and insurance expenses on Company-provided vehicles for Messrs. Todd Hornbeck, Annessa, Harp, Giberga and Cook in the amount of $23,354, $25,144, $27,368, $13,136 and $17,760 respectively. The automobiles of Messrs. Todd Hornbeck, Annessa, Harp, Giberga and Cook are owned by the Company and their respective amount includes the depreciation of the vehicles and their actual fuel and insurance costs. |
Employment Agreements
Todd M. Hornbeck serves as our President and Chief Executive Officer, Carl G. Annessa serves as our Executive Vice President and Chief Operating Officer, James O. Harp, Jr. serves as our Executive Vice President and Chief Financial Officer, Samuel A. Giberga serves as our Executive Vice President, General Counsel and Chief Compliance Officer and John S. Cook serves as our Executive Vice President, Chief Commercial Officer and Chief Information Officer. Each of Messrs. Todd Hornbeck, Annessa, Harp, Giberga and Cook serves under an employment agreement with a current term expiring December 31, 2021. The terms of each of their agreements automatically extend for an additional year every January 1, unless terminated before any such date by the employee or us.
For a detailed description of the determination of the base salary amounts and performance measures, please see the discussion above under the caption “Compensation Discussion and Analysis.”
The employment agreements of Messrs. Todd Hornbeck, Annessa, Harp, Giberga and Cook, in each case, as amended, provided for annual base salaries of $750,000, $400,000, $400,000, $325,000 and $325,000. As a result of weak market conditions, effective January 1, 2015, the named executive officers voluntarily offered to reduce their base salaries. Such reduction was subsequently ratified by the compensation committee. For the period of the industry downturn, the chief executive officer voluntarily agreed to reduce his base salary by 15%, whereas, each of the other executive officers voluntarily reduced his base salary by 10%. The annual base salaries for the fiscal year ended December 31, 2018 of Messrs. Todd Hornbeck, Annessa, Harp, Giberga and Cook continue to be at the reduced levels of $637,500, $360,000, $360,000, $292,500 and $292,500, respectively.
For fiscal 2016, the targeted cash incentive pay and other target awards granted to our chief executive officer and other name executive officers were reduced by 15% and 10%, respectively. These reductions are commensurate with their voluntarily reduced base salaries that were effective from January 1, 2015 and for the duration of the industry downturn.
The voluntary base salary reductions during the period of the industry downturn do not affect the calculation of payments upon termination of employment or a change in control. For fiscal 2017, payments upon termination of employment or a change of control would be calculated using the named executive officers' 2014 base salaries under their employment agreements.
Equity Compensation Plan Information
As discussed in more detail above in Proposal No. 2, our Board of Directors and stockholders previously adopted the Incentive Compensation Plan to make awards with the purpose of strengthening our Company by providing an incentive to our employees, officers, consultants, non-employee directors and advisors to devote their abilities and energies to our success. The Incentive Compensation Plan provides for the granting or awarding of incentive and nonqualified stock options, stock appreciation and dividend equivalent rights, restricted stock awards, RSUs, PSUs, performance-based awards and any other awards.
On May 3, 2005, our Board of Directors and stockholders adopted the ESPP, which is a separate plan from the Company’s incentive compensation plan. Under the ESPP, the Company is authorized to offer to sell at a discount up to 2,200,000 shares of common stock to eligible employees of the Company and its designated subsidiaries. As of December 31, 2018, the Company had available 697,219 shares for future issuance under the ESPP.
The Incentive Compensation Plan is administered by the compensation committee. Subject to the express provisions of the incentive compensation plan and directions from the Board, the compensation committee is authorized, among other things:
to select the persons to whom restricted stock, RSUs, PSUs, stock options and other awards will be granted;
to determine the type, size and terms and conditions of restricted stock, RSUs, PSUs, stock options and other awards;
to establish the terms for treatment of restricted stock, RSUs, PSUs, stock options and other awards upon a termination of employment; and
to delegate to the Chief Executive Officer and to other senior officers of the Company its duties under the incentive compensation plan related to non-executive employee compensation pursuant to conditions or limitations as the compensation committee may establish, subject to certain limitations under the Incentive Compensation Plan.
For a discussion of the potential deductibility of Section 162(m) awards and Section 162(m) performance criteria, see the section titled "Tax and Accounting Treatment Issues" above.
2018 GRANTS OF PLAN-BASED AWARDS
The following table provides information about the equity and non-equity awards we made to our named executive officers under our Incentive Compensation Plan during the year ended December 31, 2018. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1) | | Estimated Future Payouts Under Equity Incentive Plan Awards (2) | | All Other Stock Awards: Number of Shares of Stock or Units | | All Other Option Awards: Number of Securities Underlying Options | | Exercise or Base Price of Option Awards ($/Sh) | | Grant Date Fair Value of Stock and Option Awards ($) (3) |
| Name | | Grant Date | | Threshold ($) | | Target ($) | | Maximum ($) | | Threshold (#) | | Target (#) | | Maximum (#) | |
| (a) | | (b) | | (c) | | (d) | | (e) | | (f) | | (g) | | (h) | | (i) | | (j) | | (k) | | (l) |
| Todd M. Hornbeck | | 2/6/2018 | | $ | 318,750 |
| | $ | 637,500 |
| | $ | 956,250 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | $ | — |
|
| Chairman, President & CEO |
| 2/6/2018 | | — |
| | — |
| | — |
| | — |
| | 510,757 |
| | — |
| | — |
| | — |
| | — |
| | 1,721,251 |
|
| 2/6/2018 | | — |
| | — |
| | — |
| | — |
| | 340,504 |
| | 510,756 |
| | — |
| | — |
| | — |
| | 1,721,248 |
|
| Carl G. Annessa | | 2/6/2018 | | 180,000 |
| | 360,000 |
| | 540,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Executive Vice President & COO |
| 2/6/2018 | | — |
| | — |
| | — |
| | — |
| | 208,309 |
| | — |
| | — |
| | — |
| | — |
| | 702,001 |
|
| 2/6/2018 | | — |
| | — |
| | — |
| | — |
| | 138,872 |
| | 208,308 |
| | — |
| | — |
| | — |
| | 701,998 |
|
| James O. Harp, Jr. | | 2/6/2018 | | 180,000 |
| | 360,000 |
| | 540,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Executive Vice President & CFO |
| 2/6/2018 | | — |
| | — |
| | — |
| | — |
| | 208,309 |
| | — |
| | — |
| | — |
| | — |
| | 702,001 |
|
| 2/6/2018 | | — |
| | — |
| | — |
| | — |
| | 138,872 |
| | 208,308 |
| | — |
| | — |
| | — |
| | 701,998 |
|
| Samuel A. Giberga | | 2/6/2018 | | 146,250 |
| | 292,500 |
| | 438,750 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Executive Vice President, General Counsel & CCO |
| 2/6/2018 | | — |
| | — |
| | — |
| | — |
| | 169,251 |
| | — |
| | — |
| | — |
| | — |
| | 570,376 |
|
| 2/6/2018 | | — |
| | — |
| | — |
| | — |
| | 112,834 |
| | 169,251 |
| | — |
| | — |
| | — |
| | 570,376 |
|
| John S. Cook | | 2/6/2018 | | 146,250 |
| | 292,500 |
| | 438,750 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Executive Vice President, CCO & CIO |
| 2/6/2018 | | — |
| | — |
| | — |
| | — |
| | 169,251 |
| | — |
| | — |
| | — |
| | — |
| | 570,376 |
|
| 2/6/2018 | | — |
| | — |
| | — |
| | — |
| | 112,834 |
| | 169,251 |
| | — |
| | — |
| | — |
| | 570,376 |
|
| |
(1) | Each of our named executive officers was eligible to receive non-equity incentive compensation based on the achievement of performance goals and the discretion of the compensation committee. The amount actually paid to each named executive officer for 2018 pursuant to these criteria is reflected in the “2018 Summary Compensation Table” under the heading “Non-Equity Incentive Plan Compensation." |
| |
(2) | Amounts in these columns represent PSUs granted to our named executive officers during 2018. |
| |
▪ | The first tranche represents the number of PSUs and the related dollar amounts that may be received by the named executive officers under the time-based PSUs included in these columns. These cash-settled phantom stock units each have a value equal to the Company's 10-day trailing average stock price on the vesting date and will be distributed in cash, unless the Company elects in its sole discretion to settle the units in stock, subject to authorized share availability, on the vesting date defined in the respective grant agreements. These PSUs will vest in three equal installments on the first, second and third anniversaries of the Grant Date. |
| |
▪ | The second tranche represents the number of PSUs and the related dollar amounts that may be received by the named executive officers under the performance-based PSUs included in this column. These cash-settled phantom stock units each have a value equal to the Company's 10-day trailing average stock price on the vesting date and will be distributed in cash, unless the Company elects in its sole discretion to settle the units in stock, subject to authorized share availability, on the vesting date defined in the respective grant agreements. These PSUs will vest on the third anniversary of the Grant Date, subject to the achievement of performance criteria defined in the respective grant agreements. This tranche has the opportunity to vest from zero to 150% based on achieving the pre-defined criteria in the grant agreements. |
| |
(3) | The maximum number of shares that could be earned under the performance-based grant agreement is equivalent to 150% of the target shares granted. Amounts listed in this column are calculated by multiplying the maximum number of shares by the closing stock price on the date of grant. |
2018 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
The following table summarizes the equity awards we have made to our named executive officers that are outstanding as of December 31, 2018.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Option Awards |
| Stock Awards |
|
| Number of Securities Underlying Unexercised Options (#) (1) |
| Number of Securities Underlying Unexercised Options (#) |
| Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options |
| Option Exercise Price |
| Option Expiration |
| Number of Shares or Units of Stock That Have Not Vested |
| Market Value of Shares or Units of Stock That Have Not Vested |
| Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested |
| Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested |
| Name |
| Exercisable |
| Unexercisable |
| (#) |
| ($) |
| Date |
| (#) |
| ($) |
| (#) (2) |
| ($) (3) |
| (a) |
| (b) |
| (c) |
| (d) |
| (e) |
| (f) |
| (g) |
| (h) |
| (i) |
| (j) |
| Todd M. Hornbeck |
| 83,266 |
| | — |
| | — |
| | $ | 24.86 |
| | 2/23/2021 |
| | — |
| | — |
| | 340,504 |
| | $ | 490,326 |
|
| Chairman, President & CEO |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 510,757 |
| | 735,490 |
|
|
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 164,871 |
| | 237,414 |
|
|
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 82,436 |
| | 118,708 |
|
|
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 82,436 |
| | 118,708 |
|
|
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 189,356 |
| | 272,673 |
|
|
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 47,339 |
| | 68,168 |
|
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 47,339 |
| | 68,168 |
|
| Carl G. Annessa |
| 36,605 |
| | — |
| | — |
| | $ | 24.86 |
| | 2/23/2021 |
| | — |
| | — |
| | 138,872 |
| | $ | 199,976 |
|
| Executive Vice President |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 208,309 |
| | 299,965 |
|
| & COO |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 67,241 |
| | 96,827 |
|
|
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 33,621 |
| | 48,414 |
|
|
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 33,621 |
| | 48,414 |
|
|
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 77,228 |
| | 111,208 |
|
|
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 19,307 |
| | 27,802 |
|
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 19,307 |
| | 27,802 |
|
| James O. Harp, Jr. |
| 36,605 |
| | — |
| | — |
| | $ | 24.86 |
| | 2/23/2021 |
| | — |
| | — |
| | 138,872 |
| | $ | 199,976 |
|
| Executive Vice President |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 208,309 |
| | 299,965 |
|
| & CFO |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 67,241 |
| | 96,827 |
|
|
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 33,621 |
| | 48,414 |
|
|
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 33,621 |
| | 48,414 |
|
|
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 77,228 |
| | 111,208 |
|
|
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 19,307 |
| | 27,802 |
|
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 19,307 |
| | 27,802 |
|
| Samuel A. Giberga |
| 17,699 |
| | — |
| | — |
| | $ | 24.86 |
| | 2/23/2021 |
| | — |
| | — |
| | 112,834 |
| | $ | 162,481 |
|
| Executive Vice President, |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 169,251 |
| | 243,721 |
|
| General Counsel & CCO |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 54,634 |
| | 78,673 |
|
|
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 27,317 |
| | 39,336 |
|
|
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 27,317 |
| | 39,336 |
|
|
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 62,748 |
| | 90,357 |
|
|
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 15,687 |
| | 22,589 |
|
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 15,687 |
| | 22,589 |
|
| John S. Cook |
| 10,727 |
| | — |
| | — |
| | $ | 24.86 |
| | 2/23/2021 |
| | — |
| | — |
| | 112,834 |
| | $ | 162,481 |
|
| Executive Vice President, |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 169,251 |
| | 243,721 |
|
| CCO & CIO |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 54,634 |
| | 78,673 |
|
|
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 27,317 |
| | 39,336 |
|
|
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 27,317 |
| | 39,336 |
|
|
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 62,748 |
| | 90,357 |
|
|
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 15,687 |
| | 22,589 |
|
| | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 15,687 |
| | 22,589 |
|
| |
(1) | All options listed in this column vested in equal installments over the first three years starting on the first anniversary date of the ten-year option term. |
| |
(2) | The shares/units summarized above and described below are delineated below in numbered tranches based on the order they appear in the table above and include performance-based RSUs, performance-based PSUs, time-based RSUs and time-based PSUs. |
Performance-based: The first tranche for Messrs. Todd Hornbeck, Annessa, Harp, Giberga, and Cook represents performance-based PSUs that vest, depending on the Company’s achievement of performance criteria defined in the agreement for the period starting at the 2018 grant date through
February 6, 2021. Each phantom stock unit has a value equal to the Company's 10-day trailing average stock price and is currently intended to be distributed in cash, unless the Company at its discretion elects to settle the units in stock, subject to authorized share availability. The maximum amount of units that could be earned under the grant agreement is equivalent to 150% of the target units granted, which is not reflected in this table. The table below sets forth the excess of the maximum potential units over the target units for the February 6, 2018 grant date awards.
|
| | | |
| | February 6, 2018 |
• Todd M. Hornbeck | | 170,252 |
|
• Carl G. Annessa | | 69,436 |
|
• James O. Harp, Jr. | | 69,436 |
|
• Samuel A. Giberga | | 56,417 |
|
• John S. Cook | | 56,417 |
|
Performance-based: The third tranche for Messrs. Todd Hornbeck, Annessa, Harp, Giberga, and Cook represents performance-based PSUs that vest, depending on the Company’s achievement of performance criteria defined in the agreement for the period starting at the 2017 grant date through February 14, 2020. Each phantom stock unit has a value equal to the Company's 10-day trailing average stock price and is currently intended to be distributed in cash, unless the Company at its discretion elects to settle the units in stock, subject to authorized share availabilty. The maximum amount of units that could be earned under the grant agreement is equivalent to 150% of the target units granted, which is not reflected in this table. The table below sets forth the excess of the maximum potential units over the target units for the February 14, 2017 grant date awards. |
| | | |
| | February 14, 2017 |
• Todd M. Hornbeck | | 82,436 |
|
• Carl G. Annessa | | 33,621 |
|
• James O. Harp, Jr. | | 33,621 |
|
• Samuel A. Giberga | | 27,317 |
|
• John S. Cook | | 27,317 |
|
The sixth tranche for Messrs. Todd Hornbeck, Annessa, Harp, Giberga, and Cook represents performance-based PSUs that vested, depending on the Company’s achievement of performance criteria defined in the agreement for the period starting at the 2016 grant date through February 16, 2019. Each phantom stock unit had a value equal to the Company's 10-day trailing average stock price and was settled in cash on February 16, 2019. The actual amount of units that were earned under the grant agreement was equivalent to 113% of the target units granted, which is not reflected in this table. The table below sets forth the excess of the actual vested units over the target units for the February 16, 2016 grant date awards.
|
| | | |
| | February 16, 2016 |
• Todd M. Hornbeck | | 24,616 |
|
• Carl G. Annessa | | 10,040 |
|
• James O. Harp, Jr. | | 10,040 |
|
• Samuel A. Giberga | | 8,157 |
|
• John S. Cook | | 8,157 |
|
Time-based: The second tranche for Messrs. Todd Hornbeck, Annessa, Harp, Giberga, and Cook represents time-based PSUs that were granted on February 6, 2018 and will vest one-third each on February 6, 2019, February 6, 2020 and February 6, 2021.
The fourth tranche for Messrs. Todd Hornbeck, Annessa, Harp, Giberga, and Cook represents time-based PSUs that vested one-third each on February 14, 2018 and February 14, 2019, and the final one-third will vest on February 14, 2020.
The fifth tranche for Messrs. Todd Hornbeck, Annessa, Harp, Giberga, and Cook represents time-based RSUs that vested one-third each on February 14, 2018 and February 14, 2019, and the final one-third will vest on February 14, 2020.
The seventh tranche for Messrs. Todd Hornbeck, Annessa, Harp, Giberga, and Cook represents time-based RSUs that vested one-third each on February 16, 2017, February 16, 2018 and February 16, 2019.
The eighth tranche for Messrs. Todd Hornbeck, Annessa, Harp, Giberga, and Cook represents time-based PSUs that vested one-third each on February 16, 2017, February 16, 2018 and February 16, 2019.
| |
(3) | The amounts in this column equal the number of RSUs and PSUs indicated in column (i) multiplied by the closing price of our common stock on December 31, 2018 of $1.44. |
2018 OPTION EXERCISES AND STOCK VESTED TABLE
The following table provides information about the number of shares acquired and the value received upon the exercise of outstanding stock options and the vesting of restricted stock awards by our named executive officers during the year ended December 31, 2018.
|
| | | | | | | | | | | | | | |
| |
| Option Awards |
| Stock Awards |
| Name |
| Number
of
Shares
Acquired
Upon
Exercise (#) |
| Value
Realized
Upon
Exercise
($) |
| Number
of
Shares
Vested (#) |
| Value
Realized
Upon
Vesting
($) (1) |
| (a) |
| (b) |
| (c) |
| (d) |
| (e) |
| Todd M. Hornbeck | | — |
| | $ | — |
| | 172,622 |
| | $ | 630,283 |
|
| Carl G. Annessa | | — |
| | — |
| | 70,404 |
| | 257,061 |
|
| James O. Harp, Jr. | | — |
| | — |
| | 70,404 |
| | 257,061 |
|
| Samuel A. Giberga | | — |
| | — |
| | 57,203 |
| | 208,861 |
|
| John S. Cook | | — |
| | — |
| | 57,203 |
| | 208,861 |
|
| |
(1) | The value realized upon vesting of stock awards is determined by multiplying the number of shares vested by the closing market price of our common stock on the date of vesting. |
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
Potential payments upon termination, including after change in control, as of December 31, 2018, to Messrs. Todd Hornbeck, Annessa and Harp are governed by the terms of their respective employment agreements. Potential payments upon termination, including after a change in control, to Messrs. Giberga and Cook are governed by the terms of their respective employment agreements and their respective change in control agreements. Potential payments upon change in control before termination to the named executive officers are governed by the terms of the respective award agreements.
Payments Made Upon Termination Without Good Cause
Under the employment agreements, in the event any of Messrs. Todd Hornbeck, Annessa, Harp, Giberga or Cook is terminated without “good cause” as defined in the employment agreements: (i) his unvested stock options, time-based RSUs and time-based PSUs would vest upon the termination event, (ii) his unvested performance-based RSUs and performance-based PSUs would vest at the end of the measurement period at the number of shares that would have vested had he been employed with the Company through the end of each measurement period (depending on satisfaction of the performance criteria); and (iii) he would be entitled to his base salary, cash incentive compensation, automobile, and medical and other benefits through the actual expiration date of his agreement provided that bonuses for each calendar year through the termination date that are (a) discretionary in nature, shall be paid based on the greater of (x) the amount equal to the total bonus paid for the last completed year for which bonuses have been paid or (y) the amount equal to the bonuses that would have been payable for the then current year, and bonuses that are (b) performance based, shall be based on the amount equal to the bonuses, which includes cash incentive compensation and discretionary bonuses, that would have been payable for the applicable year, had he been employed with the Company at the end of each such year and paid at the time bonuses for each such year are paid to those executives still employed by the Company, determined on a basis consistent with the last completed year for which bonuses have been paid but using the bonus amounts for the then current year.
Payments Made Upon a Change in Control
For purposes of the employment agreements of Messrs. Todd Hornbeck, Annessa, Harp, Giberga and Cook, the change in control agreements for Messrs. Giberga and Cook, and the Incentive Compensation Plan, a “change in control” means:
| |
(1) | the obtaining by any person or persons acting as a group of fifty percent (50%) or more of the voting shares of Parent pursuant to a “tender offer” for such shares as provided under Rule 14d-2 promulgated under the Securities Exchange Act of 1934, as amended, or any subsequent comparable federal rule or regulation governing tender offers; or |
| |
(2) | a majority of the members of the Parent’s board of directors is replaced during any twelve (12) month period by new directors whose appointment or election is not endorsed by a majority of the members of the Parent’s board of directors before the date of such new directors’ appointment or election; or |
| |
(3) | any person, or persons acting as a group, acquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition by such person or persons) assets from the Parent that have a total gross fair market value equal to or more than seventy-five percent (75%) of the total gross fair market value of all of the assets of the Parent immediately before such acquisition or acquisitions (other than transfers to related persons as defined in Section 1.409A-3(i)(5)(vii)(B) of the Treasury Regulations). |
Under the respective equity award agreements for the executive officers, upon a change in control (i) his unvested stock options, time-based RSUs and time-based PSUs would vest (or be payable in cash) upon the change in control event and (ii) his unvested performance-based RSUs and performance-based PSUs would vest at the higher of the number of shares that would have been earned if the performance criteria were applied on the date of the change in control or the target share amount.
If we should undergo a change in control while the employment agreements are in effect and any of Messrs. Todd Hornbeck, Annessa, Harp, Giberga or Cook is either constructively or actually terminated under the conditions set forth in his agreement, then he will be entitled to receive three times his salary under his employment agreement for the year in which the termination occurs (one and one-half times for Messrs. Giberga and Cook), three years of medical and other insurance benefits from the date of termination (18 months for Messrs. Giberga and Cook) and, in general, three times (one and one-half times for Messrs. Giberga and Cook) the greater of (x) the amount equal to the total cash incentive compensation and bonus, if applicable, paid for the last completed year for which cash incentive compensation and/or bonuses have been paid or (y) the amount equal to the cash incentive compensation and/or bonuses that would have been payable for the then current year. Messrs. Giberga and Cook’s rights with regard to a change in control under each's respective employment agreement and under each's respective change in control agreement are cumulative. If we should undergo a change in control while the change in control agreements are in effect and either of Messrs. Giberga or Cook is constructively or actually terminated under the conditions set forth in his change in control agreement, then he will be entitled to receive under such agreement one and one-half times his salary for the year in which the termination occurs, 18 months of medical and other insurance benefits from the date of termination and, in general, one and one-half times the greater of (x) the amount equal to the total cash incentive compensation and/or bonus paid for the last completed year for which cash incentive compensation and/or bonuses have been paid or (y) the amount equal to the cash incentive compensation and/or bonuses that would have been payable for the then current year. To the extent that such medical benefits may be taxable to the employee or his dependents, the Company would gross up the employee for such taxes based on the employee’s actual tax rate, up to 35% (without a gross up on the initial gross up). In addition, under the employment agreements of Messrs. Todd Hornbeck, Annessa and Harp and the change in control agreements of Messrs. Giberga and Cook, upon an actual or constructive termination following a change in control (i) his unvested stock options, time-based RSUs and time-based PSUs would vest (or be payable in cash) upon the termination event and (ii) his unvested performance-based RSUs would vest at the higher of the number of shares that would have otherwise been earned if the performance criteria were applied on the date of the change in control or the target share amount.
In the event that it shall be determined that any payment by the Company to or for the benefit of the named executive officers would be subject to the excise tax imposed by Section 4999 of the Code, or any successor provision thereto, by reason of being considered “contingent on a change in ownership or control” of the Company, within the meaning of Section 280G of the Code, or any successor provision thereto, or to any similar tax imposed by state or local law, or any interest or penalties with respect to such tax (such tax or taxes, together with any such interest and penalties, being hereafter collectively referred to as the “Excise Tax”), then the named executive officer shall be entitled to receive an additional payment or payments, or gross-up payment, under his employment agreement or,by virtue of the receipt in the caseTransaction of Messrs. Giberga and Cook, under his changesuch capital stock, (ii) such additional voting rights as equal the Vote Multiple in control agreement. The gross-up paymenteffect immediately before such Transaction multiplied by the additional voting rights which the holder of a share of Common Stock shall be entitled to receive by virtue of the receipt in an amount such that after payment by such named executive officer of all taxes including any Excise Tax (and including any interest or penalties imposed with respect to such taxes and the Excise Tax, other than interest and penalties imposed by reasonTransaction of such named executive officer’s failure to timely file a tax returncapital stock and (iii) such additional distributions upon liquidation, dissolution or pay taxes shown due on such executive officer’s return) imposed upon the gross-up payment, the amountwinding up of the gross-up payment retainedCompany as equal the Liquidation Multiple in effect immediately before such Transaction multiplied by such named executive officer is equalthe additional amount which the holder of a share of Common Stock shall be entitled to the Excise Tax imposedreceive upon the payment.
Payments Made Upon Voluntary Terminationliquidation, dissolution or Termination with Cause
If the employmentwinding up of
any of Messrs. Todd Hornbeck, Annessa, Harp, Giberga or Cook, is terminated for good cause or if any of Messrs. Todd Hornbeck, Annessa, Harp, Giberga or Cook, voluntarily terminates his employment with the Company
by virtue of the receipt in the Transaction of suchcapital stock, as the case may be, all as provided by the terms of such capital stock.(B) If holders of shares of Common Stock of the Company will payreceive after July 15, 2013 in respect of their shares of Common Stock any compensation earned but not paidright or warrant to him prior topurchase Common Stock (including as such a right, for all purposes of this paragraph, any security convertible into or exchangeable for Common Stock) at a purchase price per share less than the effective dateFair Market Value (as hereinafter defined) of termination.
Mr. Todd Hornbeck may voluntarily terminate his employment by giving at least ninety days notice. Messrs. Annessa, Harp, Giberga and Cook, may voluntarily terminate their employment by giving at least thirty days notice. At any time after such notice, the Company would have the right to relieve the employeea share of his duties; however salary would continue during the notice period.
Payments Made Upon Death
Under the employment agreements, if Messrs. Todd Hornbeck, Annessa, Harp, Giberga or Cook, dies during the term of his employment: (i) his unvested stock options, time-based RSUs and time-based PSUs would vest upon the date of death, (ii) his performance-based RSUs and performance-based PSUs would vest at the higher of the number of shares that would otherwise be earned if the performance criteria were appliedCommon Stock on the date of deathissuance of such right or warrant, then and in each such event the target share amount;dividend rights, voting rights and (iii)rights upon the Company shall pay to his estate the compensation that such executive would have earned through the date of death, including any prior year bonusliquidation, dissolution or cash incentive compensation earned but not yet paid and the pro-rated portion of any current year bonuses as and when determined in the ordinary course of the calculation of current year bonuses due to other executive officerswinding up of the Company of the shares of Series A PreferredStock shall each be adjusted so that after such event the Dividend Multiple, the Vote Multiple and his dependents wouldthe Liquidation Multiple shall each be entitled to benefits, including medical,the product of the Dividend Multiple, the Vote Multiple and other benefits and use of a Company automobile for a period of one year following the date of death. Also,Liquidation Multiple, as the estate of Messrs. Todd Hornbeck, Annessa, Harp, Giberga and Cook, respectively, would receive life insurance proceeds from the Company-paid term life insurance policies that werecase may be, in effect onimmediately before such event multiplied by a fraction the datenumerator of his death.
Payments Made Upon Permanent Disability
Under the employment agreements, if Messrs. Todd Hornbeck, Annessa, Harp, Giberga or Cook becomes permanently disabled, as defined in the employment agreements, during the term of his employment: (i) his unvested stock options, time-based RSUs and time-based PSUs would vest upon the termination event, (ii) his performance-based RSUs and performance-based PSUs would vest at the higher of the number of shares that would otherwisewhich shall be earned if the performance criteria were applied on the date of termination or the target share amount; and (iii) he would be entitled to (x) salary continuation benefits under the Company’s disability plan, which allows disability payments for as long as the plan participant is disabled from performing the material duties of his own occupation (y) the compensation that such executive would have earned through the date of determination of permanent disability, including any prior year bonus or cash incentive compensation earned but not yet paid and the pro-rated portion of any current year bonus as and when determined in the ordinary course of the calculation of current year bonuses due to other executive officers of the Company, and (z) other benefits, including medical and use of a Company automobile for a period of one year following the date of determination of permanent disability.
Payments Made Upon Non-Renewal of an Employment Agreement
If an employment agreement is not renewed, Messrs. Todd Hornbeck, Annessa, Harp, Giberga or Cook as applicable, would be entitled to receive an amount equal to one-half of his basic annualized salary for the year preceding such non-renewal.
Material Conditions and Obligations Under the Employment Agreements
Messrs. Todd Hornbeck, Annessa, Harp, Giberga and Cook have each agreed that during the term of their respective agreements and for a period of two years after termination, they will not (1) be employed by or associated with or own more than 5% of the outstanding securities of any entity that competes with us in the locations in which we operate, (2) solicit any of our employees to terminate their employment or (3) accept employment with or payments from any of our clients or customers who did business with us while employed by us. We may elect to extend any of Messrs. Todd Hornbeck’s, Annessa’s, Harp’s, Giberga’s or Cook’s, as applicable, noncompetition period for an additional year by paying his compensation and other benefits for an additional year.
The following table shows the amount of compensation payable to each of our named executive officers under existing contracts, agreements, plans or arrangements, whether written or unwritten, for various scenarios involving termination of employment or a change in control event. The amounts shown assume that such termination was effective as of December 31, 2018, and thus include amounts earned through such time and are estimates of the amounts which would be paid out to such named executive officers upon their termination. The equity value calculations use the closing price of our common stock as of December 31, 2018, which was $1.44. The actual amounts to be paid out can only be determined at the time of such executive’s separation from the Company.
2018 POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name |
| Benefit |
| Termination
w/o Cause
Before
Change in
Control | | Change
in
Control | | Termination
After
Change in
Control (1) | | Voluntary
Termination |
| Death | | Permanent
Disability (2) |
| Non-Renewal
of
Employment
Contract |
| Todd M. Hornbeck | | Salary | | $ | 1,500,000 |
| | $ | — |
| | $ | 2,250,000 |
| (4) | $ | — |
| | $ | — |
| | $ | — |
| | $ | 375,000 |
|
| Chairman, President & CEO | | Cash Incentive Compensation and Bonuses | | 1,434,375 |
| (3) | — |
| | 1,434,375 |
| (4) | — |
| | 478,125 |
| | 478,125 |
| | — |
|
| | Medical, Dental and Life Insurance and Other (5) | | 119,078 |
| | — |
| | 178,617 |
| | — |
| | 339,913 |
| (6) | 59,539 |
| | — |
|
| | Automobile | | 46,708 |
| | — |
| | — |
| | — |
| | 23,354 |
| | 23,354 |
| | — |
|
| | Stock Award Vesting Acceleration | | 2,239,708 |
| (9) | 2,239,708 |
| (7)(8) | 2,239,708 |
| (7)(8) | — |
| | 2,239,708 |
| | 2,239,708 |
| | — |
|
| | Total | | $ | 5,339,869 |
| | $ | 2,239,708 |
| | $ | 6,102,700 |
| | $ | — |
| | $ | 3,081,100 |
| | $ | 2,800,726 |
| | $ | 375,000 |
|
| | | | | | | | | | | | | | | | | |
| Carl G. Annessa | | Salary | | $ | 800,000 |
| | $ | — |
| | $ | 1,200,000 |
| (4) | $ | — |
| | $ | — |
| | $ | — |
| | $ | 200,000 |
|
| Executive Vice President & COO | | Cash Incentive Compensation and Bonuses | | 810,000 |
| (3) | — |
| | 810,000 |
| (4) | — |
| | 270,000 |
| | 270,000 |
| | — |
|
| | Medical, Dental and Life Insurance and Other (5) | | 128,304 |
| | — |
| | 175,176 |
| | — |
| | 329,372 |
| (6) | 64,152 |
| | — |
|
| | Automobile | | 54,736 |
| | — |
| | — |
| | — |
| | 25,144 |
| | 27,368 |
| | — |
|
| | Stock Award Vesting Acceleration | | 913,450 |
| (9) | 913,450 |
| (7)(8) | 913,450 |
| (7)(8) | — |
| | 913,450 |
| | 913,450 |
| | — |
|
| | Total | | $ | 2,706,490 |
| | $913,450 | | $ | 3,098,626 |
| | $ | — |
| | $ | 1,537,966 |
| | $ | 1,274,970 |
| | $ | 200,000 |
|
| | | | | | | | | | | | | | | | | |
| James O. Harp, Jr. | | Salary | | $ | 800,000 |
| | $ | — |
| | $ | 1,200,000 |
| (4) | $ | — |
| | $ | — |
| | $ | — |
| | $ | 200,000 |
|
| Executive Vice President & CFO | | Cash Incentive Compensation and Bonuses | | 810,000 |
| (3) | — |
| | 810,000 |
| (4) | — |
| | 270,000 |
| | 270,000 |
| | — |
|
| | Medical, Dental and Life Insurance and Other (5) | | 128,304 |
| | — |
| | 192,456 |
| | — |
| | 338,730 |
| (6) | 64,152 |
| | — |
|
| | Automobile | | 54,736 |
| | — |
| | — |
| | — |
| | 27,368 |
| | 27,368 |
| | — |
|
| | Stock Award Vesting Acceleration | | 913,450 |
| (9) | 913,450 |
| (7)(8) | 913,450 |
| (7)(8) | — |
| | 913,450 |
| | 913,450 |
| | — |
|
| | Total | | $ | 2,706,490 |
| | $ | 913,450 |
| | $ | 3,115,906 |
| | $ | — |
| | $ | 1,549,548 |
| | $ | 1,274,970 |
| | $ | 200,000 |
|
| | | | | | | | | | | | | | | | | |
| Samuel A. Giberga | | Salary | | $ | 650,000 |
| | $ | — |
| | $ | 975,000 |
| (4)(10) | $ | — |
| | $ | — |
| | $ | — |
| | $ | 162,500 |
|
| Executive Vice President, General Counsel & CCO | | Cash Incentive Compensation and Bonuses | | 658,125 |
| (3) | — |
| | 658,125 |
| (4)(10) | — |
| | 219,375 |
| | 219,375 |
| | — |
|
| | Medical, Dental and Life Insurance and Other (5) | | 125,652 |
| | — |
| | 188,478 |
| | — |
| | 338,887 |
| (6) | 62,826 |
| | — |
|
| | Automobile | | 26,272 |
| | — |
| | — |
| | — |
| | 13,136 |
| | 13,136 |
| | — |
|
| | Stock Award Vesting Acceleration | | 742,180 |
| (9) | 742,180 |
| (7)(8) | 742,180 |
| (7)(8) | — |
| | 742,180 |
| | 742,180 |
| | — |
|
| | Total | | $ | 2,202,229 |
| | $ | 742,180 |
| | $ | 2,563,783 |
| | $ | — |
| | $ | 1,313,578 |
| | $ | 1,037,517 |
| | $ | 162,500 |
|
| | | | | | | | | | | | | | | | | |
| John S. Cook | | Salary | | $ | 650,000 |
| | $ | — |
| | $ | 975,000 |
| (4)(10) | $ | — |
| | $ | — |
| | $ | — |
| | $ | 162,500 |
|
| Executive Vice President, CCO & CIO | | Cash Incentive Compensation and Bonuses | | 658,125 |
| (3) | — |
| | 658,125 |
| (4)(10) | — |
| | 219,375 |
| | 219,375 |
| | — |
|
| | Medical, Dental and Life Insurance and Other (5) | | 118,170 |
| | — |
| | 177,255 |
| | — |
| | 338,782 |
| (6) | 59,085 |
| | — |
|
| | Automobile | | 35,028 |
| | — |
| | — |
| | — |
| | 17,760 |
| | 17,760 |
| | — |
|
| | Stock Award Vesting Acceleration | | 742,180 |
| (9) | 742,180 |
| (7)(8) | 742,180 |
| (7)(8) | — |
| | 742,180 |
| | 742,180 |
| | — |
|
| | Total | | $ | 2,203,503 |
| | $ | 742,180 |
| | $ | 2,552,560 |
| | $ | — |
| | $ | 1,318,097 |
| | $ | 1,038,400 |
| | $ | 162,500 |
|
| |
(1) | Pursuant to the Company’s employment agreements with Messrs. Todd Hornbeck, Annessa, Harp, Giberga and Cook and the Company’s change in control agreements with Messrs. Giberga and Cook, certain tax protection is provided in the form of a gross-up payment to reimburse the executive for any excise tax under Section 4999 of the Code as well as any additional income taxes resulting from such reimbursement. Section 4999 of the Code imposes a 20% non-deductible excise tax on the recipient of an “excess parachute payment” and Code Section 280G disallows the tax deduction to the payor of any amount of an excess parachute payment that is contingent on a change of control. If such additional excise tax is due, the Company has agreed to pay such tax on a “grossed-up” basis for those executives. These amounts are not included in the table above. Assuming termination in connection with a change of control on December 31, 2018, the Company currently estimates that there will not be any payments of excise and related taxes paid on behalf of the executive officers. |
| |
(2) | The named executive officers would also be eligible to receive salary continuation benefits under the Company’s disability plan, which is the same plan that all employees participate in after one year of service. |
| |
(3) | These amounts include cash incentive payments and bonuses that the named executive officers would be entitled to receive for 2018, 2019 and 2020. |
| |
(4) | Pursuant to the Company’s employment agreements with Messrs. Todd Hornbeck, Annessa and Harp, upon termination after change in control, the Company will pay these executive officers a lump sum cash payment equal to three times the amount of employee's base salary with respect to the year in which such termination occurred plus three times the greater of (x) the amount equal to the total bonus paid for the last completed year for which bonuses have been paid or (y) the amount equal to the bonuses that would have been payable for the then current year. Pursuant to the Company’s employment agreements with Messrs. Giberga and Cook, upon termination after change in control, the Company will pay Messrs. Giberga and Cook a lump sum cash payment equal to one and one-half times the amount of the employee's base salary with respect to the year in which such termination occurred plus one and one-half times the greater of (x) the amount equal to the total bonus paid for the last completed year for which bonuses have been paid or (y) the amount equal to the bonuses that would have been payable for the then current year. Messrs. Giberga and Cook’s rights with regard to a change in control under the employment agreement are cumulative with those rights under his change in control agreement discussed in footnote 10 below. |
| |
(5) | These amounts include estimated “gross up” payments on medical benefits, assuming such medical benefits are taxable to the executive officer at a tax rate of 35%. Pursuant to the Company’s employment agreements with Messrs. Todd Hornbeck, Annessa and Harp, upon termination after change in control, these executive officers shall receive medical plan coverage and other insurance benefits for a period of three years. Pursuant to the Company’s employment agreements with Messrs. Giberga and Cook, upon termination after change in control, these executive officers shall receive medical plan coverage and other insurance benefits for a period of eighteen months. Each of Messrs. Giberga and Cook’s rights with regard to a change in control under his employment agreement are cumulative with those rights under his change in control agreement discussed in footnote 10 below. |
| |
(6) | This amount includes $300,000 from life insurance proceeds payable to the named executive officer’s beneficiaries upon death. |
| |
(7) | Pursuant to the Company's respective equity award agreements, the acceleration of the vesting of equity plan awards happens upon the occurrence of a change in control and prior to an actual or constructive termination, provided that, with respect to RSUs or PSUs that contain performance criteria, the target share amount shall vest. The amounts that would be payable to the named executive officers due to vesting acceleration are reflected in the column entitled “Change in Control” and are also reflected in the column entitled “Termination after Change in Control” in order to show the combined effect of a change in control and subsequent termination. |
| |
(8) | Pursuant to the employment agreements of Messrs. Todd Hornbeck, Annessa and Harp and the change in control agreements of Messrs. Giberga and Cook, upon an actual or constructive termination following a change in control, any and all rights, options and awards outstanding will immediately vest, provided that, with respect to RSUs or PSUs that contain performance criteria for vesting, the higher of the number of shares that would otherwise be earned if the performance criteria were applied on the date of change in control or the target share amount shall vest. If the payout of the RSUs or PSUs had occurred on December 31, 2018, based on the performance requirements defined in the award agreements, the named executive officers would have earned 113%, 113% and 113% of the target units granted on February 16, 2016, February 14, 2017 and February 6, 2018, respectively. |
| |
(9) | Under the employment agreements, in the event any of Messrs. Todd Hornbeck, Annessa, Harp, Giberga or Cook is terminated without good cause: (i) his unvested stock options, time-based RSUs and time-based PSUs would vest upon the termination event, (ii) his unvested performance-based RSUs and performance-based PSUs would vest at the end of the measurement period at the number of units that would have vested had he been employed with the Company through the end of each measurement period (depending on satisfaction of the performance criteria). The RSUs and PSUs were valued as of December 31, 2018 as if it were the end of the measurement period and the payout of the RSUs or PSUs had occurred on that date. The named executive officers would have earned 113%, 113% and 113% of the target shares granted on February 16, 2016, February 14, 2017 and February 6, 2018, respectively. |
| |
(10) | Pursuant to the Company’s change in control agreements with Messrs. Giberga and Cook, upon termination after change in control, the Company will pay these executive officers a lump sum cash payment equal to one and one-half times the greater of (i) the amount of employee's then-current annual base salary or (ii) the amount of employee's annual base salary in effect immediately preceding the Change in Control plus one and one-half times the greater of (x) the amount equal to the total bonus paid for the last completed year for which bonuses have been paid or (y) the amount equal to the bonuses that would have been payable for the then current year and medical pan coverage and other insurance benefits for a period of eighteen months. |
Compensation of Directors
The table below summarizes the compensation paid by the Company to the non-employee directors who served during the fiscal year ended December 31, 2018 for such period.
2018 Director Compensation |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name | | Fees Earned or Paid in Cash ($) | | Stock Awards ($) (2) | | Option Awards ($) (3) | | Non-Equity Incentive Plan Compensation ($) | | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | | All Other Compensation ($) | | Total ($) |
| (a) | | (b) | | (c) | | (d) | | (e) | | (f) | | (g) | | (h) |
| Larry D. Hornbeck | | $ | 142,200 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 142,200 |
|
| Bruce W. Hunt | | 135,450 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 135,450 |
|
| Steven W. Krablin | | 135,450 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 135,450 |
|
| Patricia B. Melcher | | 139,950 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 139,950 |
|
| Kevin O. Meyers | | 132,750 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 132,750 |
|
John T. Rynd (1) | | 25,136 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 25,136 |
|
| Bernie W. Stewart | | 149,400 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 149,400 |
|
| Nicholas L. Swyka, Jr. | | 139,500 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 139,500 |
|
| |
(1) | John T. Rynd resigned from our board of directors effective February 4, 2018. |
| |
(2) | The Directors were not issued any Stock Awards in 2018. |
| |
(3) | At December 31, 2018, the Company’s non-employee directors had no options outstanding. |
The Company has historically used a combination of cash and stock-based incentive compensation to attract and retain qualified candidates to serve on the Board. In setting director compensation, the Company considers the significant amount of time that directors expend in fulfilling their duties to the Company as well as the skill-level required by the Company of members of its Board. Our Chairman, who is also our employee, receives no additional compensation for serving as a director.
Under the non-employee director compensation policy adopted in 2012, non-employee directors were entitled to receive quarterly grants of that number of shares of common stock equal for each quarter to $25,000 divided by the closing stock price on the applicable grant date. On February 10, 2015, in response to weak market conditions, the Board elected to reduce the amounts of their director retainer and meeting fees and their quarterly stock grants by 10% for the period of the industry downturn. On September 1, 2017, given the significant decline in the market price of the Company's common stock and the Company's reduced level of shares available to be granted, the compensation committee deemed it in the best interest of the Company to settle all director awards in cash for at least the following four fiscal quarters. On October 29, 2018, the Board formally amended the Director & Advisory Director Compensation Policy to allow for all future awards to be settled in cash or stock at the discretion of the compensation committee.
For the year ending December 31, 2018, the compensation committee settled all quarterly awards in cash and did not grant any stock awards. Historically, when stock awards were granted, the compensation committee granted fully vested stock awards. Should, in the future, the compensation committee determine to apply a vesting period to shares awarded under this policy; such grants may be made of RSUs. Any equity awards made under this policy are granted under the Incentive Compensation Plan. The awards are subject to annual review and may be adjusted at the discretion of the compensation committee.
As the Company feels that the long-term continuity of service on the Board is valuable to the Company, the non-employee director compensation policy also provides for longevity service awards to non-employee directors. Upon completion of three years of service as a Non-employee Director, the Non-employee Director will be granted (the "Three-Year Grant") (i) an option to purchase the number of shares of common stock equaling 25%Common Stock outstanding immediately before such issuance of the shares covered by options granted to such Director over the previous three years, (ii) shares of common stockrights or restricted stock units equal to 25% ofwarrants plus the shares of common stock and restricted stock units granted to such Director over the previous three years and (iii) cash equal to 25% of the cash paid in lieu of the equity component to such Non-employee Director over the
previous three years. Upon completion of five years of service as a Non-employee Director, the Non-employee Director will be granted (the "Five-Year Grant") (i) an option to purchase the number of shares of common stock equaling 50% of the shares covered by options granted to such Director over the previous five years less the number of shares covered by options awarded in the Three-Year Grant, if any, (ii) shares of common stock or restricted stock units equal to 50% of the shares of common stock and restricted stock units granted to such Director over the previous five years less the number of shares of common stock and restricted stock units awarded in the Three-Year Grant, if any, and (iii) cash equal to 50% of the cash paid in lieu of the equity component to such Non-employee Director over the previous five years under the Equity Compensation Program detailed above, less the amount of cash paid in lieu of the equity component to such Director in the Three-Year Grant, if any. Thereafter, upon completion of each successive period of five years of service, a Non-employee Director will be granted (a “Successive Longevity Grant”) (i) an option to purchase the number of shares of common stock equaling 50% of the shares covered by options granted to such Director over the previous five years (exclusive of any prior Longevity Grants of options during such five years), (ii) shares of common stock or restricted stock units equal to 50% of the shares of common stock and restricted stock units granted to such Director over the previous five years (exclusive of any prior Longevity Grants of shares of common stock or restricted stock units during such five years) and (iii) cash equal to 50% of the cash paid in lieu of the equity component to such Non-employee Director over the previous five years under the Equity Compensation Program detailed above (exclusive of any prior Longevity Awards of cash paid in lieu of the equity component during such five years). The exercise price of any options granted under the Longevity Plan will be the fair market value per share of the common stock on the date of grant.
After three years of service as a non-employee director, a non-employee director and his immediate family can elect to participate in the same insurance benefit programs sponsored by the Company on the same monetary terms as our employees. All directors are entitled to be reimbursed for their out-of-pocket expenses incurred in connection with serving on our Board.
Effective as of October 30, 2007, the independent members of the Board of Directors approved a letter agreement between the Company and Mr. Larry Hornbeck. Under the terms of such agreement, Mr. Larry Hornbeck agreed, among other things, to make himself available to the Company, the Board of Directors or any committee of the Board of Directors or the Chief Executive Officer of the Company, as an extension of his duties as a director in exchange for consideration of $1,500 per month as additional board fees. Effective February 10, 2015, in response to weak market conditions, such additional board fees were reduced by 10% to $1,350 per month.
Compensation Committee Report
The compensation committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on the review and discussions referenced above, the compensation committee recommended to the Board of Directors that the Compensation Discussion and Analysis referred to above be included in this Proxy Statement.
|
| |
| COMPENSATION COMMITTEE OF THE |
| BOARD OF DIRECTORS |
| |
| Bernie W. Stewart (Chair) |
| Kevin O. Meyers |
| Nicholas L. Swyka, Jr. |
Compensation Committee Interlocks and Insider Participation
The members of our compensation committee who served in 2018 were Messrs. Meyers, Stewart and Swyka. None of our executive officers, employees or former executive officers serves on the compensation committee. None of our executive officers serves as a member of a compensation committee or Board of Directors of any other entity, which has an executive officer serving as a member of our Board of Directors.
CEO Pay Ratio
In accordance with Item 401(u) of Regulation S-K, promulgated by the Dodd-Frank Wall Street Reform Act and the Consumer Protection Act of 2010, we are required to disclose the ratio of annual total compensation throughout 2018 of Mr. Todd Hornbeck, our Chief Executive Officer, relative to the annual total compensation of our median employee.
We last identified the median employee in 2017. In 2018, due to increased operations in Mexico, we nearly tripled our foreign workforce from 64 employees located outside of the United States as of December 31, 2017 to 173 employees located outside of the United States as of December 31, 2018. In addition, the median employee identified in 2017 received a promotion and substantial pay adjustment. Because of the material change to our workforce and the material change in the 2017 median employee's circumstances, we have deemed it necessary to re-identify the median employee for 2018.
To identify the median employee, we included all active employees excluding our Chief Executive Officer who were employed by us as of December 31, 2018 whether employed on a full time, part time or seasonal basis. As of December 31, 2018, we and our consolidated subsidiaries had 867 employees in the United States and 173 employees located in Mexico and Brazil.
The compensation measure used to identify the median employee was gross compensation paid to employees from January 1, 2018 to December 31, 2018. Gross compensation varies by country, but generally includes base salary, overtime earnings, incentive pay (including cash bonuses, equity-based cash awards and long-term cash incentive compensation), car allowances where applicable, short and long term disability earnings, foreign wages, taxable mileage and maintenance and cure. Mariners in our industry are paid a day rate and work rotations which may or may not be even. Their day rate is based on position, experience and licenses. For mariners hired during the year and for those on a leave of absence, we annualized their total compensation based on their day rate and the number of scheduled work days in a year. Shoreside employees are typically paid an annual salary based on a 40 hour work week. For shoreside employees hired in 2018 and for those on a leave of absence, we annualized their income based on their annual salary.
Our median employee was identified as a Fleet employee who was employed by the Company in a full-time capacity for the entire year We calculated annual total compensation for the employee using the same methodology we use for our named executive officers as set forth in the Summary Compensation Table. Our median employee's compensation using the Summary Compensation Table requirements was $78,566. Our CEO’s compensation in the Summary Compensation Table was $4,594,450. Therefore, our CEO to median employee pay ratio is 58 to 1 for the year ended December 31, 2018.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial ownership of our voting securities as of April 22, 2019:
each person who is known to us to be the beneficial owner of more than 5% of our voting securities;
each of our directors; and
each of our named executive officers and all of our executive officers and directors as a group.
Unless otherwise indicated, each person named below has an address in care of our principal executive offices and has sole power to vote and dispose of the shares of voting securities beneficially owned by them, subject to community property laws where applicable. |
| | | | | |
| | Shares of Common Stock Beneficially Owned (†) | | Percentage of Common Stock Beneficially Owned (%) |
| Named Executive Officers and Directors: | | | |
| Todd M. Hornbeck | 1,021,445 |
| (1) | 2.7 | % |
| James O. Harp, Jr. | 361,516 |
| (2) | * |
|
| Carl G. Annessa | 313,896 |
| (3) | * |
|
| Samuel A. Giberga | 185,768 |
| (4) | * |
|
| John S. Cook | 183,789 |
| (5) | * |
|
| Larry D. Hornbeck | 587,702 |
| (6) | 1.6 | % |
| Bruce W. Hunt | 161,738 |
| (7) | * |
|
| Steven W. Krablin | 56,517 |
| | * |
|
| Patricia B. Melcher | 133,691 |
| | * |
|
| Kevin O. Meyers | 84,378 |
| | * |
|
| Bernie W. Stewart | 112,107 |
|
| * |
|
| Nicholas L. Swyka, Jr | 71,535 |
| | * |
|
| All directors and executive officers as a group (13 persons) | 3,366,636 |
| (8) | 8.9 | % |
| Other 5% Stockholders: | | | |
| Cyrus Capital Partners, L.P. | 3,704,019 |
| (9) | 9.8 | % |
| Fine Capital Partners, L.P. | 3,584,046 |
| (10) | 9.5 | % |
| Solus Alternative Asset Management LP | 3,279,053 |
| (11) | 8.7 | % |
| William Herbert Hunt Trust Estate | 2,058,391 |
| (12) | 5.4 | % |
| Mackenzie Financial Corp. | 1,904,327 |
| (13) | 5.0 | % |
|
| |
* | Indicates beneficial ownership of less than 1% of the total outstanding common stock. |
|
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† | “Beneficial ownership” is a term broadly defined by the Commission in Rule 13d-3 under the Securities Exchange Act of 1934, as amended, and includes more than merely direct forms of stock ownership, that is, stock held in the person’s name. The term also includes what is referred to as “indirect ownership”, meaning ownership of shares as to which a person has or shares investment or voting power. For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares as of April 23, 2018 that such person or group has the right to acquire within 60 days after such date. |
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(1) | Includes options to purchase an aggregate of 83,266 shares of common stock and 86,724 shares held by certain family trusts for which Todd M. Hornbeck serves as trustee and holds voting power pursuant to a power of attorney. |
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(2) | Includes options to purchase an aggregate of 36,605 shares of common stock. |
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(3) | Includes options to purchase an aggregate of 36,605 shares of common stock. |
| |
(4) | Includes options to purchase an aggregate of 17,699 shares of common stock. |
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(5) | Includes options to purchase an aggregate of 10,727 shares of common stock. |
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(6) | Includes 305,086 shares held by certain family trusts for which Larry D. Hornbeck serves as trustee and holds voting power pursuant to a power of attorney. |
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(7) | Mr. Hunt is a representative of the William Herbert Hunt Trust Estate. As such, Mr. Hunt may be deemed to have voting and dispositive power over the shares beneficially owned by the Trust Estate, as described in the table above and the related footnotes. Mr. Hunt disclaims beneficial ownership of the shares owned by the Trust Estate. |
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(8) | Includes options to purchase an aggregate of 184,902 shares of common stock for our named executive officers, directors and an executive officer who is not named. |
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(9) | Based on a Schedule 13G dated February 4, 2019 filed with the SEC to reflect shares beneficially owned by the reporting person at December 31, 2018. Cyrus Capital Partners, L.P.'s address is 65 E. 55th Street, 35th Floor, New York, New York 10022. |
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(10) | Based on a Schedule 13G dated February 14, 2019 filed with the SEC to reflect shares beneficially owned by the reporting person at December 31, 2018. Fine Capital Partners L.P.'s address is 590 Madison Avenue, 27th Floor, New York, New York 10022. |
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(11) | Based on a Schedule 13F dated February 14, 2019 filed with the SEC reflecting shares beneficially owned by the reporting person at December 31, 2018. Solus Alternative Asset Management LP's address is 410 Park Avenue, 11th Floor, New York, New York 10022. |
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(12) | Based on a Schedule 13G/A dated April 29, 2008 filed with the SEC reflecting shares beneficially owned by the reporting person at April 8, 2008. The William Herbert Hunt Trust Estate’s address is 2101 Cedar Springs Road, Suite 600, Dallas, Texas 75201. |
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(13) | Based on a Schedule 13G dated February 14, 2019 filed with the SEC reflecting shares beneficially owned by the reporting person at December 31, 2018. Mackenzie Financial Corporation's address is 180 Queen Street West, Toronto, Ontario M5V 3K1, Canada. |
Certain Relationships and Related Transactions
The following is a discussion of transactions between our Company and its executive officers, directors and stockholders owning more than 5% of our common stock. We believe that the terms of each of these transactions were at least as favorable as could have been obtained in similar transactions with unaffiliated third parties.
Under the terms of certain agreements, various persons, including Todd M. Hornbeck, Troy A. Hornbeck, Larry D. Hornbeck, James O. Harp, Jr., Carl G. Annessa, Patricia B. Melcher, and the William Herbert Hunt Trust Estate, have the right to include some or all of their shares of common stock of the Company in any registration statement that we file involving our common stock, subject to certain limitations. Messrs. Todd and Troy Hornbeck, are entitled to require us to file a registration statement under the Securities Act of 1933 to sell some or all of the common stock held by them.
Todd M. Hornbeck and Troy A. Hornbeck have agreed to give us notice of, and an opportunity to make a competing offer regarding, a decision by either of them to sell or consider accepting an offer to sell to a single person or entity shares of common stock representing 5% or more of our common stock, other than in compliance with Rule 144 or to an affiliate or family member of the holder.
The Company has entered into a separate indemnity agreement with each of its executive officers and its directors that provide, among other things, that the Company will indemnify such officer or director, under the circumstances and to the extent provided in the agreement, for expenses, damages, judgments, fines and settlements he or she may be required to pay in actions or proceedings which he or she is or may be made a party by reason of his or her position as an executive officer or director of the Company, and otherwise to the fullest extent permitted under Delaware law and the Company’s Bylaws. These agreements are in addition to the indemnification provided to the Company’s officers and directors under its Bylaws and in accordance with Delaware law. The Company has agreed to indemnify Todd M. Hornbeck, the Company’s President and Chief Executive Officer, for any claims, demands, causes of action and damages that may arise from use of his personal watercraft for Company business purposes.
For the past twenty-one years, Larry D. Hornbeck’s family has personally supported the development of the Company by hosting numerous events at the Hornbeck Family Ranch, located in Houston County, Texas, including constructing at their own expense, a hunting lodge and related facilities and providing access to 4,700 acres adjoining the lodge and related facilities. The Hornbeck Family Ranch and related facilities have been used for functions intended to foster client and vendor relations, management retreats, Board meetings and special Company promotional events. The ranch also plays a vital role in the Company's business continuity plan in the event our corporate headquarters is impacted by a natural disaster. Until December 31, 2005, these facilities were used by the Company without charge. The Board determined that the use of the Hornbeck Family Ranch in the past and going forward has been and is beneficial to the Company’s business. As of February 14, 2006, the Company entered into a Facilities Use Agreement and implemented an amendment to an existing Indemnification Agreement with Larry D. Hornbeck, one of our directors. The Facilities Use Agreement and the amendment to such Indemnification Agreement became effective as of January 1, 2006, and were approved by our audit committee and by the independent members of the Board of Directors on February 14, 2006. On May7, 2015, the Company entered into an Amended and Restated Indemnification Agreement, or the Restated Indemnification Agreement, with Larry D. Hornbeck, one of our directors, Joan M. Hornbeck and Hornbeck Family Ranch, LP, which amended and restated the Indemnification Agreement. The Restated Indemnification Agreement provides for indemnification by the Company of such parties as well as certain other indemnitees, including the Company’s Chairman, President and Chief Executive Officer, Todd M. Hornbeck, for any claims, demands, causes of action and damages that
may arise out of the Company’s current and expanded use of the Hornbeck Family Ranch and related facilities and premises for Company functions such as client and vendor events, management retreats, Board of Director meetings and special Company promotional events. The Restated Indemnification Agreement also provides that the Company shall secure and maintain insurance coverage of the types and amounts sufficient to provide adequate protection against the liabilities that may arise under the Restated Indemnification Agreement. The Restated Indemnification Agreement was approved by the independent members of the Board of Directors on April 28, 2015.
The agreements govern the Company’s use of the Hornbeck Family Ranch and related facilities. The Facilities Use Agreement will remain in effect until December 31, 2019 unless it is terminated or extended by its terms. The Facilities Use Agreement automatically renews on an annual basis unless either party provides the other party 30 days written notice of termination. The Facilities Use Agreement also provides that the Company will pay Mr. Larry Hornbeck an annual use fee of $150,000 for the Company’s use of the facilities and reimburse Mr. Larry Hornbeck for certain other variable costs related to the Company’s use of the ranch facilities. In addition to costs incurred directly by the Company for such activities, the Company replenishes expendable goods used by Company invitees to the facilities.
In 2006, Larry D. Hornbeck transferred ownership of the land on which the Hornbeck Family Ranch is located to a family limited partnership in which trusts on behalf of the children of Todd M. Hornbeck and Troy A. Hornbeck are the limited partners. The general partner of the family limited partnership is controlled by Todd M. Hornbeck and Troy A. Hornbeck. The family limited partnership has entered into a long-term lease of the property to Larry Hornbeck and acknowledged and agreed to the Company’s use of the Hornbeck Family Ranch and related facilities under the Facilities Use Agreement and the Indemnification Agreement.
The Company has provided, and may, from time to time in the future at its own expense and with Mr. Larry Hornbeck’s prior approval, provide additional amenities for its representatives and invitees. Certain of these amenities may, by their nature, remain with the property should the Company ever cease to use the Ranch. In approving the Facilities Use Agreement and establishing the use fee amount, the audit committee and independent members of the Board considered the costs of comparable third party facilities and determined that the combined facilities use fee and anticipated reimbursement of variable costs was substantially lower than costs for the use of such comparable facilities.
In the first quarter of 2012, the independent members of the Board of Directors acknowledged the service that Mr. Larry Hornbeck has provided the Company and acknowledged that the commitment of time and energy associated with this service is substantial and is provided independently from his service as a director. In order to appropriately compensate Mr. Larry Hornbeck for these services, the independent members of the Board of Directors approved a consulting agreement between the Company and Mr. Larry Hornbeck effective January 1, 2012. Under the terms of such agreement, Mr. Larry Hornbeck agreed, among other things, to make himself available to the Company, the Chief Executive Officer of the Company, the Board of Directors or any committee of the Board of Directors to assist in the assessment of potential targets for acquisitions, to travel for Company projects, to attend industry meetings and to provide assistance in other ways, in exchange for consideration of $12,000 per month paid as consulting fees.
Review, Approval or Ratification of Transactions with Related Persons.
We review any transaction in which the Company, a subsidiary of the Company, and our directors, executive officers or their immediate family members or any nominee for director or a holder of more than 5% of any class of our voting security are a participant and the amount of the transaction exceeds $120,000. Our General Counsel is primarily responsible for the development and implementation of processes and controls to obtain information from directors and officers with respect to a related party transaction, including information provided to management in the annual director and officer questionnaires. In addition, the Company has adopted a written Code of Business Conduct and Ethics for members of the Board of Directors that is located on the Governance page of the Company’s website, www.hornbeckoffshore.com. This policy requires disclosure by directors of any situation that involves, or may reasonably be inferred to involve, a conflict between a director’s personal interests and the interests of the Company. The Company’s practice when such matters have been disclosed has been to refer the matter for consideration and final determination by the audit committee or the independent directors of the Board, or both, which have considered the fairness of the transaction to the Company, as well as other factors bearing upon its appropriateness. In all such matters, any director having a conflicting interest abstains from voting on the matters.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our officers and directors, and persons who own more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership with the Commission and the NYSE. Officers, directors and greater than 10% stockholders are also required by Commission regulations to furnish us with copies of all Section 16(a) forms they file.
Based solely on a review of the Forms 3 and 4 and amendments thereto filed during the 2018 fiscal year and written certifications provided to the Company, the Company believes that all of these reporting persons timely complied with their filing requirements.
Audit Committee Report
In accordance with its written charter adopted by the Board of Directors, the audit committee assists the Board in fulfilling its responsibility for oversight of the quality and integrity of the accounting, auditing and financial reporting practices of the Company. Management is responsible for the Company’s financial statements, and the independent auditors are responsible for the examination of those statements.
In keeping with its responsibilities, the audit committee has met and held discussions with management, the independent auditors and the separate accounting consultants engaged to ascertain compliance with Section 404 of the Sarbanes-Oxley Act and to perform the internal audit function. Management represented to the audit committee that the Company’s consolidated financial statements were prepared in accordance with generally accepted accounting principles in the United States, and the audit committee has reviewed and discussed the consolidated financial statements with management and the independent auditors, both with and without management present. In addition, the audit committee has discussed with the Company’s independent auditors all communications required by generally accepted auditing standards, including those required to be discussed by PCAOB Auditing Standard No. 16, “Communication with Audit Committees”. The audit committee has received the written disclosures and the letter from the independent auditors required by the PCAOB and the independent auditor’s report and attestation on internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act, and has discussed with the independent auditors all relationships between the auditors and the Company that may bear on the auditor’s independence and any relationships that may impact their objectivity and independence and satisfied itself as to the auditor’s independence.
Based on the audit committee’s discussions with management and the independent auditors, and the audit committee’s review of the audited financial statements, representations of management and the report of the independent auditors, the audit committee recommended to the Board of Directors that the audited consolidated financial statements be included in our Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the Securities and Exchange Commission. The audit committee reappointed Ernst & Young LLP as independent accountants and auditors for the 2019 fiscal year, subject to stockholder approval. |
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| AUDIT COMMITTEE OF THE |
| BOARD OF DIRECTORS |
| |
| Patricia B. Melcher (Chair) |
| Bruce W. Hunt |
| Steven W. Krablin |
| Bernie W. Stewart |
| Nicholas L. Swyka, Jr. |
| |
| April 22, 2019 |
Other Matters
Neither we nor any of the persons named as proxies know of matters other than those described above to be voted on at the 2019 Annual Meeting of Stockholders. However, if any other matters are properly presented at the Annual Meeting, it is the intention of the persons named as proxies to vote in accordance with their judgment on these matters, subject to the direction of the Board of Directors.
Our 2018 Annual Report to Stockholders, which contains a copy of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, accompanies this Proxy Statement, but is not to be deemed a part of the proxy soliciting material.
Stockholders may also obtain a copy of our 2018 Annual Report to Stockholders or the Company’s Annual Report on Form 10-K most recently filed with the Commission without charge by writing to the Corporate Secretary of the Company at 103 Northpark Boulevard, Suite 300, Covington, Louisiana 70433. The Company’s Annual Report on Form 10-K and other filings with the Commission may also be accessed on the Company’s website at www.hornbeckoffshore.com.
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| By Order of the Board of Directors, |
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| Mark S. Myrtue |
| Treasurer and Corporate Secretary |
Appendix A
FIFTH AMENDMENT TO THE
SECOND AMENDED AND RESTATED
HORNBECK OFFSHORE SERVICES, INC.
INCENTIVE COMPENSATION PLAN
This FIFTH AMENDMENT TO THE SECOND AMENDED AND RESTATED HORNBECK OFFSHORE SERVICES, INC. INCENTIVE COMPENSATION PLAN (this " Amendment ") is made effective as of the ___ day of June, 2019, by the Board of Directors (the " Board ") of Hornbeck Offshore Services, Inc. (the " Company ").
WHEREAS, the Company sponsors the Second Amended and Restated Hornbeck Offshore Services, Inc. Incentive Compensation Plan, as amended (the " Plan ");
WHEREAS, pursuant to Section 13.1 of the Plan, the Board may at any time amend the provisions of the Plan;
WHEREAS, the Company desires to amend the Plan to increase the number of shares of common stock that may be delivered pursuant to awards granted under the Plan; and
WHEREAS, the stockholders of the Company have passed a resolution approving this Amendment;
NOW, THEREFORE, the Board hereby amends the Plan as follows:
1. Section 4.1 shall be amended to increase the number of shares authorized under the Plan by 7,000,000 by replacing the first sentence with the following:
"The maximum number of shares of Common Stock
which could be acquired upon exercise in full of all such rights or warrants and the denominator of which shall be the number of shares of Common Stock outstanding immediately before such issuance of rights or warrants plus the number of shares of Common Stock which could be purchased, at the Fair Market Value of the Common Stock at the time of such issuance, by the maximum aggregate consideration payable upon exercise in full of all such rights or warrants.(C) If holders of shares of Common Stock of the Company receive after July 15, 2013 in respect of their shares of Common Stock any right or warrant to purchase capital stock of the Company (other than shares of Common Stock), including as such a right, for all purposes of this paragraph, any security convertible into or exchangeable for capital stock of the Company (other than Common Stock), at a purchase price per share less than the Fair Market Value of such shares of capital stock on the date of issuance of such right or warrant, then and in each such event the dividend rights, voting rights and rights upon liquidation, dissolution or winding up of the Company of the shares of Series A Preferred Stock shall each be adjusted so that after such event each holder of a share of Series A Preferred Stock shall be entitled, in respect of each share of Series A Preferred Stock held, in addition to such rights in respect thereof to which such holder was entitled immediately before such event, to receive (i) such additional dividends as equal the Dividend Multiple in effect immediately before such event multiplied, first, by the additional dividends to which the holder of a share of Common Stock shall be entitled upon exercise of such right or warrant by virtue of the capital stock which could be acquired upon such exercise and multiplied again by the Discount Fraction (as hereinafter defined) and (ii) such additional voting rights as equal the Vote Multiple in effect immediately before such event multiplied, first, by the additional voting rights to which the holder of a share of Common Stock shall be entitled upon exercise of such right or warrant by virtue of the capital stock which could be acquired upon such exercise and multiplied again by the Discount Fraction and (iii) such additional distributions upon liquidation, dissolution or winding up of the Company as equal the Liquidation Multiple in effect immediately before such event multiplied, first, by the additional amount which the holder of a share of Common Stock shall be entitled to receive upon liquidation, dissolution or winding up of the Company upon exercise of such right or warrant by virtue of the capital stock which could be acquired upon such exercise and multiplied again by the Discount Fraction.For purposes of this paragraph, the“Discount Fraction” shall be a fraction the numerator of which shall be the difference between the Fair Market Value of a share of the capital stock subject to a right or warrant distributed to holders of shares of Common Stock of the Company as contemplated by this paragraph immediately after the distribution thereof and the purchase price per share for such share of capital stock pursuant to such right or warrant and the denominator of which shall be the Fair Market Value of a share of such capital stock immediately after the distribution of such right or warrant.
(D) For purposes of this Section 7, the“Fair Market Value” of a share of capital stock of the Company (including a share of Common Stock) on any date shall be deemed to be the average of the daily closing price per share thereof over the thirty (30) consecutive Trading Days (as such term is hereinafter defined) immediately before such date;provided, however, that, if such Fair Market Value of any such share of capital stock is determined during a period which includes any date that is within thirty Trading Days after (i) theex-dividend date for a dividend or distribution on stock payable in shares of such stock or securities convertible into shares of such stock, or (ii) the effective date of any subdivision, split, combination, consolidation, reverse stock
A-19
