Dean A. Burkhardt
Chairman
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrantx Filed by a Party other than the Registrant¨
Check the appropriate box:
| ¨ | Preliminary Proxy Statement |
| ¨ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
| x | Definitive Proxy Statement |
| ¨ | Definitive Additional Materials |
| ¨ | Soliciting Material Pursuant to § 240.14a-12 |
PIONEER DRILLING COMPANY
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (check the appropriate box):
| x | No fee required. |
| ¨ | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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| (2) | Aggregate number of securities to which transaction applies: |
| (3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
| (4) | Proposed maximum aggregate value of transaction: |
| (5) | Total fee paid: |
| ¨ | Fee paid previously with preliminary materials. |
| ¨ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
| (1) | Amount Previously Paid: |
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| (4) | Date Filed: |
PIONEER DRILLING COMPANY
1250 N.E. Loop 410, Suite 1000
San Antonio, Texas 78209
June 25, 2007April 9, 2010
Dear Shareholder:
On behalf of the board of directors, we invite you to attend the 20072010 Annual Meeting of Shareholders of Pioneer Drilling Company. We will hold the meeting at 10:00 a.m., Central time, on Friday, August 3, 2007,May 14, 2010, at the Petroleum Club of San Antonio, 7th7th Floor Energy Plaza, 8620 N. New Braunfels Street, San Antonio, Texas.
On the following pages you will find the Notice of Annual Meeting of Shareholders and Proxy Statement giving information concerning the matters to be acted on at the meeting. Our Annual Report to Shareholders describing Pioneer Drilling Company’s operations during the fiscal year ended MarchDecember 31, 20072009, is enclosed.
We hope you will be able to attend the meeting in person. Whether or not you plan to attend, please take the time to vote by completing and returning your proxy card in the enclosed envelope before the meeting. If you attend the meeting, you may, if you wish, revoke your proxy and vote in person.
Thank you for your interest in Pioneer Drilling Company.
Sincerely,
| | |
Dean A. Burkhardt | Wm. Stacy Locke | |
Chairman | President and Chief Executive Officer |
PIONEER DRILLING COMPANY
1250 N.E. Loop 410, Suite 1000
San Antonio, Texas 78209
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held Friday, August 3, 2007May 14, 2010
To the Shareholders of Pioneer Drilling Company:
The 20072010 Annual Meeting of Shareholders of Pioneer Drilling Company will be held on Friday, August 3, 2007,May 14, 2010, at 10:00 a.m., Central time, at the Petroleum Club of San Antonio, 7th7th Floor Energy Plaza, 8620 N. New Braunfels Street, San Antonio, Texas. At the meeting, we will ask you to consider and take action on the following:
| (1) | the election of |
| (2) | the |
| the transaction of any other business that may properly come before the annual meeting or any adjournment or postponement of the meeting. |
We are sending thisThis notice and the attached proxy statement are first being mailed to our shareholders on or about June 25, 2007.April 9, 2010. Our board of directors has set the close of business on June 8, 2007March 31, 2010, as the record date for determining shareholders entitled to receive notice of and vote at the annual meeting. A list of all shareholders entitled to vote is available for inspection during normal business hours at our principal executive offices at 1250 N.E. Loop 410, Suite 1000, San Antonio, Texas 78209. This list will also be available at the meeting.
Important notice regarding the availability of proxy materials for the shareholder meeting to be held on May 14, 2010. The proxy statement and annual report to shareholders are available at www.pioneerproxy.com.
Your vote is very important. Whether or not you plan to attend the annual meeting, we encourage you to read the proxy statement. Further, to be sure your vote counts and to assure a quorum, please vote, sign, date and return the enclosed proxy card, whether or not you plan to attend the meeting.
By Order of the Board of Directors |
|
 |
Carlos R. Peña Senior Vice President, |
San Antonio, Texas
June 25, 2007April 9, 2010
PIONEER DRILLING COMPANY
PROXY STATEMENT
FOR 20072010 ANNUAL MEETING OF SHAREHOLDERS
QUESTIONS AND ANSWERS ABOUT
THE MEETING AND VOTING
| Q: | What am I being asked to vote on? |
| A: | We are asking you to vote on the following: |
the election of oneJohn Michael Rauh (as a Class III directordirector) as a member of the board of directors of Pioneer Drilling Company, to serve until our 20102013 Annual Meeting of Shareholders andor until his successor has been duly elected and qualified;
the approval of the Pioneer Drilling Company 2007 Incentive Plan;
the ratification of the appointment of KPMG LLP as our independent auditors for the fiscal year ending MarchDecember 31, 2008;2010; and
the transaction of any other business that may properly come before the annual meeting or any adjournment or postponement of the meeting.
| Q: | Who may vote? |
| A: | All shareholders of record as of the close of business on |
| Q: | Who may attend the meeting? |
| A: | All shareholders as of the record date, or their duly appointed proxies, may attend the meeting. |
| Q: | How do I vote? |
| A: | You may vote in two ways: |
you may come to the annual meeting and cast your vote in person; or
you may vote by completing, signing and returning the enclosed proxy card. If you do,return a completed and signed proxy card, the persons named on the card will vote your shares in the manner you indicate.
| Q: | Who is soliciting my proxy? |
| A: | Pioneer |
| Q: | When did Pioneer |
| A: | We first distributed this proxy statement and the accompanying form of proxy to our shareholders on or about |
| Q: | What happens if I do not indicate how I wish to vote on one or more of the proposals? |
| A: | If you return your signed proxy card but do not indicate how you wish to vote, the persons named as proxies will vote your sharesFOR election of the director nominee |
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| Q: | What if I vote by proxy and then change my mind? |
| A: | You can revoke your proxy at any time before the annual meeting by: |
providing written notice of yourthe revocation of your proxy to our Corporate Secretary at our principal executive offices at the mailing address in the answer to the last question on this page;indicated below;
delivering a properly executed proxy dated after the date of the proxy you want to revoke; or
attending the annual meeting and casting your vote in person.
| Q: | What constitutes a quorum? |
| A: | The presence, in person or by proxy, of the holders of a majority of the issued and outstanding shares of capital stock of Pioneer entitled to vote at the meeting constitutes a quorum. We need a quorum of shareholders to hold a valid annual meeting. If you properly sign and return your proxy card, you will be considered part of the quorum. |
We will count abstentions and broker non-votes as present for the purpose of establishing a quorum. A broker non-vote“non-vote” occurs when a broker votesholding shares for a beneficial owner does not vote on some matters on the proxy card but not on othersa particular proposal because the broker does not have discretionary voting power for that particular proposal and has not received instructions from the authority to vote on such other matters.beneficial owner. If a quorum is not present, a majority in interest of those present or represented at the annual meeting may adjourn the meeting, without notice other than an announcement at the meeting, until a quorum is present or represented.
| Q: | What vote is required for the passage of each of the proposals |
| A: | Directors |
| Q: | Who will count the votes? |
| A: | Representatives of Registrar & Transfer |
| Q: | What shares are included on the proxy card? |
| A: | The shares listed on your card represent all the shares of our common stock held in your name (as distinguished from shares held by a broker in “street” name). You will receive a separate card from your broker if your broker holds shares for you in “street” name. |
| Q: | What does it mean if I receive more than one proxy card? |
| A: | It indicates that your shares are held in more than one account, such as two brokerage accounts, and are registered in different names. You should vote each of the proxy cards to ensure that all your shares are voted. |
| Q: | What is |
| A: | Our mailing address is Pioneer Drilling Company, 1250 N.E. Loop 410, Suite 1000, San Antonio, Texas 78209. |
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table shows the beneficial ownership of our common stock as of June 8, 2007March 31, 2010 by (1) each person (or group of affiliated persons) who is known by us to beneficially own more than 5% of our common stock, (2) each of our directors (2) our chief executive officer and nominees, (3) each of our otherthe named executive officers namedlisted in the summary compensation table in this proxy statement and (3)(4) all our directors and executive officers as a group. As of June 8, 2007,March 31, 2010, we were not aware of any person beneficially owning more than 5% of the outstanding shares of our common stock, other than those listed below. Unless otherwise indicated below, all shareholders have the same principal business address as Pioneer. All persons listed in the table below have sole voting and investment power with respect to their shares unless otherwise indicated. As of June 8, 2007,March 31, 2010, there were 49,650,97854,109,246 shares of common stock outstanding. In accordance with the rules of the SEC, the amounts shown for the number of shares and percentage of ownership for each person listed reflect as outstanding any shares that may be acquired pursuant to options exercisable within 60 days, unless otherwise indicated. For all executive officers and directors, as a group, the table treats as outstanding any shares that may be acquired pursuant to options held by members of the group and exercisable within 60 days, unless otherwise indicated.
| Shares of Common Stock Beneficially Owned | ||||||
Name of Beneficial Owner | Number | Percent of Class | ||||
The Vanguard Group, Inc. | 2,664,639 | (1) | 5.37 | % | ||
Barclays Global Investors NA (CA) | 2,621,938 | (1) | 5.28 | % | ||
Wm. Stacy Locke | 233,574 | (2) | * | |||
William D. Hibbetts | 251,613 | (3) | * | |||
James M. Tidwell | 25,000 | (4) | * | |||
C. John Thompson | 25,000 | (4) | * | |||
Dean A. Burkhardt | 25,000 | (4) | * | |||
C. Robert Bunch | 25,000 | (4) | * | |||
Michael F. Harness | 35,000 | (5) | * | |||
Franklin C. West | 440,000 | (6) | * | |||
Donald G. Lacombe | 92,333 | (7) | * | |||
All executive officers and directors as a group (9 persons) | 1,152,520 | (8) | 2.28 | % | ||
| Shares of Common Stock Beneficially Owned | ||||||
Name of Beneficial Owner | Number | Percent of Class (1) | ||||
Pebbleton Corporation N.V. | ||||||
Peitermaai 15 | ||||||
Curacao, Netherlands Antilles | 4,937,108 | (2) | 9.12 | % | ||
BlackRock Inc. | ||||||
40 East 52ndStreet | ||||||
New York, NY 10022 | 4,508,328 | (3) | 8.33 | % | ||
Dimensional Fund Advisors LP | ||||||
Palisades West, Building One | ||||||
6300 Bee Cave Road | ||||||
Austin, TX 78746 | 4,240,425 | (4) | 7.83 | % | ||
Third Avenue Management LLC | ||||||
622 Third Avenue, 32nd Floor | ||||||
New York, NY 10017 | 3,840,896 | (5) | 7.10 | % | ||
Wm. Stacy Locke | 897,174 | (6) | 1.64 | % | ||
Franklin C. West | 690,000 | (7) | 1.26 | % | ||
William D. Hibbetts | 379,513 | (8) | * | |||
Lorne E. Phillips | 123,608 | (9) | * | |||
Joseph B. Eustace | 123,517 | (10) | * | |||
Carlos R. Peña | 38,000 | (11) | * | |||
Dean A. Burkhardt | 58,620 | (12) | * | |||
C. John Thompson | 48,620 | (12) | * | |||
John Michael Rauh | 29,429 | (13) | * | |||
Scott D. Urban | 24,429 | (13) | * | |||
All directors and executive officers as a group (9 persons) | 2,033,397 | (14) | 3.65 | % | ||
| * | Less than 1% |
| (1) | In accordance with the rules of the Securities and Exchange Commission (the “SEC”), the amounts shown for the number of shares and percentage ownership for each person listed include (1) any shares that may be acquired pursuant to options exercisable within 60 days of March 31, 2010, and (2) unvested restricted stock. These shares are also deemed outstanding for the purpose of computing the percentage of outstanding shares owned by the person; however, these shares are not deemed outstanding for the purpose of computing the percentage ownership of any other person. For all executive officers and directors as a group, the amount indicated includes, and the percentage ownership deems as outstanding, (1) any shares that may be acquired pursuant to options held by members of the group and exercisable within 60 days of |
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March 31, 2010, and (2) unvested restricted stock held by members of the group. Holders of unvested restricted stock have voting rights with respect to such shares. Holders of stock options do not have voting rights with respect to shares subject to such options. |
| (2) | Based on |
| Based on a Schedule 13G filed with the SEC by BlackRock Inc. on January 29, 2010. Blackrock Inc., which acquired Barclays Global Investors, N.A. on December 1, 2009, has sole voting and dispositive power with respect to these shares. |
| (4) | Based on an amended Schedule 13G filed with the SEC by Dimensional Fund Advisors LP (formerly Dimensional Fund Advisors, Inc.) (“Dimensional”) on February 8, 2010. Dimensional furnishes investment advice to four investment companies and serves as investment manager to certain other commingled group trusts and separate accounts. These investment companies, trusts and accounts are the “Funds.” In its role as investment advisor or manager, Dimensional has sole voting power with regard to 4,149,527 shares and sole dispositive power with regard to 4,240,425 that are owned by the Funds, and may be deemed to be the beneficial owner of the shares held by the Funds. However, all of the 4,240,425 shares are owned by the Funds, and the Funds have the right to receive, or the power to direct the receipt of dividends from, or the proceeds from the sale of, the securities held in their respective accounts. Dimensional disclaims beneficial ownership of such securities. |
| (5) | Based on a Schedule 13G filed with the SEC by Third Avenue Management LLC (“TAM”) on February 16, 2010. TAM has sole voting and dispositive power with regard to 3,840,896 shares. TAM acts as an investment advisor to various parties who have the right to receive dividends from, and the proceeds from the sale of, certain of the shares reported by TAM as follows: (i) OFI Select-Third Avenue US Equity Fund (SICAV)—36,985 shares; (ii) Third Avenue Small Cap Value Fund—2,010,022 shares; (iii) Met Investors Series Trust- Third Avenue Small Cap Portfolio—1,651,830 shares; (iv) Touchstone Variable Series Trust-Touchstone Third Avenue Value Fund—141,359 shares; and (v) Third Avenue Small Cap Value Fund UCITS—700 shares. |
| (6) | Includes options to purchase |
| Includes options to purchase |
| Includes options to purchase 189,613 shares of common stock and 6,600 shares of unvested restricted stock. |
| (9) | Includes options to purchase 63,333 shares of common stock and 12,000 shares of unvested restricted stock. |
| (10) | Includes options to purchase 97,667 shares of common stock and 14,867 shares of unvested restricted stock. |
| (11) | Includes options to purchase 26,000 shares of common stock and 8,000 shares of unvested restricted stock. |
| (12) | Includes options to purchase 25,000 shares of common stock and 21,667 shares of unvested restricted stock. |
| Includes options to purchase |
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PROPOSAL 1
ELECTION OF DIRECTORDIRECTORS
Our board of directors currently consists of sixfive directors. Our board of directors is divided into three separate classes (Class I, Class II and Class III) with staggered terms. The current term of office for our single Class III director will expire at the annual meeting.
Our board of directors has nominated Mr. BunchRauh, who currently serves as oneon the board of our directors, as the nominee for current election at the annual meeting as a Class III director. Mr. BunchRauh has served as one of our directors since May 2004 and as our Chairman of our board since January 2007.October 2008.
Assuming the presence of a quorum, the election of any director requires the favorable vote of the holders ofdirectors shall be elected by a plurality of the votes cast by the holders of shares present and voting, in person or by proxy,of capital stock of Pioneer entitled to vote on the election of directors at the annual meeting. Any abstentions or broker non-votes will not affect the vote.If you properly sign and return the enclosed proxy, and unless you withhold authority to vote for the nominee, the persons named as proxies will vote FOR the election of the nominee listed below.We do not expect that the nominee will refuse or be unable to act as a director. If, however, the nominee becomes unable or unwilling to serve as a director, the persons named as proxies intend to vote the proxy shares for the election of any other person the board of directors may designate.
Nominee
Nominee
| Age | Position Held | ||
|
C. Robert BunchJohn Michael Rauh has served as one of our directors since May 2004October 2008. Mr. Rauh served as Vice President and Corporate Controller of Kerr-McGee Corporation from 2001 until his retirement in 2006, where he was responsible for worldwide accounting, tax and Sarbanes-Oxley 404 compliance. He also served as our Chairmana Founding Director of Kerr-McGee’s chemical operations spin-off. Mr. Rauh joined Kerr-McGee in 1981 and served in varying capacities, including Vice President and Treasurer, Vice President and Controller, and Assistant Controller. Prior to joining Kerr-McGee, Mr. Rauh was an auditor with Arthur Young & Company, which merged with Ernst & Whinney in 1989 to form Ernst & Young. He received a master’s degree in accounting from Oklahoma State University and a bachelor’s degree in accounting and economics from Northwestern Oklahoma State University. Mr. Rauh served as a director of Tronox, Inc. from 2005 to 2006. Mr. Rauh, along with other former officers and directors of Kerr-McGee, and various other corporate and individual defendants, have been named as a defendant in a litigation pending in the United States District Court, Southern District of New York, captioned In Re Tronox, Inc., Securities Litigation, 1:09-cv-06220-SAS. The consolidated complaint asserts securities law claims under Sections 10(b) and 20(a) of the Securities Exchange Act. A motion to dismiss the action is pending.
Mr. Rauh’s expertise in a variety of financial and accounting matters, experience in Sarbanes-Oxley 404 compliance and service with a global oil and gas business make him a valuable member of the board since January 2007.of directors and enhances the value of his service as a member of the Audit Committee, where he also qualifies as an “audit committee financial expert.” Mr. Bunch is currentlyRauh’s bachelor’s and master’s degrees in accounting enable him to advise the ChairmanBoard on accounting-related matters. Mr. Rauh’s experience at a global oil and Chief Executive Officergas company provide him with insights relating to many of Global Tubing LLC, a private company organized to manufacturethe same issues we face in our business, including markets, operational, regulatory, technological, and sell coiled tubing products for various energy applications.financial. Mr. Bunch served as Chairman and Chief Executive Officer of Maverick Tube Corporation, a leading provider of oil country tubular goods (“OCTG”) and other tubular products, from October 2004 to October 2006. He was an independent oil service consultant and investor from June 2003 to October 2004. From November 1999 to May 2003, Mr. Bunch held various executiveRauh’s significant experience in several senior financial positions with Input / Output, Inc., a leading provider of geophysical equipment and services, including President and Chief Operating Officer from January 2003 until May 2003. Prior to November 1999, Mr. Bunch served in executive and financial capacities with various large and small oil services companies,at Kerr-McGee, as well as practicing lawhis previous service as an auditor with an accounting firm, provides a solid platform for him to advise and public accounting. In addition to Pioneer Drilling Company, Mr. Bunch is a directorconsult with the board of Olin Corporation (NYSE: OLN), Sub-One Technology, Inc.directors on financial and Z-Seis Corporation.audit-related matters.
Our board of directors unanimously recommends a vote “FOR” the election of Mr. C. Robert BunchJohn Michael Rauh as a Class III Director.
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DIRECTORS WITH TERMSA TERM EXPIRING IN 20082011
Class I Directors Whose
| Age | Position Held | ||
Dean A. Burkhardt | 59 | Chairman | ||
Scott D. Urban | 56 | Director | ||
Dean A. Burkhardt has served as one of our directors since October 26, 2001 and Chairman since May 2008. In addition to his role as a horse and cattle rancher, Mr. Burkhardt has been a consultant to the energy services industry since 1997 with a special emphasis in oil and gas projects in emerging markets, workover services, fuel cells and engineering and quality management services. He also served as co-founder, President and CEO (1983-1985) of Applied Petroleum Software, a provider of production engineering software for optimizing oil and gas well completions; President and CEO of Seismic Products (1982), Cliff Mock, Inc. (1982) and Tescorp Energy Services (1981-1982) as well as President and COO of Tescorp, Inc. (1982); was a co-founder (1979), Executive Vice President of Sales and Operations (1979-1981) and a director (1979-1989) of Cheyenne Services, Inc., a provider of oilfield tubular makeup, tubular inspection and third party quality assurance services.
As a result of Mr. Burkhardt’s service as a director of the Company for over 8 years, he has become very familiar with our business and the important issues facing the Company. Mr. Burkhardt’s experience as a consultant in the energy services industry makes him a valuable member of the board of directors. Mr. Burkhardt serves as a member of the Audit Committee and qualifies as an “audit committee financial expert.” Mr. Burkhardt also holds a master’s degree in international management, with an emphasis in marketing and accounting from the American Graduate School of International Management and regularly attends seminars on accounting and financial matters, which enables him to provide guidance to the board of directors related to the Company’s international development and accounting-related matters. Mr. Burkhardt’s significant experience with several companies involved in the oil and gas industry gives him insights relating to many of the same issues we face in our business and provides a solid platform for him to advise and consult with the board of directors on such issues, including oil and gas projects in emerging markets, workover services, fuel cells and engineering and quality management services.
Scott D. Urban has served as one of our directors since October 2008. Mr. Urban is a partner in Edgewater Energy Partners, a consulting firm focused on the oil and gas exploration and production industry and assisting private equity firms with upstream investments. Mr. Urban served as Group Vice President, Upstream, for BP PLC from 2004 to 2005 and served as BP’s Group Vice President, North Sea Operations, from 2000 to 2004. Prior to joining BP, Mr. Urban held a variety of management positions with Amoco Corporation, including Group Vice President, Worldwide Exploration and Upstream Business Unit Manager, China. Mr. Urban received a master’s degree in geology and a Bachelor’s Degree in earth science from Bowling Green State University. Mr. Urban currently serves on the board of directors of Noble Energy, Inc. and has served as a board member of the UK Offshore Operators Association, the Business Council for International Understanding and the Netherlands Oil and Gas Exploration and Production Association.
Mr. Urban’s expertise as a consultant in the oil and gas exploration and production industry makes him a valuable member of the board of directors. Mr. Urban’s significant experience at multiple global oil and gas companies provide him with insights relating to many of the same issues we face in our business, including markets, operational, regulatory, technological, and financial. Mr. Urban’s master’s degree in geology gives him a deep understanding of, and enables him to advise the board of directors on, many matters relating to oil and gas drilling. Mr. Urban’s service as a member of the board of directors of Noble Energy, Inc. gives him valuable experience in managing the issues that face a publicly held oil and gas company with international operations and allows him to share best practices with the board of directors.
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DIRECTORS WITH A TERM EXPIRING IN 2012
Class II Directors Whose | Age | Position(s) Held | ||
| ||||
| ||||
|
4
Michael F. Harness has served as one of our directors since May 2004. Mr. Harness currently serves as President and CEO of Osyka Corporation, an independent oil and gas company which he founded, a position he has held since August 1989. He served as Manager of Engineering for the Exploration and Production Group of Texas Eastern Corporation from January 1984 to July 1989. Mr. Harness served in various engineering positions for Amoco Production Company from January 1977 to April 1982. Mr. Harness also serves on the Aeseda Advisory Council, the College of Earth and Mineral Sciences of Penn State University.
James M. Tidwell has served as one of our directors since March 2001. Mr. Tidwell currently serves as Executive Vice President and Chief Operating Officer of WEDGE Group Incorporated, a position he has held since February 2007. Mr. Tidwell continues to serve as the Chief Financial Officer of WEDGE Group Incorporated, a position he has held since January 2000. From June 1999 to January 2000, Mr. Tidwell served as President of Daniel Measurement and Control, a division of Emerson Electric Company. From August 1996 to June 1999, he was Executive Vice President and Chief Financial Officer of Daniel Industries, Inc., a leading supplier of specialized equipment and systems to oil, gas and process operators and plants to measure and control the flow of fluids. For more than five years prior to joining Daniel Industries, Inc., Mr. Tidwell served as Senior Vice President and Chief Financial Officer of Hydril Company, a provider of tubular connections and pressure control devices for oil and gas drilling and production. He is also a director of T-3 Energy Services, Inc.
Dean A. Burkhardthas served as one of our directors since October 26, 2001. Mr. Burkhardt has been an investor and consultant in the energy service industry during the last five years as well as a co-owner of Dubina Rose Ranch, Ltd., a ranch business engaged in horse breeding and coastal hay farming. Since 1997, Mr. Burkhardt has provided consulting services regarding oil and gas projects in Bolivia and Argentina to Frontera Resources Corporation, a developer and operator of oil and gas projects in emerging markets, consulting services regarding investments in fuel cells and workover services to WEDGE (1997-1998) and consulting services relating to the marketing of technical drilling engineering and quality management services to T. H. Hill & Associates, Inc., a drilling engineering and quality management services provider. Mr. Burkhardt co-founded Cheyenne Services, Inc. (1979), a provider of oilfield tubular make-up, tubular inspection and third-party quality assurance services, and Applied Petroleum Software, Inc. (1983), a provider of production engineering software. From 1981 to 1982, Mr. Burkhardt was President and CEO of Tescorp Energy Services, a provider of hydraulic workover services, rental tools and tubular services.
DIRECTORS WITH TERMS EXPIRING IN 2009
| ||||
| President, Chief Executive Officer and Director | |||
C. John Thompson | Director | |||
Wm. Stacy Locke has served as one of our directors as well as President of the company since May 1995. He has been our President and1995, when he joined Pioneer. In December 2003, Mr. Locke was appointed Chief Executive Officer since December 2003 and was ourOfficer. In addition to his continuous role as President, andMr. Locke has also served as Chief Financial Officer from August 2000 to December 2003. He previously served as our President and Chief Operating Officer from November 1998 to August 2000 and as our President and Chief Executive Officer from May 1995 to November 1998.Officer. Prior to joining Pioneer, Drilling Company, Mr. Locke was Vice President–Investment Bankingin investment banking with Arneson, Kercheville, EhrenbergErhenberg & Associates Inc. from January 1993 to April 1995. He was Vice President–Investment Banking with1995 and Chemical Banking Corporation’s Texas Commerce BankCorporation from 1988 to 1992. He was Senior Geologist with Huffco Petroleum Corporation from 1982 to 1986. From 1979 to 1982, Mr. Locke worked for Tesoro Petroleum Corporation and Valero Energy Corporation as a geologist.geologist from 1979 to 1982. Mr. Locke received a Bachelor’s Degree in geology from the University of California Santa Barbara and a Master of Business Administration Degree from Southern Methodist University.
Mr. Locke’s fifteen years of experience at Pioneer, including his service as Chief Executive Officer for seven years, gives him unique knowledge of the opportunities and challenges associated with our business. Mr. Locke’s familiarity with all aspects of Pioneer’s business and his historical understanding of its operations, combined with his understanding of the oil and gas industry, geology and investment banking makes him uniquely qualified to advise the board of directors and to lead Pioneer as Chief Executive Officer.
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C. John Thompson has served as one of our directors since May 2001. Mr. Thompson currently serves as Chairman and Chief Executive Officer of Ventana Capital Advisors, Inc., a capital advisory company he founded in June 2004. Mr. Thompson servedhas over thirty years experience in the energy capital business. Mr. Thompson has worked as a Vice President of Constellation Energy,business consultant, in the energy capital business with Enron, the investment banking services business with a positioncompany he held from August 2003 to May 2004. Mr. Thompson was a consultant from December 2001 to August 2003. He was Vice President and Co-Manager of Enron Energy Capital Resources from February 2000 to December 2001. From September 1997 to February 2000, Mr. Thompson was a Principal inco-founded, Sagestone Capital Partners, which provided investmentand as the manager of the energy commercial banking servicesbusiness with InterFirst Bank in Houston.
As one of Pioneer’s longest-serving non-executive directors, Mr. Thompson brings an important institutional knowledge to the board of directors. His work as an executive in the oil and gas industry, and portfolio management services to various institutional investors. From December 1990 to May 1997, Mr. Thompson held various positions with Enron Energy Capital Resources and its predecessor companies. From 1977 until 1990, Mr. Thompson workedhis experience in the energy capital business including more than ten years in energy commercial banking, industry.provides him with insights relating to many of the same issues facing our business, including markets, operational, regulatory, technological, and financial. Mr. Thompson also serves as a member of the Audit Committee and qualifies as an “audit committee financial expert.” Mr. Thompson holds a master’s degree in business administration with an emphasis in finance and accounting from the University of Texas at Austin, which enables him to provide guidance to the Board on finance and accounting-related matters. Mr. Thompson’s experience as founder of a capital advisory company and as a consultant provides the board of directors with a unique perspective into different industries and an understanding of various capital strategies.
There are no family relations of first cousin or closer among our directors or executive officers by blood, marriage or adoption. The board has determined that all of our directors are independent directors, as defined by the rules of the American Stock Exchange, or AMEX, except thatNYSE Amex, other than Mr. Locke who, as President and Chief Executive Officer, is not independent because he is onean employee of our employees.Pioneer.
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INFORMATION CONCERNING MEETINGS
AND COMMITTEES OF THE BOARD OF DIRECTORS
Director Meetings
Our board of directors held eight meetings and acted by written consent sixseven times induring the fiscal 2007. Ityear ended December 31, 2009. The board has three standing committees: an audit committee; a compensation committee; and a nominating and corporate governance committee. During the fiscal 2007, each memberyear ended December 31, 2009, all of the boarddirectors attended all100% of the total number of meetings of the board and any committee on which heeach served. In addition, the independent directors also held one meetingregular meetings consisting solely of independent directors during the fiscal 2007.year ended December 31, 2009.
Independent Chairman of the Board
Our board of directors has separated the roles of Chairman and Chief Executive Officer. The separation of roles was implemented to allow our Chief Executive Officer, Mr. Locke, to focus on the management of the Company and our independent Chairman to focus on the continued development of a high-performing board of directors, including (i) developing board agendas, (ii) working with Company management to ensure the board of directors has timely and adequate information, (iii) coordinating board committee activities, (iv) supporting and mentoring the Chief Executive Officer and (v) ensuring effective stakeholder communications. Among the duties and responsibilities of our independent Chairman are the following:
presiding at all meetings of the board, including executive sessions of the independent directors and non-management directors;
assisting in the preparation of agendas and schedules, including agenda items and time allocations, for all meetings of the board of directors and its committees;
promoting an environment of open, transparent, two-way communications between the board and senior management;
communicating with senior management to align board of directors and management priorities;
promoting an active, on-going succession process for the board of directors and senior management positions;
promoting, with senior management, the enterprise risk management process;
supporting senior management in promoting high ethical standards in all Company and board directors dealings; and
overseeing the implementation of the strategic planning processes.
Audit Committee
During the fiscal year ended December 31, 2009, Messrs. Bunch, Burkhardt, Thompson and Tidwell (Chairman)Rauh (chairman) served on the audit committee. Mr. Burkhardt served as the chairman of the audit committee during fiscal 2007.until May 15, 2009, at which time Mr. Rauh was appointed chairman of the audit committee. The audit committee met fivesix times during the fiscal 2007.year ended December 31, 2009. The audit committee is governed by a charter that the board adoptedof directors amended and restated on November 29, 2004.December 11, 2008. You can obtain a copy of that charter by making a request for a copy to our Corporate Secretary or by going to our Web site atwww.pioneerdrlg.com.
Our common stock is listed on the AMEX. In that connection,NYSE Amex. As such, we have agreed to comply with the listing standards of the AMEX,NYSE Amex, which require that we have at least three members of the audit committee, each of whom is independent. All four membersEach of theour audit committee aremembers is independent, as defined by the rules of the AMEX.NYSE Amex and the rules and regulations of the SEC. In addition, the board has determined that at least two independent memberseach member of the audit committee Mr. Bunch and Mr. Tidwell, areis an “audit committee financial experts.” Mr. Bunch’s and Mr. Tidwell’sexpert” as defined by the SEC. The experience of each member of the audit committee is described in theirthe biographies under the heading “Election“Proposal 1—Election of Directors.”
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The audit committee’s role is one of financial oversight. Our management is responsible for preparing our financial statements, and our independent auditors are responsible for auditing those financial statements. The audit committee is not providing any expert or special assurance as to our financial statements or any professional certification as to the independent auditors’ work. The following functions are the key responsibilities of the audit committee in carrying out its oversight:
recommending the appointment ofappointing, compensating, retaining and overseeing our independent auditors toregistered public accounting firm and overseeing the boardqualifications and independence of directors;such firm;
reviewingoverseeing our accounting and financial reporting processes and the scopeaudits of the independent auditors’ examination and, at the conclusion of that examination, reviewing the results of the audit, including any comments or recommendations of the independent auditors;our financial statements;
reviewingoverseeing the performance of our financial policiesinternal audit function;
overseeing our compliance with legal and accounting systems and controls and our audited and interim unaudited financial statements;regulatory requirements;
preparing a report for inclusion in our proxy statement of its review of our audited financial statements, including a statement on whether it recommended that the board include those financial statements in our annual report on Form 10-K for that year;statements;
approvingpre-approving audit, review or attest services and ratifyingpermitted non-audit services (including the dutiesterms and compensation offees thereof) to be performed by our independent auditors, both for audit and non-audit services;registered public accounting firm; and
reviewing and assessing, on an annual basis, the adequacy of the audit committee’s charter and recommending revisions to the board.
The audit committee meets separately from the whole board with the independent auditors to provide an open avenue of communication. The audit committee is ultimately responsible for the selection, evaluation and replacement of our independent auditors.
Compensation Committee
During the fiscal year ended December 31, 2009, Messrs. Bunch (Chairman), Burkhardt, Harness,Thompson and ThompsonUrban (chairman) served on the compensation committee. Mr. Thompson served as chairman of the compensation committee during fiscal 2007. Theyuntil May 15, 2009, at which time Mr. Urban was appointed chairman of the compensation committee. The compensation committee met fourthree times and acted by written consent one timesix times during the fiscal 2007. All members ofyear ended December 31, 2009. In addition, the
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compensation committee are deemedalso held meetings with our compensation consultant during the fiscal year ended December 31, 2009. Each of our compensation committee members is independent, as defined by our boardthe rules of directors.the NYSE Amex. The compensation committee is governed by a charter that the board adoptedamended and restated on MarchDecember 11, 2004.2008. You can obtain a copy of that charter by making a request for a copy to our Corporate Secretary or by going to our Web site atwww.pioneerdrlg.com. The compensation committee determines salariescommittee’s responsibilities include:
approving and overseeing our compensation policies, objectives and programs for our executive officers and incentivedirectors;
annually reviewing and approving corporate goals, objectives and other key measures relevant to the compensation forof Pioneer’s executive officers and other key employees;
reviewing and approving all formal employment or other contracts between Pioneer and our senior employeesexecutive officers and other key employees.employees;
administering and reviewing Pioneer’s incentive-compensation plans, equity-based plans and other compensation and benefit plans, and authorizing the issuance of stock of Pioneer pursuant to such plans; and
retaining and terminating a compensation consultant, Stone Partners, to assist the committee and approving such consultant’s fees and other retention terms.
Except as described in the Compensation Discussion and Analysis section of this proxy statement, at this time, the compensation committee does not intend to delegate its powers and authority to any subcommittee or other persons. For additional information concerning the compensation committee, see “Compensation Discussion and Analysis” and “Report of the Compensation Committee.”
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Nominating and Corporate Governance Committee
During the fiscal year ended December 31, 2009, Messrs. Bunch, Burkhardt, Harness (Chairman), Thompson (chairman) and TidwellUrban served on the nominating and corporate governance committee during fiscal 2007.committee. Mr. Thompson replaced Mr. Bunch onserved as chairman of the nominating and corporate governance committee in October 2006.during the fiscal year ended December 31, 2009. The nominating and corporate governance committee held fourtwo meetings and acted by written consent once during fiscal 2007. Allyear ended December 31, 2009. Each of the members of theour nominating and corporate governance committee are “independent directors,”members is independent, as defined by the rules of the AMEX. NYSE Amex.
The nominating and corporate governance committee is responsible for seeking, evaluating and recommending qualified individuals to become directors and serve on committees of the board of directors. The committee is also responsible for periodically reviewing and assessing the adequacy of our corporate governance policies and procedures and recommending proposed changes to the board. In addition, the committee periodically assesses the performance of the board of directors. The nominating and corporate governance committee is governed by a charter that the board adoptedamended and restated on MarchDecember 11, 2004.2008. You can obtain a copy of that charter by making a request for a copy to our Corporate Secretary or by going to our Web site atwww.pioneerdrlg.com.
Director Nominations
The nominating and corporate governance committee considers candidates for board membership suggested by its members and other board members, as well as by management and shareholders. The committee may also retain a third-party executive search firm to identify candidates from time to time. Shareholders wishing to suggest a qualified candidate should submit the recommendation in writing to the nominating and corporate governance committee in care of our Corporate Secretary at 1250 N.E. Loop 410, Suite 1000, San Antonio, Texas 78209. AsAny shareholder wishing to each person whomsubmit a shareholder proposescandidate for consideration should send the following information to nominate for election as a director, our bylaws provide that the nomination notice must include the following:Corporate Secretary:
the name, age and business address of that person;
the principal occupation or employment of that person;
the class or series and number of shares of capital stock of Pioneer Drilling which that person owns beneficially or of record; and
all other information, if any, relating to that person which Section 14 of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder would require Pioneer Drilling or that shareholder to disclose in a proxy statement or in any other filing in connection with solicitations of proxies for an election of directors.
The proposal must also be accompanied by a written consent of each person whom the shareholder proposes to nominate for election as a director to be named as such a nominee and to serve as a director if elected. As to that shareholder and the beneficial owner, if any, of capital stock of Pioneer Drilling on whose behalf the nomination is being made, the nomination notice must also include the following:
the name and address of that shareholder, as they appear in the stock records of Pioneer Drilling, and the name and address of that beneficial owner;
the class or series and the number of shares of capital stock of Pioneer Drilling which that shareholder and that beneficial owner each owns beneficially or of record;
a description of all arrangements and understandings between that shareholder or that beneficial owner and each proposed nominee of that shareholder and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by that shareholder;
a representation by that shareholder that he intends to appear in person or by proxy at that meeting to nominate the person(s) named in the nomination notice;
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a representation of whether the shareholder or the beneficial owner, if any, intends or is part of a group which intends (1) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of Pioneer Drilling’s outstanding capital stock required to elect the nominee and/or (2) to otherwise solicit proxies from shareholders in support of such nomination; and
all other information, if any, relating to that shareholder and that beneficial owner which Section 14 of the Exchange Act of 1934 and the rules and regulations thereunder would require Pioneer Drilling or that shareholder to disclose in a proxy statement or any other filing in connection with solicitations of proxies for an election of directors.
To be timely for consideration at our 2008 Annual Meeting of Shareholders, any such nomination must be submitted so that our Corporate Secretary receives the nomination at our principal executive offices, at the address set forth above, no earlier than February 5, 2008 and no later than the close of business on May 5, 2008.
Once a prospective candidate has been identified, the nominating and corporate governance committee makes the initial determination as to whether to conduct a full evaluation of the candidate. This initial determination is based on whateverthe information is provided to the committee with the recommendation of the prospective candidate, as well as the committee’s own knowledge of the prospective candidate, which may be supplemented by inquiries to the person making the recommendation or others. If the committee determines that additional consideration is warranted, it may ask a third-party search firm to gather additional information about the candidate’s background and experience and to report its findings to the committee. The committee then evaluates the prospective candidate by considering, in addition to the criteria set forth in our bylaws, each nominee’s personal and professional integrity, experience, skills, ability and willingness to devote the time and effort necessary to be an effective board member, and commitment to acting in our shareholders’ and our best interests. Consideration is also given to members of the board of directors having an appropriate mix of background and skills. Although we do not have a formal diversity policy in place for the director nomination process, an important factor in our nominating and corporate governance committee’s consideration and assessment of a candidate is the diversity of the candidate’s background, viewpoints, training, professional experience, education and skill set. The nominating and corporate governance committee strives to nominate candidates with a variety of complementary skills so that, as a group, the board of directors will possess the appropriate talent, skills, and expertise to oversee the Company’s business.
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The same criteria apply with respect to the nominating and corporate governance committee’s evaluation of all candidates for membership to our board, including candidates recommended by shareholders. However, additional procedures will apply, as provided in our bylaws, if a shareholder wishes to submit at an annual meeting a director candidate who is not approved by our nominating and corporate governance committee or our board of directors.
Any shareholder desiring to nominate a director at our 2011 Annual Meeting of Shareholders without including such nomination in our proxy materials for that meeting must provide timely notice to the Company of such nomination in the form provided by our bylaws. See our bylaws for a description of the required form and content of this notice. To be timely, such notice must ordinarily be delivered to our principal executive offices (Attention: Corporate Secretary), at the address set forth above, no later than the close of business on the 90th day nor earlier than the 180th day prior to the first anniversary date of the preceding year’s annual shareholder meeting (i.e., nominations for director for inclusion in the 2011 Annual Meeting of Shareholders must be delivered to our principal executive offices no earlier than November 15, 2010, and no later than the close of business on February 14, 2011), or such proposal will be considered untimely. However, in the event that the date of the pending annual meeting of shareholders is more than 30 days before or more than 60 days after the first anniversary of the previous year’s annual meeting of shareholders, then such notice must be received not later than the later to occur of the close of business on the 90th day prior to the pending annual meeting of shareholders or the 10th day following the day on which public announcement of the date of such annual meeting of shareholders is first made by the Company. The foregoing time limits also apply in determining whether notice is timely for purposes of rules adopted by the SEC relating to the exercise of discretionary voting authority.
Any shareholder desiring a copy of our bylaws will be furnished one without charge upon written request to the Corporate Secretary at 1250 N.E. Loop 410, Suite 1000, San Antonio, Texas 78209.
Code of Conduct and Ethics
We have adopted a Code of Conduct and Ethics that satisfies the SEC’s definition of a “Code of Ethics” and applies to all employees, including our principal executive officer, principal financial officer and principal accounting officer. The Code of Conduct and Ethics is posted on our Web site atwww.pioneerdrlg.com. We intend to disclose on our Web site any amendments to the Code of Conduct and Ethics and any waivers of the Code of Conduct and Ethics that apply to our principal executive officer, principal financial officer and principal accounting officer.
Board’s Role in Risk Oversight
9Our board of directors is responsible for the Company’s risk-oversight function. The board of directors, with the assistance of its standing committees, our Chief Executive Officer, our Chief Financial Officer, our General Counsel, and our Director of Corporate Development, identifies, evaluates and discusses the material enterprise risks that could impact the Company’s operations and tactical and strategic decisions. These enterprise risks include operational, financial, legal, regulatory, market, and reputational risks. In addition, the board of directors reviews the risks associated with the Company’s strategic plan at an annual strategic planning session and periodically throughout the year as part of its consideration of the strategic direction of the Company. Each board committees also oversees the management of the Company’s risks that fall within each committee’s areas of responsibility. In performing this function, each committee has full access to management, as well as the ability to engage advisors.
Risk—Related Compensation Policies and Practices
During early 2010, the compensation committee undertook an assessment of the risk profile of its executive and non-executive compensation programs. With the assistance of our Chief Executive Officer, our Chief Financial Officer, our General Counsel, and our Director of Corporate Development, the compensation
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committee developed a framework to assist the compensation committee in ascertaining any potential material risks associated with its executive compensation program, including: external market reference; pay mix; range and sensitivity of performance-based variable plans; selection of performance metrics; goal-setting process; and the Company’s checks and balances on the payment of compensation. This process enabled the compensation committee to consider if any of the Company’s current compensation programs, practices or procedures should be altered in order to ensure that an appropriate balance between competitive pay and prudent risk is maintained. As a result of this analysis, the compensation committee identified the following risk mitigating factors:
the pay mix including fixed and variable compensation, including the use of fixed cash and variable cash (in the annual incentive and long-term incentive plan and the use of long-term equity as variable compensation);
limits on annual cash bonus awards;
the use of varied performance goals;
after several years of use, there appears to be no evidence that the performance goals encourage unnecessary or excessive risk taking;
stockownership guidelines;
the oversight of incentive compensation plans by our compensation committee; and
the high level of board involvement in approving material investments and capital expenditures.
As a result of the above assessment, the compensation committee determined that the Company’s policies and procedures largely achieved a proper balance between prudent business risk and competitive compensation.
Director Compensation
We payDuring the fiscal year ended December 31, 2009, we paid to each of our non-employee directors fees for service on our board of directors or committees of our board as follows:
Board Member Fees: | |||
Chairman’s annual retainer (1) | $ | 57,000 | |
Member’s annual retainer | $ | 30,000 | |
Each meeting attended in person | $ | 1,500 | |
Each meeting attended by telephone | $ | 1,000 | |
Audit Committee Fees: | |||
Chairman’s annual retainer | $ | 10,000 | |
Member’s annual retainer | $ | 5,000 | |
Each meeting attended in person | $ | 1,250 | |
Each meeting attended by telephone | $ | 1,000 | |
Compensation Committee Fees | |||
Chairman’s annual retainer | $ | 5,000 | |
Member’s annual retainer | $ | 1,750 | |
Each meeting attended in person | $ | 1,250 | |
Each meeting attended by telephone | $ | 1,000 | |
Nominating and Corporate Governance Committee Fees: | |||
Chairman’s annual retainer | $ | 5,000 | |
Member’s annual retainer | $ | 1,750 | |
Each meeting attended in person | $ | 1,250 | |
Each meeting attended by telephone | $ | 1,000 | |
Board Member Fees: | |||
Chairman’s annual retainer | $ | 70,000 | |
Member’s annual retainer | $ | 30,000 | |
Each meeting attended in person | $ | 1,500 | |
Each meeting attended by telephone | $ | 1,000 | |
Audit Committee Fees: | |||
Chairman’s annual retainer | $ | 12,000 | |
Member’s annual retainer | $ | 5,000 | |
Each meeting attended in person | $ | 1,500 | |
Each meeting attended by telephone | $ | 1,000 | |
Compensation Committee Fees | |||
Chairman’s annual retainer | $ | 7,500 | |
Member’s annual retainer | $ | 1,750 | |
Each meeting attended in person | $ | 1,500 | |
Each meeting attended by telephone | $ | 1,000 | |
Nominating and Corporate Governance Committee Fees: | |||
Chairman’s annual retainer | $ | 7,500 | |
Member’s annual retainer | $ | 1,750 | |
Each meeting attended in person | $ | 1,500 | |
Each meeting attended by telephone | $ | 1,000 | |
Special Committee Fees | |||
Each meeting attended in person | $ | 1,500 | |
Each meeting attended by telephone | $ | 1,000 | |
(1) Quarterly retainer fees
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During 2009, the Compensation Committee granted a restricted stock award with a fair market value of $11,250 were paidapproximately $100,000 to the Chairmaneach member of the board of directors between April 1, 2006 and December 31, 2006, based on a $45,000 annual retainer fee. Effective January 1, 2007, quarterly retainer fees paid todirectors. In addition, we reimburse the Chairman of the board of directors increased to $14,250, based on a $57,000 annual retainer fee.
We also grant non-employee directors options to purchase 10,000 shares of common stock upon initially becoming a director and 10,000 shares of common stock in each subsequent year pursuant to our 2003 Stock Plan. On May 24, 2007, Mr. Bunch received a special grant of nonqualified options to purchase 50,000 shares of our common stock at $14.60 per share, which will vest in one-third increments on each of the first, second and third anniversaries of the grant date. This special grant was made in recognition of Mr. Bunch providing us with various advisory services beyond the normal duties as Chairman of our board of directors. We reimburse all directors for out-of-pocket expenses they incur in connection with attending meetings of the board of directors and board committee meetingscommittees or otherwise in their capacity as directors. Our executive officers do not make recommendations regarding the non-employee directors’ compensation.
We expect each director to make every effort to attend each meeting of the board meeting,of directors, each meeting of any board committee on which he sits and the annual meeting of shareholders. Attendance in person at board and committee meetings is preferred but not required, andrequired; attendance by teleconference is permitted, if necessary. All of our directors attended last year’s annual meeting.
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The following table summarizes the compensation we paid each of our non-employee directors induring the fiscal 2007:year ended December 31, 2009:
Name | Fees Earned or Paid in Cash | Option Awards (1) | Total | ||||||
C. Robert Bunch (2) | $ | 73,624 | $ | 43,468 | $ | 117,092 | |||
Dean A. Burkhardt (3) | $ | 68,122 | $ | 43,468 | $ | 111,590 | |||
Michael F. Harness (4) | $ | 56,872 | $ | 43,468 | $ | 100,340 | |||
Michael E. Little (5) | $ | 53,500 | $ | 43,468 | $ | 96,968 | |||
James M. Tidwell (6) | $ | 65,248 | $ | 43,468 | $ | 108,716 | |||
C. John Thompson (7) | $ | 61,622 | $ | 43,468 | $ | 105,090 | |||
Name | Fees Earned or Paid in Cash | Stock Awards (1) | Total | ||||||
Dean A. Burkhardt | $ | 116,504 | $ | 100,000 | $ | 216,504 | |||
C. John Thompson | $ | 78,126 | $ | 100,000 | $ | 178,126 | |||
John Michael Rauh | $ | 57,000 | $ | 100,000 | $ | 157,000 | |||
Scott D. Urban | $ | 58,878 | $ | 100,000 | $ | 158,878 | |||
| (1) | The amounts included in the |
Stock Ownership Guidelines
In order to encourage the acquisition and retention of our common stock by our directors and to further align their economic interests with those of our shareholders and to focus our directors on the long-term sustained appreciation of our common stock, our compensation committee and our board of directors have adopted guidelines generally requiring each of our directors to own an amount of our common stock equal to the value of three times such director’s annual cash retainer. The ownership target is to be acquired no later than the December 31 following the fifth anniversary of the director’s initial appointment or election to the board of directors, or by December 31, 2013 for any director serving on the board of directors as of May 17, 2008. For purposes of this calculation, unvested restricted stock and restricted stock units may be counted toward the applicable ownership requirement. As of March 31, 2010, all directors have fully met their stock ownership requirements.
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The following table provides information on the outstanding equity awards for each of our non-employee directors as of December 31, 2009:
| Option Awards | Stock Awards | ||||||||||||||||
Name | Number of Securities Underlying Unexercised Options Exercisable | Number of Securities Underlying Unexercised Options Unexercisable | Option Exercise Price | Option Expiration Date | Shares or Units of Stock That Have Not Vested | Market Value of Shares or Units of Stock That Have Not Vested (4) | |||||||||||
Dean A. Burkhardt | 5,000 | — | $ | 13.98 | 6/14/2010 | — | — | ||||||||||
| 10,000 | — | $ | 14.48 | 6/14/2011 | — | — | |||||||||||
| 10,000 | — | $ | 14.98 | 6/14/2012 | — | — | |||||||||||
| — | — | — | — | 3,905 | (2) | $ | 30,850 | ||||||||||
| — | — | — | — | 17,762 | (3) | $ | 140,320 | ||||||||||
C. John Thompson | 5,000 | — | $ | 13.98 | 6/14/2010 | — | — | ||||||||||
| 10,000 | — | $ | 14.48 | 6/14/2011 | — | — | |||||||||||
| 10,000 | — | $ | 14.98 | 6/14/2012 | — | — | |||||||||||
| — | — | — | — | 3,905 | (2) | $ | 30,850 | ||||||||||
| — | — | — | — | 17,762 | (3) | $ | 140,320 | ||||||||||
John Michael Rauh | 3,333 | (1) | 6,667 | (1) | $ | 10.32 | 10/5/2018 | — | — | ||||||||
| — | — | — | — | 17,762 | (3) | $ | 140,320 | ||||||||||
Scott D. Urban | 3,333 | (1) | 6,667 | (1) | $ | 10.32 | 10/5/2018 | — | — | ||||||||
| — | — | — | — | 17,762 | (3) | $ | 140,320 | ||||||||||
| (1) | The indicated options are scheduled to vest in installments of 3,333 shares on October 6, 2010, and 3,334 shares on October 6, 2011. |
| (2) |
| (3) |
| (4) |
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EXECUTIVE OFFICERS
The following table provides information about our current executive officers (ages are as of July 1, 2007)March 31, 2010):
Name | Age | Position(s) Held | ||
Wm. Stacy Locke | President, Chief Executive Officer and Director | |||
| Executive Vice President and Chief | |||
| Executive Vice President Division | |||
| Executive Vice President and President of Production Services Division | |||
Carlos R. Peña | 43 | Senior Vice President, Compliance Officer | ||
For a description of the business background of Mr. Locke, see “Election“Directors with Terms Expiring in 2012” above.
Lorne E. Phillips was appointed Executive Vice President and Chief Financial Officer effective February 1, 2009. Prior to joining Pioneer Drilling Company, Mr. Phillips worked the last 10 years at Cameron International Corporation, serving most recently as Vice President and Treasurer. Prior to that, he was General Manager of Directors” above.Cameron’s Canadian valves operations, Vice President of Marketing and M&A for the valves division, and Business Development Manager for Cameron. Before joining Cameron, he was a Financial Analyst for SCF Partners, a provider of equity capital to energy service and equipment companies, and for Simmons & Company International, an investment bank focused on the energy industry.
Franklin C. Westhas servedcurrently serves as our Executive Vice President and President of our Drilling Services Division. Prior to his appointment as President of our Drilling Services Division on March 1, 2008, Mr. West served as our Chief Operating Officer since January 2002. Prior to joining Pioneer, Drilling Company, he was Vice President for Flournoy Drilling Company from 1967 until it was acquired by Grey Wolf, Inc. in 1997, and he continued in the same capacity for Grey Wolf, Inc., an on-shore oil and gas drilling contractor, until December 2001. Mr. West has over 40 years of experience in the drilling industry.
William D. HibbettsJoseph B. Eustace haswas appointed as Executive Vice President and President of our Production Services Division on March 1, 2008. Prior to joining Pioneer Drilling Company, Mr. Eustace served as ourPresident of WEDGE Oil and Gas Services since 2004. Prior to 2004, Mr. Eustace served as Group Vice President for Key Energy Services from 1998 to 2004, and as Vice President of Operations for Dawson Production Services from 1982 until Key Energy Services acquired Dawson Production Services in 1998.
Carlos R. Peña was appointed Senior Vice President, Chief FinancialGeneral Counsel, Secretary and Compliance Officer effective October 27, 2008. Mr. Peña has practiced law since 1992 and Secretary since December 2003,has experience providing both outside corporate and he served as one of our directors from June 1984 to May 2004. He previously served as our Senior Vice President, Chief Accounting Officersecurities counsel and Secretary from May 2002 to December 2003 and served as our Vice President, Chief Accounting Officer and Secretary from December 2000 to May 2002. Mr. Hibbetts served as the Chief Financial Officer of International Cancer Screening Laboratories from March 2000 to December 2000. He worked as a consultant from June 1999 to March 2000. He served as the Chief Accounting Officer of Southwest Venture Management Company from July 1988 to May 1999. Mr. Hibbetts was the Treasurer/Controller of Gary Pools, Inc. from May 1986 to July 1988. He previously served as an officer of our company from January 1982 until May 1986. Before initially joining our company, Mr. Hibbetts served in various positions as an accountant with KPMG Peat Marwick LLP from June 1971 to December 1981, including as an audit manager from July 1978 to December 1981.
Donald G. Lacombe has served as our Senior Vice President – Marketing since May 2002, and he served as our Vice President – Marketing from August 2000 to May 2002.in-house M&A counsel. Prior to joining our company,Pioneer Drilling in October 2008, he was Contractsworked for AT&T, Inc. in the M&A legal group. From 1996 to 2007, he focused on securities and Sales Manager for Grey Wolf, Inc.’s South Texas Divisioncorporate finance, M&A, venture capital, and for Flournoy Drilling Company from April 1993 to August 2000. Mr. Lacombe was an engineer with Dresser Magcobar from 1978 to 1993. He was an assistant geologist for TransOcean Oil from 1972 to 1975. Mr. Lacombe is a past President of the South Texas Chapter of the American Petroleum Institutecorporate governance at Fulbright & Jaworski L.L.P., Cox Smith Matthews Incorporated, and Chairman of the South Texas Chapter of the International Association of Drilling Contractors.Vinson & Elkins L.L.P.
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COMPENSATION DISCUSSION AND ANALYSIS
Compensation CommitteeIntroductory Note
The compensation committee of our board of directors (the “Compensation Committee”) and Company management evaluated and set 2009 executive compensation in the context of the Company’s performance and the challenging global economic environment since late 2008.
Summary of Executive Compensation Decisions Made in 2009
The following are the highlights of our executive compensation decisions made in 2009:
Base salaries remained constant, with few exceptions.
Annual cash incentive awards were limited due to the Company’s performance in fiscal 2009.
We implemented a long-term cash incentive program (with 50% based on Company performance) to better align the interests of our executives with the long-term performance of the Company and long-term shareholder value.
Long-term incentive awards were allocated at approximately 20% restricted stock, 48% stock options and 32% cash.
Compensation Committee
The Compensation Committee administers our executive compensation program. Our board of directors delegates to the Compensation Committee the board’s responsibilityprogram and is responsible for establishing appropriate compensation for our named executive officers. The duties of the Compensation Committee include:
reviewingapproving and approving the design of executiveoverseeing our compensation programs;
reviewingpolicies, objectives and approving all compensation and other agreements withprograms for executive officers;
reviewing and approving all formal employment or other contracts between Pioneer and our executive officers;
annually reviewing and approving corporate goals, objectives and objectivesother key measures relevant to compensation;the compensation of our executive officers; and
evaluating the performance of executive officers; and
assessing the effectiveness of the compensation programs.officers.
The Compensation Committee periodically reviews its own performance so that it might find ways to adapt to changes impacting compensation decisions and decision-making processes. The Compensation Committee also annually reviews the effectiveness of our compensation programs in obtaining desired results.
Compensation Philosophy
The Compensation Committee designs our executive compensation programs to:
provide an executive compensation structure that is consistent with competitive with compensation available in the relevant market;pay practices;
attract, motivate and retain managementkey personnel necessary to our success;
reward senior and key employees for building long-term shareholder value; and
encourage attainment of strategic business objectives with pay for performance.
The Compensation Committee reviews each element of compensation annually. Variable compensation (annual cash incentives, long-term cash incentives, stock options and restricted stock options)awards) supports our pay at riskfor performance philosophy and keeps fixed compensation costs lower for periods when our industry faces a down turn. Variable compensation represents between approximately 50% and 75%49% to 71% of total direct compensation to our named executive officers. The valueAnnual cash incentive compensation is based on various performance measures intended to provide incentives for executives to make decisions that result in strong annual performance results. This is balanced by long-term incentive compensation in the form of stock option awards, represents approximately tworestricted stock awards and long-term cash awards. Stock option awards generally vest over 3 years and are exercisable over a 10 year term.
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Restricted stock awards generally vest ratably over 3 years. Long-term cash awards were allocated as 50% time-based and 50% performance-based. Under these awards, the named executive officers will receive cash payments on April 30, 2011 and April 30, 2012 depending on their continued employment with the Company and the Company’s performance relative to four times thata peer group of annual incentives for the executive officers.companies. As a result, while we seekour compensation program provides incentives to incentivize attaining strong annual performance results, we emphasize increasingour executives to make business decisions that result in long-term shareholder value.
Benchmarking
In January 2009, the Compensation Committee retained Stone Partners as an independent compensation consultant to assist in the Compensation Committee’s compensation determinations. Stone Partners reported to, and acted at the direction of, the Compensation Committee. Stone Partners was instructed to benchmark executive positions, to review general trends relating to executive compensation in the drilling and oilfield services industry, and to review the operation of our incentive plans. The Compensation Committee reviewed several sources as a reference for determining competitive total compensation packages. These sources included published data from Watson Wyatt Top Management, William M. Mercer-Energy, and Stone Partners’ Executive Oilfield Manufacturing and Services Industry compensation surveys. Both Watson Wyatt (national survey data) and Mercer-Energy (industry survey data) are nationally known, highly respected sources for data. Stone Partners’ survey (available to participants only and another industry survey) included 71 oilfield manufacturing and service companies; 2009 was the 13th year of publication for this survey. In addition, the Compensation Committee reviewed proxy statement data from a peer group of companies. In December 2008, we determined that our fiscal year 2009 industry peer group would consist of the following companies:
Allis-Chalmers Energy, Inc.
Atwood Oceanics, Inc.
Basic Energy Services, Inc.
Bronco Drilling Co., Inc.
Complete Production Services, Inc.
Helix Energy Solutions Group
Helmerich & Payne, Inc.
Key Energy Services, Inc.
Oil States International, Inc.
Parker Drilling Company
RPC, Inc.
Superior Energy Services, Inc.
Unit Corp.
One company previously on the peer company list was dropped: Grey Wolf, Inc. because it was acquired by Precision Drilling. These companies were selected because of similarities we shared in industry (oilfield services) and similar levels of market capitalization (between $422.7 million and $4.7 billion), enterprise value (between $234.3 million and $2.8 billion, 2008 assets (between $547.7 million and $5.4 billion) and 2008 revenue (between $312.5 million and $2 billion). Companies of interest included Nabors Industries, Inc. and Patterson UTI Energy Inc. The companies of interest are not used for benchmarking data, but are consulted for compensation trends.
In March 2009, the compensation consultant benchmarked the 25th, 50th and 75th percentiles for the data sources mentioned above to gain an understanding of competitive pay practices. The industry peer group, industry surveys and national survey data are equally weighted, considered for each element of compensation, and collectively referred to as the “survey data” throughout this Compensation Discussion and Analysis. In evaluating and setting compensation for our named executive officers, the Compensation Committee does not target a specific percentile within the survey data, but rather uses the survey data as a guide, in combination with the other factors discussed in this Compensation Discussion and Analysis, to determine compensation levels for our named executive officers.
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Elements of Compensation
Base Salary
We pay our executive officers, including the officers named in the Summary Compensation Table included in this proxy statement (who we refer to as the(the “named executive officers”) base salaries that are at levels the Compensation Committee believes are necessary to attract and retain talented officers. Typically theThe Compensation Committee generally determines in May of each year the amount of each officer’sbase salary amounts on an annual salary increase, if any. Annual increases are not guaranteed, and adjustments take into account the individual’s performance, responsibilities, experience and internal pay equity, as well as external market practices that are discussed under “Benchmarking” below.basis. Because other elements of compensation are typically expressed as a percentage of base salary, maintaining a competitive base salary for each named executive officer becomesis a high priority in the current oilfield services industry employment market.market and is particularly important to us given our focus as a growth company within that industry. The Compensation Committee assesses performance for base salary purposes using a qualitative, rather than quantitative, performance assessment. The Compensation Committee does not use a specific performance formula or a weighting of factors in
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determining base salary levels. However,Instead, the Compensation Committee considers management achievements, operatingfinancial performance, execution of our business strategy, earnings and progress in implementingindividual contributions to the business, development efforts.as well as pay levels of comparable executives at peer companies. In considering these factors, the Compensation Committee reviews executive performance with the Chief Executive Officer and generally relies on the Chief Executive Officer’s evaluation of each officer’s performance (other than his own).
The following table sets forth each named executive officer’s annual base salary as of December 31, 2008 and December 31, 2009.
Name and Position | Annual Base Salary as of December 31, 2008 | Annual Base Salary as of December 31, 2009 | % Change | ||||||
Wm. Stacy Locke, | |||||||||
Director, President and Chief Executive Officer | $ | 550,000 | $ | 550,000 | — | % | |||
Lorne E. Phillips, | |||||||||
Executive Vice President and Chief Financial Officer | N/A | $ | 320,000 | N/A | |||||
William D. Hibbetts, | |||||||||
Senior Vice President of Accounting | $ | 210,000 | $ | 210,000 | — | % | |||
Franklin C. West, | |||||||||
Executive Vice President and President of Drilling Services Division | $ | 395,000 | $ | 395,000 | — | % | |||
Joseph B. Eustace, | |||||||||
Executive Vice President and President of Production Services Division | $ | 280,000 | $ | 280,000 | — | % | |||
Carlos R. Peña, | |||||||||
Senior Vice President, General Counsel and Secretary | $ | 225,000 | $ | 250,000 | 11 | % | |||
In the case of a promotion,May 2009, the Compensation Committee carefully considers new responsibilities, external market practices and internal pay equity in addition to past performance and experience.
The Compensation Committee establishedreviewed base salaries for the named executive officers for the year ending March 31, 2007 based onin accordance with the factors discussed above and inabove. In accordance with expected competitive pay practices for fiscal 2009, the context of a tight oilfield services labor market due to expanding exploration and production of oil and natural gas, and our operating results for the last three years including record revenues, gross profit and net income. Prior to adjustments to base salaries, the individual base salaries for the named executive officers did not increase except for Mr. Peña. Mr. Peña received a base salary increase to better align his base salary with that of similarly situated officers at our peer companies. After this salary increase, base salaries of the named executive officers ranged between the 37th38th and 48th69th percentile of the survey data described belowdiscussed under “Benchmarking.”“Benchmarking” above. On the basis of its review in May 2006, the Compensation Committee increased base salaries of the named officers on average, 15.8% for fiscal year 2007, retroactive to April 1, 2006. After these salary increases, base salaries of the named officers ranged between the 44th and 59th percentile of the survey data. The following table sets forth, for each of the named officers, base salaries for our named executive officers fall at the previous fiscal year and for the 2007 fiscal year.
Name and Position | Base Salary Fiscal Year 2006 | Base Salary Fiscal Year 2007 | ||||
Wm. Stacy Locke, | ||||||
Director, President and Chief | ||||||
Executive Officer | $ | 340,000 | $ | 408,000 | ||
Franklin C. West, | ||||||
Executive Vice President and | ||||||
Chief Operating Officer | $ | 285,000 | $ | 350,000 | ||
William D. Hibbetts, | ||||||
Senior Vice President, Chief | ||||||
Financial Officer and Secretary | $ | 180,000 | $ | 210,000 | ||
Donald G. Lacombe, | ||||||
Senior Vice President— | ||||||
Marketing | $ | 160,000 | $ | 185,000 | ||
J. Blaine David, | ||||||
Vice President Operations | $ | 175,000 | $ | 185,000 | ||
Willie W. Walker, | ||||||
Vice President Operations | $ | 175,000 | $ | 185,000 | ||
Annual Incentive Compensation
During fiscal year 2006, themarket median. The Compensation Committee implemented an annual formula-based, cash-incentive plan. The plan rewardshas determined that base salaries at this level enable us to attract and retain talented officers for performance in each year. The named officers can receive upwhile permitting us to 30%pay a substantial portion of their total direct compensation in the form of annual incentives.variable compensation (annual cash and long-term incentives).
Under
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Annual Cash Incentive Compensation
At the cash-incentive plan, we basebeginning of 2009, because of the severe downturn in the oil and gas industry, management and the Compensation Committee decided to impose an additional threshhold on the achievement of cash incentive awards for each named officer on performance relative2009, in addition to annual targets, which are approved bythe threshholds described below. On February 23, 2009, the Compensation Committee. UnderCommittee determined that cash incentive awards would only be awarded for 2009 if the plan, the performance measures may vary among participants and can change from year to year. For fiscal year 2007, our annual performance targets included earnings per share,Company’s earnings before income tax, depreciation and amortization expense or “EBITDA”, for fiscal year 2009 exceeded $90 million. The Company’s EBITDA return on capital employed,for fiscal year 2009 did not exceed $90 million. As a result, cash incentive awards related to financial and safety record, division gross margin per dayperformance measures were not awarded for fiscal year 2009. However, due to the Company’s achievements in 2009 as described below, the Compensation Committee decided in February 2010 to award the 30% discretionary component of the 2009 cash incentive award.
The named executive officers can receive up to approximately 19-23% of their total direct compensation (including base salary, annual cash incentive compensation and division supplies, repairs and maintenance (SRM) per day.long-term incentive compensation) in the form of annual cash incentives. Approximately 23% of Mr. Locke’s targeted total direct compensation is allocated to the annual incentive award. Approximately 19-21% of the other named executive officers’ targeted total direct compensation is allocated to the annual incentive award. The Compensation Committee also established individualallocated a higher percentage (23%) of Mr. Locke’s total direct compensation to the annual cash incentive award because the Compensation Committee believes his position uniquely allows him to influence the financial performance objectivesof the Company and, accordingly, his compensation should be more closely tied to the Company’s financial results. The Compensation Committee has determined that this level of annual cash incentive compensation appropriately motivates our executive officers to produce strong business performance each year while allowing for eacha competitive base salary and other forms of compensation to encourage creation of long-term shareholder value.
The cash incentive award levels for the named officer that are specific to their job duties and responsibilities. For instance, the fiscal year 2007 individual performance objectivesexecutive officers for our Chief Executive Officer were:2009, expressed as a percentage of base salary, were as follows:
develop a five-year strategic plan, that included evaluating specific types of growth opportunities;
develop and implement a succession plan for key officers;
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improve procedures for communications to members of the board of directors;
emphasize safety performance at certain operations meetings; and
improve the capital budgeting process and ensure actual capital expenditures do not exceed budgeted capital expenditures for fiscal year 2007.
Name | Threshold | Target | Above Expectation | ||||||
Wm. Stacy Locke | 24 | % | 80 | % | 160 | % | |||
Lorne E. Phillips | 15 | % | 50 | % | 100 | % | |||
William D. Hibbetts | 12 | % | 40 | % | 80 | % | |||
Franklin C. West | 15 | % | 50 | % | 100 | % | |||
Joseph B Eustace | 15 | % | 50 | % | 100 | % | |||
Carlos R. Peña | 15 | % | 50 | % | 100 | % |
For each performance measure, a “target” level is established annually, typically in May.annually. The “threshold” and “above expectation” levels are functions of the target level. The target level for the performance measures generally derives from our board-approved budget. The Compensation Committee strives to set performance goals that are both measurable and achievable while providing effective incentive to contribute to our growth. Factors taken into account include the individual’s responsibilities, experience, and internal pay equity, as well as external market practices that are discussed under “Benchmarking” below.
The size of a named officer’s award opportunity varies according to his eligibility level, which is determined by the Compensation Committee, and whether he meets the “threshold,” “target” or “above expectation” level for each performance measure and whether he meets his individual performance objectives. For fiscal year 2007, the cashCash incentive award levels for the named officers, expressed as a percentage of base salary, were as follows:
Name | Threshold | Target | Above Expectation | ||||||
Wm. Stacy Locke | 18 | % | 60 | % | 120 | % | |||
Franklin C. West | 15 | % | 50 | % | 100 | % | |||
William D. Hibbetts | 12 | % | 40 | % | 80 | % | |||
Donald G. Lacombe | 12 | % | 40 | % | 80 | % | |||
J. Blaine David | 10.5 | % | 35 | % | 70 | % | |||
Willie W. Walker | 10.5 | % | 35 | % | 70 | % |
Target performance for the performance measures generally derives from our board-approved budget. Typically the Compensation Committee determines in May of each year the level of each executive’s target incentive for the current fiscal year.
For fiscal year 2007, the threshold performance equals 75% of targeted performance and above expectation performance amounts to 130% of targeted performance. Cash-incentive payments are prorated if performance measure results fall between threshold and target or between target and above expectation. Factors taken into account in determining each named executive officer’s annual cash incentive award target include the individual’s responsibilities, the individual’s experience, and overall fairness, as well as competitive pay practices that are discussed under “Benchmarking” above.
The proposed cash incentive awards for each named executive officer are based on achievement of specific performance measures and on the Compensation Committee’s subjective assessment of each named executive officer’s individual performance. While the performance measures may change from year to year, as further discussed below, our annual performance measures for 2009 included: earnings per share; EBITDA; EBITDA return on capital employed; and safety record (recordable incident rate). For the earnings per share and return on capital employed calculations, we excluded the impact of goodwill and intangible asset impairment charges.
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For 2009, the EBITDA objective for the corporate officers was consolidated EBITDA for the entire company and for divisional officers was that division’s EBITDA; Mr. Locke, Mr. Phillips, and Mr. Peña are the only executives with the return on capital employed as an objective; the other executives have additional weight allocated to their EBITDA objective.
For 2009, the individual performance portion of the cash incentive award to each named executive officer was determined completely at the Compensation Committee’s discretion. Historically, cash incentive awards for each named executive officer were based in part on individual performance objectives. For 2009, the Compensation Committee did not set individual performance objectives because it was clear early in the year that the $90 million EBITDA threshold would not be met. As a result, the individual performance portion of the cash incentive award was not tied to achievement of any specific objectives. In reaching its subjective decision to award the discretionary individual performance portion of the cash incentive award to each named executive officer, the Compensation Committee considered, among other things: (1) the Company’s safety results in 2009, which were the best in its history, (2) the improvement in rig utilization in the second half of the year, (3) the Company’s success in increasing the number of rigs working in shale plays, and (4) the Company’s success in amending its secured credit facility.
The weighting of the current performance measures and individual performance objectives for the named executive officers for 2009 was as follows:
Name | Earnings per share | Consolidated or Division Level EBITDA | Consolidated EBITDA Return on Capital Employed | Safety Record (Recordable Incident Rate) | Discretionary Based on Individual Performance | |||||||||
Wm. Stacy Locke | 20 | % | 15 | % | 15% | 20 | % | 30 | % | |||||
Lorne E. Phillips | 20 | % | 15 | % | 15% | 20 | % | 30 | % | |||||
William D. Hibbetts | 20 | % | 30 | % | — | 20 | % | 30 | % | |||||
Franklin C. West | 20 | % | 30 | % | — | 20 | % | 30 | % | |||||
Joseph B. Eustace | 20 | % | 30 | % | — | 20 | % | 30 | % | |||||
Carlos R. Peña | 20 | % | 15 | % | 15% | 20 | % | 30 | % |
The Compensation Committee has determined that these weighting percentages appropriately correspond to our business objectives and encourage the named executive officers to focus on those factors that the Compensation Committee feels are important for both our short-term and long-term success.
The Compensation Committee approved the targeted2009 performance measures in May 2006 after reviewing the appropriateness of the performance measures used in the past and determining anticipated difficulties in achieving specific performance targets.
The Compensation Committee also approved individual performance objectives for Messrs. Locke, West, Hibbetts and Lacombe in August 2006. Messrs. Locke and West approved the personal objectives for Messrs. David and Walker. From 26% to 38% of each named officer’s total cash compensation depends upon our meeting or exceeding the targeted financial performance levelscriteria and personal objectives.the actual performance achieved for 2009 were:
The weighting of
| Performance Criteria | Actual | ||||||||||||||
| Threshold | Target | Above Expectation | Result Achieved | % of Target | |||||||||||
Loss Per Share | ($0.16 | ) | ($0.13 | ) | ($0.09 | ) | ($0.46 | ) | (354 | %) | |||||
Consolidated EBITDA (in thousands) | $82,479 | $109,971 | $142,963 | $74,942 | 68.1 | % | |||||||||
US Drilling Services Division EBITDA (in thousands) | $52,353 | $69,803 | $90,744 | $39,100 | 56.0 | % | |||||||||
Production Services Division EBITDA (in thousands) | $25,863 | $34,484 | $44,830 | $21,887 | 63.5 | % | |||||||||
Consolidated EBITDA Return on Capital Employed | 12.2 | % | 16.3 | % | 21.2 | % | 10.9 | % | 66.9 | % | |||||
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Because the various performance measures and individual performance objectives for the named officersCompany’s EBITDA for fiscal year 2007 was as follows:
Name | Earnings per share | EBITDA | EBITDA Return on Capital Employed | Safety (Recordable Incident Rate) | Individual Performance Objectives | ||||||||||
Wm. Stacy Locke | 20 | % | 10 | % | 10 | % | 30 | % | 30 | % | |||||
Franklin C. West | 20 | % | 15 | % | 15 | % | 30 | % | 20 | % | |||||
William D. Hibbetts | 20 | % | 20 | % | 20 | % | 20 | % | 20 | % | |||||
Donald G. Lacombe | 20 | % | 20 | % | 20 | % | 20 | % | 20 | % | |||||
J. Blaine David | 20 | % | 15 | % | 15 | % | 30 | % | 20 | % | |||||
Willie W. Walker | 20 | % | 15 | % | 15 | % | 30 | % | 20 | % |
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In May 2007, the Compensation Committee evaluated our fiscal year 2007 performance results under the cash-incentive plan and determined the total awards to be paid to each named officer. Our fiscal year 2007 earnings per share was $1.68, which2009 did not exceed the target by 12%. Our fiscal year 2007 EBITDA was $179,890,000, which exceeded the target by 9.2%. Our fiscal year 2007 return on capital employed based on EBITDA was 46.8%, which exceeded the target by 7.6%. The actual performance under the fiscal year 2007$90 million threshold, cash incentive awards related to financial and safety measure was below target, but exceeded the threshold level. The Compensation Committee exercised some discretion in the determination of the performance measures for safety, because the method of calculating the recordable incident rate changed during fiscal year 2007. For each of the individual performance objectives, the Compensation Committee evaluated the achievement or progress toward the objectives in the case of each named officer in light of the officer’s position and duties, and determined with respect to each named officer, in the Compensation Committee’s discretion, a performance rating from 0.0 to 3.0, which is the basis for the percentage of target award paid out under the individual performance objective component.
Cash-incentive awards for the named officerswere not awarded for fiscal year 2007 were based on the cash-incentive targets for fiscal year 2007 described above. These actual cash incentives amounts ranged from 39% to 68% of each named officer’s base salary. The percentages of base2009.
Base salary that were paid to the named officers were as follows for fiscal year 2007:
Name | Earnings per share | EBITDA | EBITDA Return on Capital Employed | Safety (Recordable Incident Rate) | Individual Performance Objectives | Total | ||||||||||||
Wm. Stacy Locke | 16.8 | % | 7.8 | % | 7.5 | % | 9.3 | % | 27.0 | % | 68.4 | % | ||||||
Franklin C. West | 14.0 | % | 9.8 | % | 9.4 | % | 7.7 | % | 14.0 | % | 54.9 | % | ||||||
William D. Hibbetts | 11.2 | % | 10.5 | % | 10.0 | % | 4.1 | % | 4.1 | % | 39.9 | % | ||||||
Donald G. Lacombe | 11.2 | % | 10.5 | % | 10.0 | % | 4.1 | % | 8.0 | % | 43.8 | % | ||||||
J. Blaine David | 9.8 | % | 6.9 | % | 6.6 | % | 5.4 | % | 10.5 | % | 39.2 | % | ||||||
Willie W. Walker | 9.8 | % | 6.9 | % | 6.6 | % | 5.4 | % | 10.5 | % | 39.2 | % |
Individual fiscal year 2007 base salaries plus target annual incentive compensation established for the named executive officers in May 2009 ranged between the 41st33rd and 61st63rd percentile of the survey data discussed under “Benchmarking” below, prior toabove. On average, the April 1, 2006base salary increases. After the April 1, 2006 salary increases took effect, individual fiscal year 2007 base salaries plus target annual incentive for our named executive officers fall slightly above the market median. The Compensation Committee has determined that this level of annual cash compensation provides for a competitive base salary and motivates management to achieve annual business objectives while allowing the Company to also provide a significant portion of the named officers ranged between the 41st and 68th percentile of the survey data.
The amounts paid to each named officer are reflectedexecutive officers’ total direct compensation in the Summary Compensation Table underform of long-term incentive compensation to motivate the “Non-Equity Incentive Compensation” column.creation of long-term shareholder value.
EquityLong-Term Incentive Compensation
Our 2003 Stock Plan provides forWe provide our named executive officers with stock option awards, which the Compensation Committee periodically grantsrestricted stock awards and long-term cash awards pursuant to the named officers.our 2007 Incentive Plan. The Compensation Committee believes this equity-based elementthese elements of long-term compensation provides incentive tomotivate management to seek to maximize long-term shareholder value. For fiscal year 2007,According to guidelines adopted by the Compensation Committee adopted guidelines for granting of annual stock option awards. Each eligible employeeawards, each named executive officer receives long-term incentive awards at the Compensation Committee’s discretion based on the following considerations;considerations: (1) the employee’s base salary,salary; (2) a multiple of base salary dependingbased on the employee’s position with the Company, the employee’s responsibilities, the employee’s experience, and overall fairness, as well as survey data discussed under “Benchmarking” above; (3) the fair value of the stock, company performancestock; (4) Company performance; and (5) the individual employee’s performance. The Compensation Committee determines the multiple of base salary each year depending on our company’s performance and survey data referred to below under “Benchmarking.” The Compensation Committee reviews prior awards to compare the multiple of base salary from the prior award to the current award. Each May, theThe Compensation Committee meets annually to make award determinations,determine long-term incentive awards, if any, for each named executive officer. Long-term incentive awards were allocated at approximately 20% restricted stock, 48% stock options, and 32% cash.
Long-Term Cash Incentive Compensation
On August 27, 2009, the Compensation Committee approved long-term cash incentive awards under our 2007 Incentive Plan. Under these awards, the named executive officers will receive cash payments on April 30, 2011 and April 30, 2012 depending on their continued employment with the Company and the Company’s performance relative to a peer group of companies. Each award agreement specifies a time-based award amount and a performance-based award amount.
In general, for the time-based component, if the participant remains employed with the Company through April 30, 2011, the participant will receive 50% of the time-based award amount on that date, and if the participant remains employed with the Company through April 30, 2012, the participant will receive the remaining 50% of the time-based award amount on that date.
For the performance-based component, the Company’s performance in three metrics (EBITDA growth, EBITDA return on capital invested, and total shareholder return growth) will be compared to a peer group for the period from January 1, 2009 to December 31, 2010. The peer group is comprised of the following: Nabors Industries, Helmerich & Payne, Patterson-UTI Energy, Bronco Drilling Company, Union Drilling, Parker Drilling Company, Superior Energy Services, Key Energy Services, Basic Energy Services, and Complete Production Services. The companies in this peer group were selected because their business correlates most directly with ours and thus these companies provide an appropriate comparison for the performance metrics (as compared with our benchmarking peer companies that were selected based on shared industry and similar levels of market capitalization, enterprise value, assets and revenue and provide a more appropriate comparison for determining executive compensation). After the performance period, the Company’s performance in each of the
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three metrics will be compared against the peer group companies, and a percentage for each of the three metrics will be assigned based on the Company’s ranking among its peers:
Company Ranking | Metric Percentage | ||
<25th Percentile: | 0 | % | |
25th Percentile: | 25 | % | |
50th Percentile: | 100 | % | |
90th Percentile: | 200 | % |
The metric percentage for any ranking achieved between 25th and 50th percentiles and between 50th and 90th percentiles will be proportional to the percentile achieved. The average of the three metric percentages will then be multiplied by the performance-based award amount to determine the final amount of the performance-based award. In general, after the determination of the performance-based award amount, if the participant remains employed with the Company through April 30, 2011, the participant will receive 50% of the performance-based award amount on that date, and if the participant remains employed with the Company through April 30, 2012, the participant will receive the remaining 50% of the performance-based award amount on that date.
The target long-term cash incentive award amounts for the named executive officers for 2009 were as follows (the amounts below reflect the aggregate amount each named executive officer would receive if the average of the three metric percentages for the period from January 1, 2009 to December 31, 2010 were 100%):
Name | Time-Based Award | Performance-Based Award | ||||
Wm. Stacy Locke | $ | 234,000 | $ | 234,000 | ||
Lorne E. Phillips | $ | 89,500 | $ | 89,500 | ||
William D. Hibbetts | $ | 31,500 | $ | 31,500 | ||
Franklin C. West | $ | 121,000 | $ | 121,000 | ||
Joseph B Eustace | $ | 68,500 | $ | 68,500 | ||
Carlos R. Peña | $ | 62,000 | $ | 62,000 | ||
Long-Term Equity Incentive Compensation
Long-term equity incentive compensation consists of stock option awards and restricted stock awards. As of February 2009, the Compensation Committee allocated between 23% and 32% of each named executive officer’s total direct compensation to long-term equity incentive awards. The Compensation Committee has determined that these percentages allow us to provide a competitive base salary and annual and long-term cash incentive compensation while still motivating the named executive officers to make decisions that result in long-term shareholder value. The Compensation Committee allocated a higher percentage (32%) of Mr. Locke’s total direct compensation to long-term equity awards because the Compensation Committee believes that his position uniquely allows him to influence the financial performance of the Company and, accordingly, his compensation should be more closely tied to the Company’s stock performance results. The Compensation Committee allocated approximately 23-29% of the other named executive officers’ targeted total direct compensation to long-term equity incentive awards.
The Compensation Committee approves, and recommends to the board of directors for approval, all grants of equity compensation to Company employees, including the named executive officers. During the fiscal year ended December 31, 2009, equity awards were made to approximately 111 employees, including the named executive officers, or about 6.5% of total employees. Stock options are granted with an exercise price equal to the closing price of our common stock on the date of grant. The Compensation Committee doesWe do not makehave a program, plan or practice to time our long-term equity incentive awards in connectioncoordination with the release or withholding of material, non-public information.
For fiscal year 2007, In the event that material non-public information becomes known to the Compensation Committee allocated from 33%prior to 51%granting long-term equity incentive awards, the Compensation Committee will take the existence of eachsuch information under advisement and make an assessment in its business judgment whether to delay the grant of the long-term incentive award in order to avoid any impropriety.
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After the 2009 salary increase for one named officer’sexecutive officer took effect and the long-term incentive awards were made for the fiscal year ended December 31, 2009, individual named executive officer total direct compensation to stock options. Seeranged between the Grants21st and 59th percentile of Plan-Based Awards Table for the individual awards. Mr. West received a large award in fiscal year 2005 intended to represent three years’ worth of grants. This grant is reflected insurvey data. On average the Outstanding Equity Awards Table. In fiscal year 2007, stock options were awarded to approximately 38 employees,
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including the named officers, or about 2% of total employees. Individual fiscal year 2007 total direct compensation for our named executive officers falls just below the named officers ranged between the 24th and 67th percentile of the survey data referred to below under “Benchmarking,” prior to the April 1, 2006 salary increases. After the April 1, 2006 salary increases took effect and the fiscal year 2007 stock options were considered, individual fiscal year 2007 total direct compensation for the named officers ranged between the 40th and 73rd percentile of the survey data.market median.
Additional Information
Health, Welfare and Retirement Benefits
In general,Besides being a common component of compensation, health, welfare and retirement benefits are designed to provide a safety net of protection against the financial catastrophes that can result from illness, disability or death, and to provide a reasonable level of retirement income based on years of service with us. These benefits help us to be competitive in attracting and retaining employees. Benefits help to keep employees focused on job performance without major distractions related to paying for health care, adequate savings for retirement and similar issues.
We offer a standard range of health and welfare benefits to substantially all U.S. employees, including the named executive officers. These benefits include medical, prescription drug and dental coverage, and life and accidental death and dismemberment insurance. Short-term disability coverage and optionalIn addition, long-term disability insurance benefits areand optional short-term coverage is available to all salaried employees.
We offer a defined contribution 401(k) plan to substantially all of our U.S. employees. The participants may contribute, on a pretax basis, any amount of their base salary and cash incentive compensation, up to a limit imposed under the Internal Revenue Code, which was $15,000 for calendar year 2006. We makeCode. From January 2009 through March 2009, we made matching contributions, up to a limit imposed under the Internal Revenue Code, with respect to these employee pretax contributions equal to 50% of the contributions made by a participating employee of the first 6% of the employee’s compensation. EmployeesUnder this matching scheme, employees become fully vested in employer contributions after five years of employment and are ratably vested prior to that time. Employees age 50 or over are entitled to make an additional pretax contribution of up to $5,000 per year. The Summary Compensation Table reflects our contributions to the 401(k) Plan for each named executive officer. Although the Company does not currently provide matching contributions to the 401(k) Plan for our named executive officers, we anticipate reinstating Company matching contributions beginning on April 1, 2010.
Perquisites
We provide few perquisites to a limited number of officers.perquisites to certain executive officers and key employees. Those perquisites primarily consist of car allowances and club memberships that our executive officers use in performing their responsibilities.duties. The All Other Compensation column of the Summary Compensation Table shows the value of perquisites we provided to the named executive officers induring the fiscal year 2007 inended December 31, 2009.
Stock Ownership Guidelines
In order to encourage the All Other acquisition and retention of our common stock by our named executive officers to further align their economic interests with those of our shareholders and to focus our executives on the long-term sustained appreciation of our common stock, our compensation committee and our board of directors have adopted tiered guidelines requiring our current named executive officers to own a specified amount of our common stock equal to a specified multiple of their annual base salary. The ownership target is to be acquired no later than the December 31 following the fifth anniversary of the executive’s commencement of employment with the Company, or by December 31, 2013 for any executive employed as of May 17, 2008. The ownership target for the chief executive officer equals the value of three times his or her annual base salary. The ownership target for the other named executive officers equals two times his or her annual base salary. For purposes of this calculation, unvested restricted stock and restricted stock units may be counted toward the applicable ownership requirement. As of March 31, 2010, Mr. Locke and Mr. Hibbetts had fully met their stock ownership requirements. Mr. West, Mr. Eustace and Mr. Peña have until December 31, 2013 to meet their ownership targets. Mr. Phillips has until December 31, 2014 to meet his ownership target.
23
Compensation column.
BenchmarkingConsiderations for Fiscal Year 2010
The Compensation Committee determinedbelieves that we would retain Stone Partners asstock option grants and restricted stock awards continue to constitute the best long-term award vehicles and that certain elements of compensation consultantshould be based on Company performance. In early 2010, the Committee decided not to assist inaward performance-based long-term cash awards to the named executive officers and instead to award performance-based restricted stock units. Recognizing the need to balance retention of executive officers with the realities of the Company’s reduced financial performance, the Compensation Committee’sCommittee decided to utilize a lower EBITDA threshold ($30 million) for annual incentive compensation determinations. Stone Partners reports to, and acts atthan the direction of, the Compensation Committee.threshold established for fiscal 2009 ($90 million). The Compensation Committee reviews several sources as a reference for determining competitive totalwill continue to review our compensation packages. These include published data from Watson Wyatt Top Management, Mercer-Energy,programs and Stone Partner’s Executive Oilfield Manufacturingmake appropriate modifications to discourage risky short-term behavior and Services Industry compensation surveys. Watson Wyatt’s survey includes 2,567 US companies, 154 of which are in the Utilitiesreward consistent and Energy industry. Mercer’s survey includes 184 companies in the energy industry. Both Watson Wyatt (national survey data) and Mercer-Energy (industry survey data) are nationally known, highly respected sources for data. Stone Partner’s survey (available to participants only and another industry survey) includes 57 oilfield manufacturing and service companies; 2006 was the 10th year of publication for this survey. In addition, the Compensation Committee reviews proxy statement data from a peer group of companies. Periodically, the Compensation Committee reviews the peer group companies to ensure its pertinence for comparison purposes. Currently, our industry peer group consists of the following companies:
Atwood Oceanics, Inc.
Grey Wolf, Inc.
Helix Energy Solutions Group
Helmerich & Payne, Inc.
17
Parker Drilling Company
Petroleum Development Corp.
TODCO
Unit Corp.
These companies were selected because of similarities we share, including a common industry (oilfield services) and similar levels of market capitalization, assets and revenue. In addition, the Compensation Committee reviews the total compensation packages of Patterson UTI Energy, Inc. and Nabors Industries Ltd. for reference purposes only.longer-term performance that correlates with shareowner value.
For fiscal years 2007 and 2008, the Compensation Committee benchmarked the 25th, 50th and 75th percentiles for the data sources mentioned above to gain an understanding of competitive pay practices. The industry peer group, industry survey and national survey data are equally weighted, considered for each element of compensation, and collectively referred to as the “survey data” throughout this Compensation Discussion & Analysis. The Compensation Committee has selected the 50th percentile as a reference point with respect to base salary, total cash and total direct compensation. An officer’s base salary, for example, may be higher or lower than the reference point based on background, personal performance, skills and experience in the current role. Stone Partners also provides the Compensation Committee with advice on equity incentive compensation trends, including types and value of awards being used by other public companies.
Role of Executive Officers in Setting Compensation
As discussed above, theThe Chief Executive Officer provides input into the Compensation Committee’s meeting agendas, including background information regarding our strategic objectives, suggestions on annual performance targets and reports on his evaluations of the other officers. He makes compensation recommendations for the other officers with respect to base salary merit increases, annual cash incentives and long-termannual equity incentives that are then reviewed by the Compensation Committee. The Chief Financial Officer evaluates the financial implications of any Compensation Committee action.
The Compensation Committee meetings are attended by the Compensation Committee members and, as needed, by other directors, the Chief Executive Officer, the Chief Financial Officer, and outside advisors, including our compensation consultant. The Compensation Committee regularly meets in executive session without any members of management present.
Tax and Accounting Implications
The following briefly summarizes tax and accounting implications of each form of compensation we currently use to compensate our officers:
Salary is expensed when earned, and any salary to an officer that is in excess of $1 million would not be deductible. Salary is taxable to our officers at the time it is paid.
Annual cash incentives are expensed during the year when payout is probable. Annual cash incentives are taxable to our officers at the time they are paid.
Stock options are expensed over the shorter of the vesting period or the service period. Our shareholders approved our 2003 Stock Plan and therefore, awards are exempt from the deduction limitations of Section 162(m) of the Internal Revenue Code. Non-qualified Stock options are taxable income to our officers at the times they exercise such options. For a discussion of the tax treatment of incentive stock options, see “Certain Federal Income Tax Consequences of Awards under the 2007 Incentive Plan” below.
Compliance With Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code generally disallows aof 1986, as amended, limits the tax deduction to public companies to the extent of excessfor annual compensation over one million dollars paid to a public company’s Chief Executive Officer and its next three most highly compensated executive officers, excluding the Chief Financial Officer, to $1 million. Qualified performance-based compensation is excluded from this deduction limitation if certain officers, except for qualified performance-based compensation. We had no nondeductiblerequirements are met. Stock option awards granted under our 2007 Incentive Plan and other equity compensation expense forplans have been structured to qualify as performance-based. The Compensation Committee’s intent is to design compensation awards that will be deductible without limitation where doing so will further the fiscal year ended March 31, 2007.purposes of our executive compensation program. The Compensation Committee plans to reviewwill, however, take into consideration the various other factors described in this matter as appropriateCompensation Discussion and take action as may be necessary to preserve the deductibility ofAnalysis, together with Section 162(m) considerations in making executive compensation paymentsdecisions and could, in certain circumstances, approve and authorize compensation that is not fully tax deductible. All compensation paid to the extent reasonably practical and consistent with our objectives.named executive officers in 2009 was deductible under Section 162(m).
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Recoupment Policy
We have not adopted a policy on recoupment of performance-based compensation in the event of a restatement of our financial statements. In light of the numerous financial statement restatements impacting public companies in recent periods, the Compensation Committee has discussed a recoupment policy and expects to recommend a recoupment policy for adoption by our board of directors during the current fiscal year.
Severance Agreements
The Compensation Committee views change in control and non-change in control severance protection for officers as a necessary part of compensation to remain competitive in the market. A substantial majority of oilfield service companies provide such benefits. While the Compensation Committee recognizes there are variation in types, amounts, eligibility requirements and other terms and conditions among companies, the aggregate potential value remains competitive and does not significantly vary from programs at peer group companies.
The following is a brief description of the material terms and conditions of our executive severance plan (the “ESP”).
The Compensation Committee, in its sole discretion, designates the participants in the ESP. Typically, the Compensation Committee limits participation in the ESP to those employees who are considered to be senior management employees. The Compensation Committee, upon 12 months’ written notice, may also terminate an employee’s participation in the ESP. An individual participating immediately prior to a “change in control” of our company may not be removed from the ESP prior to the date two years following the change in control. Participants in the ESP will be designated by the Compensation Committee as either “Level A” or “Level B” participants. All of the named officers are currently designated as Level A participants, except for J. Blaine David and Willie W. Walker who are designated as Level B participants.
In the event of an “involuntary termination” of either a Level A or a Level B participant, an ESP participant must execute an acceptable waiver and release of claims to receive the severance compensation.
In the event of an involuntary termination not involving a change in control, a Level A participant would receive (1) a lump-sum cash payment equal to 100% of the participant’s annual base salary, (2) accelerated vesting of stock options held on the date of termination of employment, to the extent such stock options would have otherwise vested within 12 months following the involuntary termination and (3) continued life insurance and medical benefits coverage for one year. A Level B participant would receive (1) a lump-sum cash payment equal to 50% of the participant’s annual base salary, (2) accelerated vesting of stock options held on the date of termination of employment, to the extent such stock options would have otherwise vested within six months following the involuntary termination and (3) continued life insurance and medical benefits coverage for six months.
Unless limited as described below, upon an involuntary termination within two years following the effective date of a change in control, a Level A participant would receive (1) 300% of the sum of the participant’s annual base salary and maximum annual bonus, (2) immediate and full vesting of all stock options and (3) continued life and medical insurance coverage for 12 months. Unless limited as described below, upon an involuntary termination within two years following the effective date of a Change in Control, a Level B participant would receive (1) 150% of the sum of the participant’s annual base salary and maximum annual bonus, (2) immediate and full vesting of all stock options and (3) continued life and medical insurance coverage for six months.
An “involuntary termination” means the termination of the participant’s employment (1) for any reason other than cause, death or disability or (2) by the participant for good reason, which includes a material reduction in overall compensation, a material diminution in duties and responsibilities or a relocation of the participant’s principal place of employment by more than 50 miles.
19
Generally, a “change in control” event is considered to occur under the ESP when any one of the following happens:
the acquisition by any person or entity of beneficial ownership of 40% or more of the combined voting power of our common stock (other than under circumstances where the change in percentage ownership results from a reduction in the number of our shares resulting from our repurchase);
a majority of our board of directors no longer consists of individuals: (i) who were members of our board of directors at the time the ESP was adopted or (ii) whose appointment, election or nomination (other than in an actual or threatened election contest) was approved or recommended by a majority vote of the directors then still in office who either were directors on the date the ESP was adopted or whose appointment, election or nomination for election was previously so approved or recommended;
the consummation of a merger or consolidation unless, immediately following the merger or consolidation, (i) our voting securities immediately prior to the merger or consolidation represent more than 50% of the combined voting power of the outstanding voting securities of the resulting entity, or (ii) if the merger is to effect a recapitalization, no person beneficially owns, directly or indirectly, 40% or more of the combined voting power of the outstanding voting securities of the resulting entity; or
approval by our stockholders of a complete liquidation or dissolution, or an agreement is reached for the sale or other disposition of all or substantially all of our assets, other than to an entity which is owned at least 50% by our prior shareholders in substantially similar proportions to their ownership prior to the transaction.
The ESP may not be amended in a manner adverse to the rights of a participant without his consent. The ESP limits payments to three times the participant’s base amount less one dollar to avoid excise taxes to the participant under Section 4999 of the Internal Revenue Code and to avoid disallowance of our deduction under Section 280G of the Internal Revenue Code. If necessary, payments will be reduced. See the Potential Payments upon Termination or Change in Control tables for more information.
The ESP is designated to be exempt from or comply with Section 409A of the Internal Revenue Code, which imposes penalties on nonqualified deferred compensation arrangements which do not meet statutory requirements. Under final regulations recently issued under Section 409A, employers generally have until December 31, 2007 to amend plans to comply with Section 409A without the consent of covered employees.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis included in this proxy statement with the management of Pioneer Drilling Company, and, based on such review and discussions, the Compensation Committee recommended to the board of directors of Pioneer Drilling Company that the Compensation Discussion and Analysis be included in this proxy statement.
| The Compensation Committee |
Dean A. Burkhardt |
C. John Thompson Scott D. Urban, Chairman |
The information above in the Report of the Compensation Committee shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C or to the liabilities of Section 18 of the Exchange Act, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 (the “Securities Act”) or the Exchange Act, except to the extent that the Company specifically requests that the information be treated as soliciting material or specifically incorporates the information by reference.
20
25
EXECUTIVE COMPENSATION
2009 Summary Compensation Table
The following table summarizespresents information concerning compensation for all services rendered to us in all capacities during the compensation we paid, accrued or expensed for services performed duringfiscal years ended December 31, 2009 and December 31, 2008, the nine month fiscal year ended December 31, 2007 and the fiscal year ended March 31, 2007, by all four ofeach individual who served as our principal executive officers, including our Chief Executive Officerofficer or principal financial officer during these fiscal years and our Chief Financial Officer, and our next two most highly compensatedother executive officers (collectively, the “named executive officers”).
Name and Principal Position | Fiscal Year | Salary | Option Awards (1) | Non-Equity Incentive Plan Compensation (2) | All Other Compensation (3) | Total | |||||||||||
Wm. Stacy Locke | |||||||||||||||||
Director, President and | |||||||||||||||||
Chief Executive Officer | 2007 | $ | 408,000 | $ | 631,476 | $ | 273,767 | $ | 20,432 | $ | 1,333,675 | ||||||
William D. Hibbetts | |||||||||||||||||
Senior Vice President, Chief | |||||||||||||||||
Financial Officer and Secretary | 2007 | $ | 210,000 | $ | 248,458 | $ | 83,764 | $ | 19,016 | $ | 561,238 | ||||||
Franklin C. West | |||||||||||||||||
Executive Vice President and | |||||||||||||||||
Chief Operating Officer | 2007 | $ | 350,000 | $ | 519,728 | $ | 192,208 | $ | 20,328 | $ | 1,082,264 | ||||||
Donald G. Lacombe | |||||||||||||||||
Senior Vice President of | |||||||||||||||||
Marketing | 2007 | $ | 185,000 | $ | 213,874 | $ | 81,007 | $ | 25,979 | $ | 505,860 | ||||||
J. Blaine David | |||||||||||||||||
Vice President of | |||||||||||||||||
Operations (4) | 2007 | $ | 185,000 | $ | 94,381 | $ | 72,412 | $ | 23,322 | $ | 375,115 | ||||||
Willie W. Walker | |||||||||||||||||
Vice President of | |||||||||||||||||
Operations (4) | 2007 | $ | 185,000 | $ | 118,120 | $ | 72,412 | $ | 15,718 | $ | 391,250 | ||||||
Name and | Fiscal Year Ended (1) | Salary | Option Awards (2) | Stock Awards (3) | Non-Equity Incentive Plan Compensation (1) | All Other Compensation (4) | Total | |||||||||||||
Wm. Stacy Locke Director, President and Chief Executive Officer | December 31, 2009 December 31, 2008 December 31, 2007 March 31, 2007 | $ $ $ $ | 550,000 523,077 344,700 408,000 | $ $ $ $ | 494,680 1,246,158 1,248,920 717,216 | $ $ | 180,864 486,495 — — | $ $ $ | 132,000 891,519 — 273,767 | $ $ $ $ | 25,869 22,939 16,141 20,432 | $ $ $ $ | 1,383,413 3,170,188 1,609,761 1,419,415 | |||||||
Lorne E. Phillips Executive Vice President, Chief Financial Officer (5) | December 31, 2009 December 31, 2008 December 31, 2007 March 31, 2007 | $ | 284,308 — — — | $ | 444,318 — — — | $ | 69,120 — — — | $ | 48,000 — — — | $ | 225,253 — — — | $ | 1,070,999 — — — | |||||||
William D. Hibbetts Senior Vice President of Accounting (5) | December 31, 2009 December 31, 2008 December 31, 2007 March 31, 2007 | $ $ $ $ | 210,000 210,000 161,538 210,000 | $ $ $ $ | 62,883 166,155 124,892 268,956 | $ $ | 23,040 66,573 — — | $ $ $ | 25,200 198,899 — 83,764 | $ $ $ $ | 21,593 21,678 18,246 19,016 | $ $ $ $ | 342,716 663,305 304,676 581,736 | |||||||
Franklin C. West Executive Vice President and President of Drilling Services Division | December 31, 2009 December 31, 2008 December 31, 2007 March 31, 2007 | $ $ $ $ | 395,000 388,269 283,923 350,000 | $ $ | 251,532 643,848 — — | $ $ | 92,160 256,050 — — | $ $ $ | 59,250 432,028 — 192,208 | $ $ $ $ | 25,869 22,939 17,790 20,328 | $ $ $ $ | 823,811 1,743,134 301,713 562,536 | |||||||
Joseph B. Eustace Executive Vice President and President of Production Services Division | December 31, 2009 December 31, 2008 December 31, 2007 March 31, 2007 | $ $ | 280,000 209,828 — — | $ $ | 144,630 373,848 — — | $ $ | 53,377 143,388 — — | $ $ | 42,000 153,391 — — | $ $ | 24,987 12,139 — — | $ $ | 544,994 892,594 — — | |||||||
Carlos R. Pena Senior Vice President, General Counsel and Secretary | December 31, 2009 December 31, 2008 December 31, 2007 March 31, 2007 | $ $ | 225,962 35,481 — — | $ $ | 132,054 37,746 — — | $ | 46,080 — — — | $ $ | 33,750 35,322 — — | $ | 14,895 — — — | $ $ | 452,741 108,549 — — | |||||||
| (1) | Non-equity incentive plan compensation for the fiscal year ended December 31, 2008 includes annual cash incentive compensation for both Plan Year 08-A and Plan Year 08-B as summarized in the following table: |
Wm. Stacy Locke | Plan Year 08-A | (April 1, 2007 to March 31, 2008) | $ | 368,011 | |||
| Plan Year 08-B | (April 1, 2008 to December 31, 2008) | 523,508 | |||||
| $ | 891,519 | ||||||
William D. Hibbetts (5) | Plan Year 08-A | (April 1, 2007 to March 31, 2008) | $ | 90,069 | |||
| Plan Year 08-B | (April 1, 2008 to December 31, 2008) | 108,830 | |||||
| $ | 198,899 | ||||||
Franklin C. West | Plan Year 08-A | (April 1, 2007 to March 31, 2008) | $ | 198,367 | |||
| Plan Year 08-B | (April 1, 2008 to December 31, 2008) | 233,661 | |||||
| $ | 432,028 | ||||||
Joseph B. Eustace | Plan Year 08-A | (April 1, 2007 to March 31, 2008) | $ | — | |||
| Plan Year 08-B | (April 1, 2008 to December 31, 2008) | 153,391 | |||||
| $ | 153,391 | ||||||
Carlos R. Pena | Plan Year 08-A | (April 1, 2007 to March 31, 2008) | $ | — | |||
| Plan Year 08-B | (April 1, 2008 to December 31, 2008) | 35,322 | |||||
| $ | 35,322 | ||||||
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In December 2007, our board of directors approved a change in our fiscal year end from March 31 to December 31. The fiscal year end change was effective December 31, 2007 and resulted in a nine month financial reporting period from April 1, 2007 to December 31, 2007. However, the Compensation Committee did not change the previously determined amounts for cash incentive compensation target levels for our executive officers for the twelve month period from April 1, 2007, to March 31, 2008 (“Plan Year 08-A”). Accordingly, the relevant performance measures for determination of annual cash incentive compensation amounts for Plan Year 08-A were not satisfied during the 2007 fiscal year but rather during the fiscal year ended December 31, 2008. The Compensation Committee thus awarded annual cash incentive compensation for Plan Year 08-A to our named executive officers on August 23, 2008, and these amounts are reported as non-equity incentive plan compensation paid during the fiscal year ended December 31, 2008. The relevant performance measures for determination of annual cash incentive compensation amounts for the nine month period from April 1, 2008, to December 31, 2008 (“Plan Year 08-B”) were also satisfied during the fiscal year ended December 31, 2008, so these amounts are also reported as non-equity incentive plan compensation paid during the fiscal year ended December 31, 2008. Consequently, the Summary Compensation Table and related explanatory tables include annual cash incentive compensation for both Plan Year 08-A and Plan Year 08-B as summarized in the table above.
| (2) | The amounts included in the “Option Awards” column represent the |
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Name | Auto Allowance | 401K Matching Contributions | Other | Total | ||||||||
Wm. Stacy Locke | $ | 12,000 | $ | 6,638 | $ | 1,794 | $ | 20,432 | ||||
William D. Hibbetts | $ | 12,000 | $ | 6,638 | $ | 378 | $ | 19,016 | ||||
Franklin C. West | $ | 12,000 | $ | 6,638 | $ | 1,690 | $ | 20,328 | ||||
Donald G. Lacombe | $ | 12,000 | $ | 6,638 | $ | 7,341 | $ | 25,979 | ||||
J. Blaine David | $ | 12,000 | $ | 5,176 | $ | 6,146 | $ | 23,322 | ||||
Willie W. Walker | $ | 12,000 | $ | 3,385 | $ | 333 | $ | 15,718 | ||||
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Grants of Plan-Based Awards
The following table summarizes information concerning the plan-based awards to the named officers during the fiscal year ended March 31, 2007:
Grant Date | Estimated Future Payouts Under Non-Equity Incentive Awards (1) | All Other Option Awards: Number of Securities Underlying Options | Exercise or Base Price of Option Awards | Grant Date Fair Value of Option Awards (2) | |||||||||||||||
Name | Threshold | Target | Maximum | ||||||||||||||||
Wm. Stacy Locke | 5/26/2006 | $ | 73,440 | $ | 244,800 | $ | 489,600 | — | — | — | |||||||||
| 6/5/2006 | — | — | — | 120,000 | $ | 14.54 | $ | 717,216 | |||||||||||
William D. Hibbetts | 5/26/2006 | $ | 25,200 | $ | 84,000 | $ | 168,000 | — | — | — | |||||||||
| 6/5/2006 | — | — | — | 45,000 | $ | 14.54 | $ | 268,956 | |||||||||||
Franklin C. West | 5/26/2006 | $ | 52,500 | $ | 175,000 | $ | 350,000 | — | — | — | |||||||||
| 6/5/2006 | — | — | — | — | — | — | |||||||||||||
Donald G. Lacombe | 5/26/2006 | $ | 22,200 | $ | 74,000 | $ | 148,000 | — | — | — | |||||||||
| 6/5/2006 | — | — | — | 40,000 | $ | 14.54 | $ | 239,072 | |||||||||||
J. Blaine David | 5/26/2006 | $ | 19,425 | $ | 64,750 | $ | 129,500 | — | — | — | |||||||||
| 6/5/2006 | — | — | — | 25,000 | $ | 14.54 | $ | 126,570 | |||||||||||
Willie W. Walker | 5/26/2006 | $ | 19,425 | $ | 64,750 | $ | 129,500 | — | — | — | |||||||||
| 6/5/2006 | — | — | — | 25,000 | $ | 14.54 | $ | 126,570 | |||||||||||
| (3) | The amounts included in the “Stock Awards” column represent the aggregate grant date fair value of the restricted stock awards granted to the named executive officers during the fiscal year ended December 31, 2009, computed in accordance with ASC Topic 718 (formerly SFAS No. 123R), except that no assumption for forfeitures was included. Restricted stock awards were not granted in prior fiscal years. For a discussion of valuation assumptions, see Note 1 to our consolidated financial statements included in our annual report on Form 10-K for the fiscal year ended December 31, 2009. Please see the “Grants of Plan-Based Awards Table” for information regarding the restricted stock awards we granted during the fiscal year ended December 31, 2009. |
| (4) | The amounts shown in the “All Other Compensation” column for fiscal year ended December 31, 2009 are noted in the table below. Amounts shown in the “Other” column represent life insurance premiums and club dues paid by us on behalf of the named executive officers. |
Name | Auto Allowance | 401K Matching Contributions | Relocation Benefits | Sign-on Bonus | Other | Total | ||||||||||||
Wm. Stacy Locke | $ | 14,400 | $ | 9,800 | — | — | $ | 1,669 | $ | 25,869 | ||||||||
Lorne E. Phillips (5) | $ | 13,200 | — | $ | 61,558 | $ | 150,000 | $ | 495 | $ | 225,253 | |||||||
William D. Hibbetts (5) | $ | 14,400 | $ | 6,815 | — | — | $ | 378 | $ | 21,593 | ||||||||
Franklin C. West | $ | 14,400 | $ | 9,800 | — | — | $ | 1,669 | $ | 25,869 | ||||||||
Joseph B. Eustace | $ | 14,400 | $ | 8,954 | — | — | $ | 1,633 | $ | 24,987 | ||||||||
Carlos R. Pena | $ | 14,400 | — | — | — | $ | 450 | $ | 14,850 | |||||||||
| (5) | William D. Hibbetts served as our Interim Chief Financial Officer until Lorne E. Phillips was appointed Chief Financial Officer on February 1, 2009. |
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2009 Grants of Plan-Based Awards
The following table summarizes information concerning plan-based awards to the named executive officers during the fiscal year ended December 31, 2009:
| Grant Date | Estimated Future Payouts Under Non-Equity Plan Incentive Awards | All Other Stock Awards: Number of Shares of Stock or Units (4) | All Other Option Awards: Number of Securities Underlying Options (4) | Exercise or Base Price of Option Awards | Grant Date Fair Value of Stock and Option Awards (5) | |||||||||||||||||
Name | Threshold | Target | Maximum | |||||||||||||||||||
Wm. Stacy Locke | 3/2/2009 | (1) | $ | 132,000 | $ | 440,000 | $ | 880,000 | 47,100 | 236,000 | $ | 3.84 | $ | 675,544 | ||||||||
| 8/27/2009 | (2) | — | $ | 234,000 | $ | 468,000 | — | — | — | — | ||||||||||||
| 8/27/2009 | (3) | — | $ | 234,000 | — | — | — | — | — | |||||||||||||
Lorne E. Phillips | 3/2/2009 | (1) | $ | 48,000 | $ | 160,000 | $ | 320,000 | 18,000 | 90,000 | $ | 3.84 | $ | 257,769 | ||||||||
| 8/27/2009 | (2) | — | $ | 89,500 | $ | 179,000 | — | — | — | — | ||||||||||||
| 8/27/2009 | (3) | — | $ | 89,500 | — | — | — | — | — | |||||||||||||
| 2/2/2009 | — | — | — | — | 100,000 | $ | 4.73 | $ | 255,670 | |||||||||||||
William D. Hibbetts | 3/2/2009 | (1) | $ | 25,200 | $ | 84,000 | $ | 168,000 | 6,000 | 30,000 | $ | 3.84 | $ | 85,923 | ||||||||
| 8/27/2009 | (2) | — | $ | 31,500 | $ | 63,000 | — | — | — | — | ||||||||||||
| 8/27/2009 | (3) | — | $ | 31,500 | — | — | — | — | — | |||||||||||||
Franklin C. West | 3/2/2009 | (1) | $ | 59,250 | $ | 197,500 | $ | 395,000 | 24,000 | 120,000 | $ | 3.84 | $ | 343,692 | ||||||||
| 8/27/2009 | (2) | — | $ | 121,000 | $ | 242,000 | — | — | — | — | ||||||||||||
| 8/27/2009 | (3) | — | $ | 121,000 | — | — | — | — | — | |||||||||||||
Joseph B. Eustace | 3/2/2009 | (1) | $ | 42,000 | $ | 140,000 | $ | 280,000 | 13,900 | 69,000 | $ | 3.84 | $ | 198,007 | ||||||||
| 8/27/2009 | (2) | — | $ | 68,500 | $ | 137,000 | — | — | — | — | ||||||||||||
| 8/27/2009 | (3) | — | $ | 68,500 | — | — | — | — | — | |||||||||||||
Carlos R. Pena | 3/2/2009 | (1) | $ | 33,750 | $ | 112,500 | $ | 225,000 | 12,000 | 63,000 | $ | 3.84 | $ | 178,134 | ||||||||
| 8/27/2009 | (2) | — | $ | 62,000 | $ | 124,000 | — | — | — | — | ||||||||||||
| 8/27/2009 | (3) | — | $ | 62,000 | — | — | — | — | — | |||||||||||||
| (1) | The amounts shown reflect grants of awards under our cash-incentive plan during the fiscal year ended December 31, 2009. In February 2009, our Compensation Committee approved target cash-incentive award levels, expressed as a percentage of the officer’s base salary, company performance measures, and the performance measure weighting for the purpose of determining the amount to be paid under the cash-incentive plan to each officer for the fiscal year ended December 31, 2009. The amount shown in the “target” column represents the target percentage of each named executive officer’s base salary for such period. The target percentages were 80% for Mr. Locke, 50% for Mr. Phillips, 40% for Mr. Hibbetts, 50% for Mr. West, 50% for Mr. Eustace and 50% for Mr. Peña. The amount shown in the “maximum” column represents the maximum amount payable under the cash-incentive plan, which is 200% of the target amounts shown for each of the named executive officers. The amount shown in the “threshold” column represents the amount payable under the cash- incentive plan if only the minimum level of company performance is attained, which is 30% of the target amount shown for all named executive officers. Please see “Compensation Discussion and Analysis—Annual Cash Incentive Compensation” for more information regarding our cash-incentive plan and performance measures. |
| (2) | The amounts shown reflect grants during the fiscal year ended December 31, 2009 of performance-based long-term cash incentive awards for the performance period covering fiscal years 2009 and 2010 made pursuant to our 2007 Incentive Plan. The awards will be payable in cash in equal installments on April 30, 2011 and April 30, 2012 based on our achievement, relative to a peer group, of specified performance metrics (EBITDA growth, EBITDA return on capital invested, and total shareholder return) corresponding to specific payment percentages ranging from 0% to 200% of the target amount shown. Please see “Compensation Discussion and Analysis—Long-Term Cash Incentive Compensation” for more information regarding the long-term cash incentive awards. |
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| (3) | The amounts shown reflect grants during the fiscal year ended December 31, 2009 of time-based long-term cash incentive awards pursuant to our 2007 Incentive Plan. The awards will be payable in cash in equal installments on April 30, 2011 and April 30, 2012 if, subject to certain exceptions, the named executive officer remains continuously employed by the Company through such dates. Please see “Compensation Discussion and Analysis—Long-Term Cash Incentive Compensation” for more information regarding the long-term cash incentive awards. |
| (4) | All restricted stock awards and stock option awards during the year ended December 31, 2009 were granted from our 2007 Incentive Plan. |
| (5) | The amounts included in the “Grant Date Fair Value of Stock and Option Awards” column represent the full grant date fair value of each restricted stock award and stock option award computed in accordance with ASC Topic 718 (formerly SFAS No. 123R). For a discussion of valuation assumptions, see Note 1 to our consolidated financial statements included in our annual report on Form 10-K for the fiscal year ended December 31, 2009. |
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2009 Outstanding Equity Awards at Fiscal Year End
The following table provides information concerning thestock options and restricted stock held by the named executive officers which were outstanding as of MarchDecember 31, 2007.2009.
Name | Number of Securities Underlying Unexercised Options Exercisable | Number of Securities Underlying Unexercised Options Unexercisable | Option Exercise Price | Option Expiration Date | ||||||
Wm. Stacy Locke | 100,000 | — | $ | 3.67 | 11/19/2013 | |||||
| — | 4,000 | (1) | $ | 4.77 | 1/4/2014 | |||||
| 32,667 | 65,333 | (2) | $ | 14.58 | 8/17/2015 | |||||
| — | 120,000 | (3) | $ | 14.54 | 6/4/2016 | |||||
William D. Hibbetts | 16,667 | — | $ | 3.70 | 4/20/2013 | |||||
| 35,000 | 30,000 | (4) | $ | 4.77 | 1/4/2014 | |||||
| 10,000 | 20,000 | (5) | $ | 14.58 | 8/17/2015 | |||||
| — | 45,000 | (6) | $ | 14.54 | 6/4/2016 | |||||
Franklin C. West | 180,000 | — | $ | 3.00 | 12/19/2011 | |||||
| 60,000 | 40,000 | (7) | $ | 4.77 | 1/4/2014 | |||||
| 200,000 | 100,000 | (8) | $ | 9.53 | 1/9/2015 | |||||
Donald G. Lacombe | 40,000 | — | $ | 3.70 | 4/20/2013 | |||||
| 30,000 | 20,000 | (9) | $ | 4.77 | 1/4/2014 | |||||
| 9,000 | 18,000 | (10) | $ | 14.58 | 8/17/2015 | |||||
| — | 40,000 | (11) | $ | 14.54 | 6/4/2016 | |||||
J. Blaine David | 4,000 | 8,000 | (12) | $ | 14.58 | 8/17/2015 | ||||
| — | 25,000 | (13) | $ | 14.54 | 6/4/2016 | |||||
Willie W. Walker | — | 20,000 | (14) | $ | 4.77 | 1/4/2014 | ||||
| 4,000 | 8,000 | (15) | $ | 14.58 | 8/17/2015 | |||||
| — | 25,000 | (16) | $ | 14.54 | 6/4/2016 | |||||
| Option Awards | Stock Awards | |||||||||||||||
Name | Number of Securities Underlying Unexercised Options Exercisable | Number of Securities Underlying Unexercised Options Unexercisable | Option Exercise Price | Option Expiration Date | Number of Shares or Units Market Value of Shares or of Stock That Have Not Vested | Units of Stock That Have Not Vested (26) | ||||||||||
Wm. Stacy Locke | 85,000 | — | $ | 3.67 | 11/19/2013 | — | — | |||||||||
| 2,000 | — | $ | 4.77 | 1/4/2014 | — | — | ||||||||||
| 98,000 | — | $ | 14.58 | 8/17/2015 | — | — | ||||||||||
| 120,000 | — | $ | 14.54 | 6/4/2016 | — | — | ||||||||||
| 133,334 | 66,666 | (1) | $ | 14.07 | 5/13/2017 | — | — | |||||||||
| 60,000 | 120,000 | (2) | $ | 17.07 | 8/27/2018 | 19,000 | (16) | $ | 150,100 | |||||||
| — | 236,000 | (3) | $ | 3.84 | 3/1/2019 | 47,100 | (17) | $ | 372,090 | |||||||
Lorne E. Phillips | — | 100,000 | (4) | $ | 4.73 | 2/1/2019 | — | — | ||||||||
| — | 90,000 | (5) | $ | 3.84 | 3/1/2019 | 18,000 | (18) | $ | 142,200 | |||||||
William D. Hibbetts | 11,613 | — | $ | 3.70 | 4/20/2013 | — | — | |||||||||
| 65,000 | — | $ | 4.77 | 1/4/2014 | — | — | ||||||||||
| 30,000 | — | $ | 14.58 | 8/17/2015 | — | — | ||||||||||
| 45,000 | — | $ | 14.54 | 6/4/2016 | — | — | ||||||||||
| 13,334 | 6,666 | (6) | $ | 14.07 | 5/13/2017 | — | — | |||||||||
| 8,000 | 16,000 | (7) | $ | 17.07 | 8/27/2018 | 2,600 | (19) | $ | 20,540 | |||||||
| — | 30,000 | (8) | $ | 3.84 | 3/1/2019 | 6,000 | (20) | $ | 47,400 | |||||||
Franklin C. West | 180,000 | — | $ | 3.00 | 12/19/2011 | — | — | |||||||||
| 100,000 | — | $ | 4.77 | 1/4/2014 | — | — | ||||||||||
| 300,000 | — | $ | 9.53 | 1/9/2015 | — | — | ||||||||||
| 31,000 | 62,000 | (9) | $ | 17.07 | 8/27/2018 | 10,000 | (21) | $ | 79,000 | |||||||
| — | 120,000 | (10) | $ | 3.84 | 3/1/2019 | 24,000 | (22) | $ | 189,600 | |||||||
Joseph B. Eustace | 28,333 | 56,667 | (11) | $ | 13.57 | 3/2/2018 | — | — | ||||||||
| 18,000 | 36,000 | (12) | $ | 17.07 | 8/27/2018 | 5,600 | (23) | $ | 44,240 | |||||||
| — | 69,000 | (13) | $ | 3.84 | 3/1/2019 | 13,900 | (24) | $ | 109,810 | |||||||
Carlos R. Pena | 5,000 | 10,000 | (14) | $ | 5.51 | 10/26/2018 | — | — | ||||||||
| — | 63,000 | (15) | $ | 3.84 | 3/1/2019 | 12,000 | (25) | $ | 94,800 | |||||||
| (1) | The indicated options are scheduled to vest |
| (2) | The indicated options are scheduled to vest in installments of |
| (3) |
| (4) |
| (5) |
| (6) | The indicated options are scheduled to vest |
24
| (7) | The indicated options are scheduled to vest in installments of |
30
| (8) |
| (9) | The indicated options are scheduled to vest in installments of |
| (10) |
| (11) |
| (12) | The indicated options are scheduled to vest in installments of |
| (13) |
| (14) | The indicated options are scheduled to vest in installments of |
| (15) | Of the indicated options, 21,000 shares vested on March 2, 2010 and installments of 21,000 shares each are scheduled to vest on March 2, 2011 and March 2, 2012. |
| (16) | The indicated |
| Of the indicated shares of restricted stock, 15,700 vested on March 2, 2010 and installments of 15,700 shares each are scheduled to vest on March 2, 2011 and March 2, 2012. |
| (18) | Of the indicated shares of restricted stock, 6,000 shares vested on March 2, 2010 and installments of 6,000 shares each are scheduled to vest on March 2, 2011 and March 2, 2012. |
| (19) | The indicated |
| (20) | Of the indicated shares of restricted stock, 2,000 shares vested on |
| (21) | The indicated shares of restricted stock are scheduled to vest in installments of 5,000 shares each on August 28, 2010 and August 28, 2011. |
| (22) | Of the indicated shares of restricted stock, 8,000 shares vested on March 2, 2010 and installments of 8,000 shares each are scheduled to vest on March 2, 2011 and March 2, 2012. |
| (23) | The indicated shares of restricted stock are scheduled to vest in installments of 2,800 shares each on August 28, 2010 and August 28, 2011. |
| (24) | Of the indicated shares of restricted stock, 4,633 shares vested on March 2, 2010, 4,633 shares are scheduled to vest on March 2, 2011, and 4,634 shares are scheduled to vest on March 2, 2012. |
| (25) | Of the indicated shares of restricted stock, 4,000 shares vested on March 2, 2010 and installments of 4,000 shares each are scheduled to vest on March 2, 2011 and March 2, 2012. |
| (26) | The market value of the shares of restricted stock that have not vested is based on the closing price of Pioneer Drilling Company common stock on December 31, 2009 of $7.90 per share. |
Option Exercises and Stock Vested
The following table summarizesDuring the number and value realized from the exercise of options to acquire shares of our common stock that were exercised during fiscal year 2007 byended December 31, 2009, the named officers:executive officers exercised no stock options.
| Option Awards | |||||
Name | Number of Shares Acquired on Exercise | Value Realized on Exercise (1) | |||
Wm. Stacy Locke | 2,000 | $ | 15,280 | ||
William D. Hibbetts | — | — | |||
Franklin C. West | — | — | |||
Donald G. Lacombe | — | — | |||
J. Blaine David | — | — | |||
Willie W. Walker | 20,000 | $ | 162,400 | ||
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POTENTIAL PAYMENTS UNDER TERMINATION OR CHANGE OF CONTROL
The Compensation Committee views change in control and non-change in control severance protection for officers as a necessary part of compensation to remain competitive in the market. A substantial majority of oilfield service companies provide such benefits. While the Compensation Committee recognizes there are variation in types, amounts, eligibility requirements and other terms and conditions among companies, the aggregate potential value remains competitive and does not significantly vary from similar programs at peer group companies.
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In 2009, the Company adopted a new Long-Term Disability Plan. This plan is available to all U.S. salaried employees and other full-time active employees and does not discriminate in scope, terms or operation, in favor of the named executive officers. In the event an employee has been disabled for more than 180 days, the Long-Term Disability Plan generally provides for payment of 60% of an employee’s base salary up to a maximum monthly benefit of $7,000 until the earlier of the employee reaching standard retirement age as determined by the Social Security Administration or the employee’s death.
Key Executive Severance Plan
The following is a brief description of the material terms and conditions of our Key Executive Severance Plan (the “KESP”).
Participation in the KESP is limited to our key executives who are considered to be senior management employees by the Compensation Committee and who are designated by the Compensation Committee, in its sole discretion, as participants in the KESP. The Compensation Committee, upon twelve months’ written notice, may also terminate an employee’s participation in the KESP; however, an individual participating immediately prior to a change in control may not be removed from participation in the KESP prior to the date which is two years following the date of the “change in control” of Pioneer (as defined below). Participants in the KESP will be designated by the Compensation Committee as either “Level I,” “Level II” or “Level III” participants, or as other participants. With regard to our named executive officers, Mr. Locke is designated as a Level I participant, Mr. West, Mr. Eustace, Mr. Peña and Mr. Phillips are designated as Level II participants, and Mr. Hibbetts is designated as a Level III participant.
In the event of an “involuntary termination” prior to a change in control of Pioneer and subject to certain conditions, including the requirement that a KESP participant execute an acceptable waiver and release of claims, a Level I or Level II participant will receive (1) a lump-sum cash payment equal to 200% of the participant’s annual base salary and annual target bonus, (2) accelerated vesting of stock options and other equity-based awards held on the date of termination of employment, but only to the extent such stock options or other equity-based awards would otherwise have vested within twelve months, and (3) continued life insurance and medical benefits coverage at active employee rates for twelve months. A Level III participant will receive (1) a lump-sum cash payment equal to 100% of the participant’s annual base salary, (2) accelerated vesting of stock options and other equity-based awards held on the date of termination of employment, but only to the extent such stock options or other equity-based awards would otherwise have vested within twelve months, and (3) continued life insurance and medical benefits coverage at active employee rates for twelve months. Other participants will receive (1) a lump-sum cash payment equal to 50% of the participant’s annual base salary, (2) accelerated vesting of stock options and other equity-based awards held on the date of termination of employment, but only to the extent such stock options or other equity-based awards would otherwise have vested within six months, and (3) continued life insurance and medical benefits coverage for six months. An “involuntary termination” means the termination of the participant’s employment (1) for any reason other than cause, death or disability or (2) by the participant for good reason, as defined in the KESP.
“Cause” means (1) with respect to any Level I or Level II Participant, that participant’s (A) commission of any act or omission constituting fraud under any law of the State of Texas, (B) conviction of, or a plea of nolo contendere to, a felony, (C) embezzlement or theft of property or funds of Pioneer or any of its affiliates or (D) refusal to perform his or her duties, as specified in any written agreement between the participant and Pioneer or in any specific directive adopted by a majority of the members of the board of directors at a meeting of the board of directors that is consistent with the participant’s status as an executive officer of the Company; and (2) with respect to any Level III or other participant, that participant’s (A) commission of any act or omission constituting fraud under any law of the State of Texas, (B) conviction of, or a plea of nolo contendere to, a felony, (C) embezzlement or theft of property or funds of Pioneer or any of its affiliates, (D) failure to follow the instructions of the board of directors (in either case, as approved by a majority of the members of such board of directors at a meeting of such board of directors) or any supervising or executive officer of Pioneer or any of its
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affiliates or (E) unacceptable performance, gross negligence or willful misconduct with respect to his or her duties to Pioneer or any of its affiliates.
“Good reason” for the participant to terminate his or her employment means, prior to the effective date of a change in control, the occurrence (without the participant’s written consent) of any of the following: (1) a reduction in the participant’s base salary or total compensation except for an across-the-board reduction similarly affecting all senior executives of Pioneer and all senior executives of any person in control of Pioneer; (2) failure by Pioneer to pay any portion of the participant’s compensation within fourteen days of the date it is due or any other material breach of a contract with the participant by Pioneer which is not remedied by Pioneer within 5 business days after the participant’s written notice to Pioneer of such breach; or (3) Pioneer’s failure to maintain a participant’s employment without material diminution in the participant’s duties and responsibilities, and such failure is not cured by Pioneer within 5 business days after the participant’s written notice to Pioneer of such failure. After the effective date of a change in control, “good reason” shall also include any of (4)-(9) below unless, in the case of any of (5), (7), (8), or (9), such act or failure is corrected within five business days following the giving of written notice of good reason by the participant, and in the case of (6) below, such act is not objected to in writing by the participant within fourteen days after notification thereof: (4) after a change in control, the determination by the participant, in his or her sole and absolute discretion, that the business philosophy or policies of Pioneer or its successor or the implementation thereof is not compatible with those of the participant; (5) the assignment to the participant of duties inconsistent with his or her status as an executive officer of Pioneer or a meaningful alteration, adverse to the participant, in the nature or status of his or her responsibilities (other than reporting responsibilities) from those in effect immediately prior to a change in control, including, without limitation, a material reduction in the budget for which the participant is responsible; (6) failure by Pioneer to continue in effect any compensation plan in which the participant participates immediately prior to a change in control that is material to the participant’s compensation, unless an equitable arrangement has been made with the participant with respect to such plan; (7) failure by Pioneer to continue the participant’s participation in a plan described in (6) above or a substitute or alternative plan on a basis not materially less favorable to the participant than as existed at the time of a change in control; (8) failure by Pioneer to continue to provide the participant with benefits substantially similar to those enjoyed by the participant prior to a change in control; or (9) a requirement by Pioneer that the participant relocate his or her residence outside the metropolitan area in which the participant was based immediately prior to a change in control, or a move of the participant’s principal business location more than 45 miles from the participant’s previous principal business location. The participant’s continued employment shall not of itself constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting good reason under the KESP.
Upon a change in control of Pioneer, all participants will be entitled to full vesting of all options, restricted stock and other equity awards. Upon an involuntary termination within two years following the effective date of a change in control, a Level I or Level II participant will receive (1) a lump-sum cash payment equal to 300% of the sum of the participant’s (A) annual base salary, (B) annual maximum bonus and (C) annual car allowance and club dues, and (2) continued life and medical benefits coverage at active employee rates for 18 months. A Level III participant will receive (1) a lump-sum cash payment equal to 200% of the sum of the participant’s (A) annual base salary, (B) annual maximum bonus and (C) annual car allowance and club dues, and (2) continued life insurance and medical benefits coverage at active employee rates for twelve months. Other participants will receive (1) a lump-sum cash payment equal to 150% of the sum of the participant’s (A) annual base salary, (B) annual maximum bonus and (C) annual car allowance and club dues, and (2) continued life insurance and medical benefits coverage at active employee rates for twelve months. Furthermore, a terminated participant who is unable to sell securities on the open market may require the surviving entity to acquire any vested equity awards or any shares acquired pursuant to equity awards at a price equal to the then fair market value for such shares; such right must be exercised prior to twelve months after the participant’s involuntary termination within two years after the change in control.
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A “change in control” shall conclusively be deemed to have occurred if an event set forth in any one of the following paragraphs shall have occurred:
(1) any person, (other than (A) Pioneer; (B) any affiliate of Pioneer; (C) any employee benefit plan of Pioneer or of any affiliate and any person organized, appointed or established by Pioneer for or pursuant to the terms of any such plan or for the purpose of funding any such plan or funding other employee benefits for employees of Pioneer or any affiliate of Pioneer; or (D) any corporation or other entity owned, directly or indirectly, by the shareholders of Pioneer in substantially the same proportions as their ownership of capital stock of Pioneer) is or becomes the beneficial owner of voting stock of Pioneer (not including in the securities beneficially owned by such person any securities acquired directly from Pioneer after the date the KESP first became effective) representing 40% or more of the combined voting power of the voting stock of Pioneer then outstanding;provided, however, that a change of control will not be deemed to occur under this paragraph (1) if a person becomes the beneficial owner of voting stock of Pioneer representing 40% or more of the combined voting power of the voting stock of Pioneer then outstanding solely as a result of a reduction in the number of shares of voting stock of Pioneer outstanding which results from Pioneer’s repurchase of voting stock of Pioneer, unless and until such time as that person or any affiliate or associate of that person purchases or otherwise becomes the beneficial owner of additional shares of voting stock of Pioneer constituting 1% or more of the combined voting power of the voting stock of Pioneer then outstanding, or any other person (or persons) who is (or collectively are) the beneficial owner of shares of voting stock of Pioneer constituting 1% or more of the combined voting power of the voting stock of Pioneer then outstanding becomes an affiliate or associate of that person, unless, in either such case, that person, together with all its affiliates and associates, is not then the beneficial owner of voting stock of Pioneer representing 40% or more of the voting stock of Pioneer then outstanding;
(2) the following individuals cease for any reason to constitute a majority of the number of directors then serving: (A) individuals who, on the date the KESP first became effective, constitute the board of directors; and (B) any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of directors of Pioneer) whose appointment or election by the board of directors of Pioneer or nomination for election by Pioneer’s shareholders was approved or recommended by a majority vote of the directors then still in office who either were directors on the date the KESP first became effective or whose appointment, election or nomination for election was previously so approved or recommended;
(3) there is consummated a merger or consolidation of Pioneer or any parent or direct or indirect subsidiary of Pioneer with or into any other corporation, other than: (A) a merger or consolidation which results in the voting stock of Pioneer outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 50% of the combined voting power of the securities which entitle the holder thereof to vote generally in the election of members of the board of directors or similar governing body of Pioneer or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; or (B) a merger or consolidation effected to implement a recapitalization of Pioneer (or similar transaction) in which no person (other than those persons listed in clauses (A) through (D) of paragraph (1) above) is or becomes the beneficial owner of voting stock of Pioneer (not including, for purposes of this determination, any voting stock of Pioneer acquired directly from Pioneer or its subsidiaries after the date the KESP first became effective other than in connection with the acquisition by Pioneer or one of its subsidiaries of a business) representing 40% or more of the combined voting power of the voting stock of Pioneer then outstanding; or
(4) the shareholders of Pioneer approve a plan of complete liquidation or dissolution of Pioneer, or there is consummated an agreement for the sale or disposition of all or substantially all of Pioneer’s assets unless (A) the sale is to an entity, of which at least 50% of the combined voting power of the securities which entitle the holder thereof to vote generally in the election of members of the board of directors or similar governing body of such entity are owned by shareholders of Pioneer in substantially the same proportions as their ownership of the voting stock of Pioneer immediately prior to such sale; (B) no person other than
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Pioneer and any employee benefit plan or related trust of Pioneer or of such corporation then beneficially owns 40% or more of the voting securities of such new entity; and (C) at least a majority of the directors of such corporation were members of the incumbent Board at the time of the execution of the initial agreement or action providing for such disposition.
In addition, in the event any participant is subject to an excise tax under Section 4999 of the Internal Revenue Code, as amended, as a result of payments under the KESP or otherwise, the participant will be entitled to a gross-up payment such that after payment of all taxes on the gross-up payment, the participant retains sufficient funds to pay the Section 4999 excise tax on his or her KESP and other payments (or such excise tax is paid on his or her behalf). Pioneer will be responsible for any attorneys’ fees incurred by a participant who is successful in pursuing litigation for benefits under the KESP. For any participant who is a “specified employee” within the meaning of Section 409A of the Code, payments under the KESP will generally be delayed six months following termination of employment.
The KESP may not be amended in a manner adverse to the rights of a participant without his or her consent.
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Potential Payments upon Termination or Change in Control
The tables below reflect the amount of compensation that would be payable to each of the named executive officers in various scenarios involving termination of the named executive officer’s employment, including following a change in control. The amount of compensation payable to each named executive officer upon voluntary termination, involuntary not-for-cause termination (non-change in control), voluntary termination for good cause or involuntary termination following a change in control, involuntary for cause termination, and termination in the event of death or disability of each named executive officer is shown below. The amounts shown assume that the termination was effective on MarchDecember 31, 20072009 and thus includes amounts earned through that time and are estimates of the amounts which would be paid out to the officers upon their termination. The actual amounts to be paid out can only be determined at the time of the officer’s separation from us. The officer would also have available the value of exercisable options reflected in the Outstanding Equity Awards at Fiscal Year End table. In the event of retirement, death or disability before the annual cash (short-term incentive)incentive award is paid, the Compensation Committee has the discretion to authorize payment (in full or on a prorated basis) of the amount the officer would have received. We have assumed that the Compensation Committee would have authorized the payment of the full award for the cash incentive award for the fiscal year ended December 31, 2009 for purposes of the tables below. As of MarchDecember 31, 2007,2009, only Mr. West was eligible for retirement (and the(the table presenting potential payments to Mr. West sets forth the amount of compensation that would be payable to him upon retirement).
Wm. Stacy Locke’s Benefits and Payments Upon Termination as of 3/31/2007 | Voluntary Termination | Involuntary Not for Cause Termination (Non-Change in Control) | Involuntary or Good Reason Termination (Following a Change in Control) (1) | Involuntary For Cause Termination | Death | Disability | ||||||||||||
Compensation: | ||||||||||||||||||
Severance payments | — | $ | 408,000 | $ | 1,224,000 | — | — | — | ||||||||||
Short-term Disability Benefits | — | — | — | — | — | $ | 98,077 | |||||||||||
Short-term Incentive | — | — | $ | 1,468,800 | — | $ | 279,176 | $ | 279,176 | |||||||||
Intrinsic Value of Unvested and Accelerated Stock Options | — | $ | 15,840 | $ | 31,680 | — | — | — | ||||||||||
Benefits and Perquisites: | ||||||||||||||||||
Health Care and Life Insurance Coverage | — | $ | 4,699 | $ | 4,699 | — | — | — | ||||||||||
Life Insurance Proceeds | — | — | — | — | $ | 300,000 | — | |||||||||||
Disability Benefits | — | — | — | — | — | — | ||||||||||||
Accrued Vacation Pay | $ | 31,385 | $ | 31,385 | $ | 31,385 | $ | 31,385 | $ | 31,385 | $ | 31,385 | ||||||
Total | $ | 31,385 | $ | 459,924 | $ | 2,760,564 | $ | 31,385 | $ | 610,561 | $ | 408,638 | ||||||
3/31/2007 stock price | $ | 12.69 | ||||||||||||||||
Wm. Stacy Locke’s Benefits and Payments | Voluntary Termination | Involuntary Not for Cause Termination (Non-Change in Control) | Involuntary or Good Reason Termination (Following a Change in Control) | Involuntary For Cause Termination | Death | Disability (1) | ||||||||||||
Compensation: | ||||||||||||||||||
Severance payments | — | $ | 1,100,000 | $ | 1,650,000 | — | — | — | ||||||||||
Short-term Incentive | — | $ | 880,000 | $ | 2,640,000 | — | $ | 440,000 | $ | 440,000 | ||||||||
Intrinsic Value of Unvested and Accelerated Stock Options | — | $ | 319,388 | $ | 958,160 | — | $ | 958,160 | $ | 958,160 | ||||||||
Intrinsic Value of Unvested and Accelerated Restricted Stock | — | $ | 199,080 | $ | 522,190 | — | $ | 522,190 | $ | 522,190 | ||||||||
Unvested and Accelerated Restricted Cash Bonus Payment | — | $ | 210,600 | $ | 421,200 | — | $ | 421,200 | $ | 421,200 | ||||||||
Benefits and Perquisites: | ||||||||||||||||||
Excise Tax Gross-up | — | — | $ | 1,591,072 | — | — | — | |||||||||||
Health Care and Life Insurance Coverage | — | $ | 14,034 | $ | 21,051 | — | — | — | ||||||||||
Life Insurance Proceeds | — | — | — | — | $ | 300,000 | — | |||||||||||
Auto Allowance | — | — | $ | 43,200 | — | — | — | |||||||||||
Club Dues | — | — | $ | 3,387 | — | — | — | |||||||||||
Accrued Vacation Pay | $ | 31,731 | $ | 31,731 | $ | 31,731 | $ | 31,731 | $ | 31,731 | $ | 31,731 | ||||||
Total | $ | 31,731 | $ | 2,754,833 | $ | 7,881,991 | $ | 31,731 | $ | 2,673,281 | $ | 2,373,281 | ||||||
12/31/2009 stock price | $ | 7.90 | ||||||||||||||||
(1) |
|
2636
Franklin C. West’s Benefits and Payments Upon Termination as of 3/31/2007 | Voluntary Termination | Normal Retirement | Involuntary Not for Cause Termination (Non- Change in Control) | Involuntary or Good Reason Termination (Following a Change in Control) (1) | Involuntary For Cause Termination | Death | Disability | ||||||||||||||
Compensation: | |||||||||||||||||||||
Severance payments | — | — | $ | 350,000 | $ | 1,050,000 | — | — | — | ||||||||||||
Short-term Disability Benefits | — | — | — | — | — | — | $ | 60,578 | |||||||||||||
Short-term Incentive | — | $ | 192,208 | — | $ | 1,050,000 | — | $ | 192,208 | $ | 192,208 | ||||||||||
Intrinsic Value of Unvested and Accelerated Stock Options | — | — | $ | 474,400 | $ | 632,800 | — | — | — | ||||||||||||
Benefits and Perquisites: | |||||||||||||||||||||
Health Care and Life Insurance Coverage | — | — | $ | 4,594 | $ | 4,594 | — | — | — | ||||||||||||
Life Insurance Proceeds | — | — | — | — | — | $ | 300,000 | — | |||||||||||||
Disability Benefits | — | — | — | — | — | — | — | ||||||||||||||
Accrued Vacation Pay | $ | 26,923 | $ | 26,923 | $ | 26,923 | $ | 26,923 | $ | 26,923 | $ | 26,923 | $ | 26,923 | |||||||
Total | $ | 26,923 | $ | 219,131 | $ | 855,917 | $ | 2,764,317 | $ | 26,923 | $ | 519,131 | $ | 279,709 | |||||||
3/31/2007 stock price | $ | 12.69 | |||||||||||||||||||
Lorne E. Phillips’ Benefits and Payments Upon | Voluntary Termination | Involuntary Not for Cause Termination (Non-Change in Control) | Involuntary or Good Reason Termination (Following a Change in Control) | Involuntary For Cause Termination | Death | Disability (1) | ||||||||||||
Compensation: | ||||||||||||||||||
Severance payments | — | $ | 640,000 | $ | 960,000 | — | — | — | ||||||||||
Short-term Incentive | — | $ | 320,000 | $ | 960,000 | — | $ | 160,000 | $ | 160,000 | ||||||||
Intrinsic Value of Unvested and Accelerated Stock Options | — | $ | 227,466 | $ | 682,400 | — | $ | 682,400 | $ | 682,400 | ||||||||
Intrinsic Value of Unvested and Accelerated Restricted Stock | — | $ | 47,400 | $ | 142,200 | — | $ | 142,200 | $ | 142,200 | ||||||||
Unvested and Accelerated Restricted Cash Bonus Payment | — | $ | 80,550 | $ | 161,100 | — | $ | 161,100 | $ | 161,100 | ||||||||
Benefits and Perquisites: | ||||||||||||||||||
Excise Tax Gross-up | — | — | $ | 803,348 | — | — | — | |||||||||||
Health Care and Life Insurance Coverage | — | $ | 14,658 | $ | 21,986 | — | — | — | ||||||||||
Life Insurance Proceeds | — | — | — | — | $ | 300,000 | — | |||||||||||
Auto Allowance | — | — | $ | 43,200 | — | — | — | |||||||||||
Accrued Vacation Pay | $ | 11,077 | $ | 11,077 | $ | 11,077 | $ | 11,077 | $ | 11,077 | $ | 11,077 | ||||||
Total | $ | 11,077 | $ | 1,341,151 | $ | 3,785,311 | $ | 11,077 | $ | 1,456,777 | $ | 1,156,777 | ||||||
12/31/2009 stock price | $ | 7.90 | ||||||||||||||||
(1) |
|
William D. Hibbetts’ Benefits and Payments Upon Termination as of 3/31/2007 | Voluntary Termination | Involuntary Not for Cause Termination (Non-Change in Control) | Involuntary or Good Reason Termination (Following a Change in Control) | Involuntary For Cause Termination | Death | Disability | ||||||||||||
Compensation: | ||||||||||||||||||
Severance payments | — | $ | 210,000 | $ | 630,000 | — | — | — | ||||||||||
Short-term Disability Benefits | — | — | — | — | — | $ | 38,364 | |||||||||||
Short-term Incentive | — | — | $ | 504,000 | — | $ | 83,764 | $ | 83,764 | |||||||||
Intrinsic Value of Unvested and Accelerated Stock Options | — | $ | 118,800 | $ | 237,600 | — | — | — | ||||||||||
Benefits and Perquisites: | ||||||||||||||||||
Health Care and Life Insurance Coverage | — | $ | 4,342 | $ | 4,342 | — | — | — | ||||||||||
Life Insurance Proceeds | — | — | — | — | $ | 210,000 | — | |||||||||||
Disability Benefits | — | — | — | — | — | — | ||||||||||||
Accrued Vacation Pay | $ | 12,923 | $ | 12,923 | $ | 12,923 | $ | 12,923 | $ | 12,923 | $ | 12,923 | ||||||
Total | $ | 12,923 | $ | 346,065 | $ | 1,388,865 | $ | 12,923 | $ | 306,687 | $ | 135,051 | ||||||
| 280(G) Estimated Cap Amount for Involuntary or Good Reason Termination (Following Change in Control) | $650,391 | |||||||||||||||||
3/31/2007 stock price | $ | 12.69 | ||||||||||||||||
27
Donald G. Lacombe’s Benefits and Payments Upon Termination as of 3/31/2007 | Voluntary Termination | Involuntary Not for Cause Termination (Non-Change in Control) | Involuntary or Good Reason Termination (Following a Change in Control) | Involuntary For Cause Termination | Death | Disability (1) | ||||||||||||
Compensation: | ||||||||||||||||||
Severance payments | — | $ | 185,000 | $ | 555,000 | — | — | — | ||||||||||
Short-term Disability Benefits | — | — | — | — | — | $ | 33,798 | |||||||||||
Short-term Incentive | — | — | $ | 444,000 | — | $ | 81,007 | $ | 81,007 | |||||||||
Intrinsic Value of Unvested and Accelerated Stock Options | — | $ | 79,200 | $ | 158,400 | — | — | — | ||||||||||
Benefits and Perquisites: | ||||||||||||||||||
Health Care and Life Insurance Coverage | — | $ | 4,297 | $ | 4,297 | — | — | — | ||||||||||
Life Insurance Proceeds | — | $ | 0 | — | — | $ | 185,000 | — | ||||||||||
Disability Benefits | — | — | — | — | — | $ | 300,000 | |||||||||||
Accrued Vacation Pay | $ | 7,827 | $ | 7,827 | $ | 7,827 | $ | 7,827 | $ | 7,827 | $ | 7,827 | ||||||
Total | $ | 7,827 | $ | 276,324 | $ | 1,169,524 | $ | 7,827 | $ | 273,834 | $ | 422,632 | ||||||
| 280(G) Estimated Cap Amount for Involuntary or Good Reason Termination (Following Change in Control) | $ | 946,514 | ||||||||||||||||
3/31/2007 stock price | $ | 12.69 | ||||||||||||||||
|
|
J. Blaine David’s Benefits and Payments Upon Termination as of 3/31/2007 | Voluntary Termination | Involuntary Not for Cause Termination (Non-Change in Control) | Involuntary or Good Reason Termination (Following a Change in Control) (1) | Involuntary For Cause Termination | Death | Disability | ||||||||||||
Compensation: | ||||||||||||||||||
Severance payments | — | $ | 92,500 | $ | 277,500 | — | — | — | ||||||||||
Short-term Disability Benefits | — | — | — | — | — | $ | 26,683 | |||||||||||
Short-term Incentive | — | — | $ | 194,250 | — | $ | 72,412 | $ | 72,412 | |||||||||
Intrinsic Value of Unvested and Accelerated Stock Options | — | — | — | — | — | — | ||||||||||||
Benefits and Perquisites: | ||||||||||||||||||
Health Care and Life Insurance Coverage | — | $ | 2,148 | $ | 2,148 | — | — | — | ||||||||||
Life Insurance Proceeds | — | — | — | — | $ | 185,000 | — | |||||||||||
Disability Benefits | — | — | — | — | — | — | ||||||||||||
Accrued Vacation Pay | $ | 14,231 | $ | 14,231 | $ | 14,231 | $ | 14,231 | $ | 14,231 | $ | 14,231 | ||||||
Total | $ | 14,231 | $ | 108,879 | $ | 488,129 | $ | 14,231 | $ | 271,643 | $ | 113,326 | ||||||
3/31/2007 stock price | $ | 12.69 | ||||||||||||||||
|
|
2837
Willie W. Walker’s Benefits and Payments Upon Termination as of 3/31/2007 | Voluntary Termination | Involuntary Not for Cause Termination (Non-Change in Control) | Involuntary or Good Reason Termination (Following a Change in Control) | Involuntary For Cause Termination | Death | Disability (1) | ||||||||||||
Compensation: | ||||||||||||||||||
Severance payments | — | $ | 92,500 | $ | 277,500 | — | — | — | ||||||||||
Short-term Disability Benefits | — | — | — | — | — | $ | 32,019 | |||||||||||
Short-term Incentive | — | — | $ | 194,250 | — | $ | 72,412 | $ | 72,412 | |||||||||
Intrinsic Value of Unvested and Accelerated Stock Options | — | — | $ | 158,400 | — | — | — | |||||||||||
Benefits and Perquisites: | ||||||||||||||||||
Health Care and Life Insurance Coverage | — | $ | 2,148 | $ | 2,148 | — | — | — | ||||||||||
Life Insurance Proceeds | — | — | — | — | $ | 185,000 | — | |||||||||||
Disability Benefits | — | — | — | — | — | $ | 300,000 | |||||||||||
Accrued Vacation Pay | $ | 14,231 | $ | 14,231 | $ | 14,231 | $ | 14,231 | $ | 14,231 | $ | 14,231 | ||||||
Total | $ | 14,231 | $ | 108,879 | $ | 646,529 | $ | 14,231 | $ | 271,643 | $ | 418,662 | ||||||
| 280(g) Estimated Cap Amount for Involuntary or Good Reason Termination (Following Change in Control) | $ | 632,716 | ||||||||||||||||
3/31/2007 stock price | $ | 12.69 | ||||||||||||||||
William D. Hibbetts’ Benefits and Payments | Voluntary Termination | Involuntary Not for Cause Termination (Non-Change in Control) | Involuntary or Good Reason Termination (Following a Change in Control) | Involuntary For Cause Termination | Death | Disability (1) | ||||||||||||
Compensation: | ||||||||||||||||||
Severance payments | — | $ | 210,000 | $ | 420,000 | — | — | — | ||||||||||
Short-term Incentive | — | — | $ | 336,000 | — | $ | 84,000 | $ | 84,000 | |||||||||
Intrinsic Value of Unvested and Accelerated Stock Options | — | $ | 40,600 | $ | 121,800 | — | $ | 121,800 | $ | 121,800 | ||||||||
Intrinsic Value of Unvested and Accelerated Restricted Stock | — | $ | 26,070 | $ | 67,940 | — | $ | 67,940 | $ | 67,940 | ||||||||
Unvested and Accelerated Restricted Cash Bonus Payment | — | $ | 28,350 | $ | 56,700 | — | $ | 56,700 | $ | 56,700 | ||||||||
Benefits and Perquisites: | ||||||||||||||||||
Excise Tax Gross-up | — | — | $ | 273,013 | — | — | — | |||||||||||
Health Care and Life Insurance Coverage | — | $ | 9,189 | $ | 9,189 | — | — | — | ||||||||||
Life Insurance Proceeds | — | — | — | — | $ | 210,000 | — | |||||||||||
Auto Allowance | — | — | $ | 28,800 | — | — | — | |||||||||||
Accrued Vacation Pay | $ | 16,154 | $ | 16,154 | $ | 16,154 | $ | 16,154 | $ | 16,154 | $ | 16,154 | ||||||
Total | $ | 16,154 | $ | 330,363 | $ | 1,329,596 | $ | 16,154 | $ | 556,594 | $ | 346,594 | ||||||
12/31/2009 stock price | $ | 7.90 | ||||||||||||||||
(1) |
|
38
Franklin C. West’s Benefits and | Voluntary Termination | Normal Retirement | Involuntary Not for Cause Termination (Non-Change in Control) | Involuntary or Good Reason Termination (Following a Change in Control) | Involuntary For Cause Termination | Death | Disability (1) | ||||||||||||||
Compensation: | |||||||||||||||||||||
Severance payments | — | — | $ | 790,000 | $ | 1,185,000 | — | — | — | ||||||||||||
Short-term Incentive | — | $ | 197,500 | $ | 395,000 | $ | 1,185,000 | — | $ | 197,500 | $ | 197,500 | |||||||||
Intrinsic Value of Unvested and Accelerated Stock Options | — | — | $ | 162,400 | $ | 487,200 | — | $ | 487,200 | $ | 487,200 | ||||||||||
Intrinsic Value of Unvested and Accelerated Restricted Stock | — | — | $ | 102,700 | $ | 268,600 | — | $ | 268,600 | $ | 268,600 | ||||||||||
Unvested and Accelerated Restricted Cash Bonus Payment | — | — | $ | 108,900 | $ | 217,800 | — | $ | 217,800 | $ | 217,800 | ||||||||||
Benefits and Perquisites: | |||||||||||||||||||||
EExcise Tax Gross-up | — | — | — | — | — | — | |||||||||||||||
Health Care and Life Insurance Coverage | — | — | $ | 9,351 | $ | 14,027 | — | — | — | ||||||||||||
Life Insurance Proceeds | — | — | — | — | — | $ | 300,000 | — | |||||||||||||
Auto Allowance | — | — | — | $ | 43,200 | — | — | — | |||||||||||||
Club Dues | — | — | — | $ | 3,387 | — | — | — | |||||||||||||
Accrued Vacation Pay | $ | 30,385 | $ | 30,385 | $ | 30,385 | $ | 30,385 | $ | 30,385 | $ | 30,385 | $ | 30,385 | |||||||
Total | $ | 30,385 | $ | 227,885 | $ | 1,598,736 | $ | 3,434,600 | $ | 30,385 | $ | 1,501,485 | $ | 1,201,485 | |||||||
12/31/2009 stock price | $ | 7.90 | |||||||||||||||||||
| (1) | Disability payment does not include benefits payable under the Company’s Long-Term Disability Plan (which is available to all U.S. salaried employees). Because Mr. West has reached the standard retirement age based on the retirement age guidelines used by Social Security Administration, in the event of long-term disability, he would receive twelve monthly payments |
39
Joseph B. Eustace’s Benefits and Payments | Voluntary Termination | Involuntary Not for Cause Termination (Non-Change in Control) | Involuntary or Good Reason Termination (Following a Change in Control) | Involuntary For Cause Termination | Death | Disability (1) | ||||||||||||
Compensation: | ||||||||||||||||||
Severance payments | — | $ | 560,000 | $ | 840,000 | — | — | — | ||||||||||
Short-term Incentive | — | $ | 280,000 | $ | 840,000 | — | $ | 140,000 | $ | 140,000 | ||||||||
Intrinsic Value of Unvested and Accelerated Stock Options | — | $ | 93,380 | $ | 280,140 | — | $ | 280,140 | $ | 280,140 | ||||||||
Intrinsic Value of Unvested and Accelerated Restricted Stock | — | $ | 58,721 | $ | 154,050 | — | $ | 154,050 | $ | 154,050 | ||||||||
Unvested and Accelerated Restricted Cash Bonus Payment | — | $ | 61,650 | $ | 123,300 | — | $ | 123,300 | $ | 123,300 | ||||||||
Benefits and Perquisites: | ||||||||||||||||||
Excise Tax Gross-up | — | — | $ | 776,108 | — | — | — | |||||||||||
Health Care and Life Insurance Coverage | — | $ | 14,622 | $ | 21,932 | — | — | — | ||||||||||
Life Insurance Proceeds | — | — | — | — | $ | 280,000 | — | |||||||||||
Auto Allowance | — | — | $ | 43,200 | — | — | — | |||||||||||
Club Dues | — | — | $ | 3,387 | — | — | — | |||||||||||
Accrued Vacation Pay | $ | 11,846 | $ | 11,846 | $ | 11,846 | $ | 11,846 | $ | 11,846 | $ | 11,846 | ||||||
Total | $ | 11,846 | $ | 1,080,219 | $ | 3,093,963 | $ | 11,846 | $ | 989,336 | $ | 709,336 | ||||||
12/31/2009 stock price | $ | 7.90 | ||||||||||||||||
| (1) | Disability payment does not include benefits payable under the Company’s Long-Term Disability Plan (which is available to all U.S. salaried employees), the value of which would depend on the life span or years remaining prior to the named executive officer reaching the standard retirement age based on the retirement age guidelines used by Social Security Administration. |
40
Carlos R. Pena’s Benefits and Payments | Voluntary Termination | Involuntary Not for Cause Termination (Non-Change in Control) | Involuntary or Good Reason Termination (Following a Change in Control) | Involuntary For Cause Termination | Death | Disability (1) | ||||||||||||
Compensation: | ||||||||||||||||||
Severance payments | — | $ | 500,000 | $ | 750,000 | — | — | — | ||||||||||
Short-term Incentive | — | $ | 250,000 | $ | 750,000 | — | $ | 125,000 | $ | 125,000 | ||||||||
Intrinsic Value of Unvested and Accelerated Stock Options | — | $ | 97,210 | $ | 279,680 | — | $ | 279,680 | $ | 279,680 | ||||||||
Intrinsic Value of Unvested and Accelerated Restricted Stock | — | $ | 31,600 | $ | 94,800 | — | $ | 94,800 | $ | 94,800 | ||||||||
Unvested and Accelerated Restricted Cash Bonus Payment | — | $ | 55,800 | $ | 111,600 | — | $ | 111,600 | $ | 111,600 | ||||||||
Benefits and Perquisites: | ||||||||||||||||||
EExcise Tax Gross-up | — | — | $ | 701,975 | — | — | — | |||||||||||
Health Care and Life Insurance Coverage | — | $ | 14,568 | $ | 21,851 | — | — | — | ||||||||||
Life Insurance Proceeds | — | — | — | — | $ | 250,000 | — | |||||||||||
Auto Allowance | — | — | $ | 43,200 | — | — | — | |||||||||||
Accrued Vacation Pay | $ | 14,423 | $ | 14,423 | $ | 14,423 | $ | 14,423 | $ | 14,423 | $ | 14,423 | ||||||
Total | $ | 14,423 | $ | 963,601 | $ | 2,767,529 | $ | 14,423 | $ | 875,503 | $ | 625,503 | ||||||
12/31/2009 stock price | $ | 7.90 | ||||||||||||||||
| (1) | Disability payment does not include benefits payable under the Company’s Long-Term Disability Plan (which is available to all U.S. salaried employees), the value of which would depend on the life span or years remaining prior to the named executive officer reaching the standard retirement age based on the retirement age guidelines used by Social Security Administration. |
The terms for the payments for involuntary not-for-cause termination (non-change in control) and for involuntary or good reason termination (following a change in control) are outlined insummarized under the heading “Key Executive Severance Agreement sectionPlan” of the Compensation Discussion and Analysis.this section. In the event of a change in control termination, if the termination qualified as (i) a change in ownership or effective control or (ii) a change in ownership of a substantial portion of our assets, in either case as defined in Section 280G of the Internal Revenue Code, then severance payments and benefits paid to our named executive officers wouldmay be capped so assubject to avoid imposition of an excise tax under Section 4999 of the Internal Revenue Code. This cap would limit totalIn the event a named executive officer is subject to such excise tax, the named executive officer will be entitled to a gross-up payment, such that after payment of all taxes on the gross-up payment, the named executive officer retains sufficient funds to pay the excise taxes that result from the severance payments and benefits paid to three times the individual’s base amount, which is generally the average annual compensation received by the participant for the five years immediately prior to the change in control. In cases of death, disability and normal retirement, an officer (or his estate) will be entitled to the annual incentive.received. If an officer voluntarily terminated employment or was fired for cause between MarchDecember 31, 20072009 and the payment of the annual cash incentive, then the officer would not receive that award. The named executive officers are entitled to accrued vacation accrued only for voluntary terminations and terminations for cause. The short-term disability plan pays up to 90 days. The payments are 100% a week for the equivalent of each full year of the executive’s service and 50% for each subsequent week. The long-term disability plan pays 60% of an officer’s salary up to $5,000 per month for up to five years. The long-term disability plan is optional and plan premiums are paid for by the officer that chooses to participate. The life insurance plan pays the beneficiary an amount equal to the applicable officer’s annual salary up to a maximum of $300,000.
29
Compensation Committee Interlocks and Insider Participation
Messrs. Bunch, Burkhardt, Tidwell, Thompson and HarnessUrban served on our Compensation Committee during the fiscal 2007. Mr. Harness replaced Mr. Tidwell as a Compensation Committee member on October 1, 2006.year ended December 31, 2009. No member of the Compensation Committee (1) was an officer or employee of our company or a subsidiary of our company during that period, (2) was formerly an officer of our company or a subsidiary of our company or (3) had any relationship required to be disclosed in this proxy statement pursuant to Item 404 of Regulation S-K.
41
During the fiscal 2007,year ended December 31, 2009, none of our named executive officers served as (1) a member of a compensation committee of another company, one of whose executive officers served on our Compensation Committee; (2) a director of another company, one of whose executive officers served on our Compensation Committee; or (3) a member of a compensation committee of another company, one of whose executive officers served as one of our directors.
30
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our board of directorsaudit committee reviews any transaction in which (1) we or any of our subsidiaries, on the one hand, and (2) any of our directors, ornominees for director, executive officers or any of their immediate family members or any (2) nominee for director or a holderholders of more than 5% of our common stock or any of their immediate family members, on the other hand, is, was or is proposed to be a participant and the amount of the transactioninvolved exceeds $120,000. Our chief financial officer is primarily responsible for the development and implementation of processes and controls to obtain information from directors and officers with respect to any such related-party transaction, including information provided to management in the annual directorsdirector and officersofficer questionnaires. Our management is responsible for determining whether a transaction contains the characteristics described above requiring review by our board of directors.
Except as set forth in this proxy statement, noneNone of our directors or executive officers and no holder of more than 5% of the outstanding shares of our common stock, and no member of the immediate family of any such director, officer or security holder, to our knowledge, had any material interest in any transaction during the fiscal year ended MarchDecember 31, 2007,2009, or in any currently proposed transaction, to which we or any of our subsidiaries was or is a party in which the amount involved exceeds $120,000.
None of our directors or executive officers who has served in such capacity since February 1, 2006 or any associate of any such director or officer, to the knowledge of our executive officers, has any material interest in any matter proposed to be acted on at the 2007 Annual Meeting of Shareholders, other than as described in this proxy statement.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, executive officers and any persons beneficially owning more than 10% of our common stock to report their initial ownership of our common stock and any subsequent changes in that ownership to the SEC.Securities and Exchange Commission. Specific due dates for these reports have been established, and we are required to disclose in this proxy statement any failure to file by these dates. All required filings for fiscal 2006 were made on a timely basis.
In making these disclosures, we relied solely on written statements of directors, executive officers and shareholders, and copies of the reports that they have filed with the SEC.
3142
REPORT OF THE AUDIT COMMITTEE
To the boardBoard of directorsDirectors of Pioneer Drilling Company:
The Audit Committee of Pioneer Drilling Company’s boardBoard of directorsDirectors is presently comprised of the fourthree directors named below. Each member of the Audit Committee is an independent director, as defined by applicable Securities and Exchange Commission rules and American Stock ExchangeNYSE Amex listing standards. WeThe Audit Committee met fivesix times during the fiscal year ended March 31, 2007. We reviewed with management and KPMG LLP, Pioneer Drilling Company’s independent registered public accounting firm, the interim financial information included in Pioneer Drilling Company’s quarterly reports on Form 10-Q for the periods ended June 30, 2006, September 30, 2006 and December 31, 2006, respectively, prior to their being filed with the Securities and Exchange Commission. In addition, we reviewed all of Pioneer Drilling Company’s earnings releases in fiscal 2007 with management and KPMG LLP prior to the public release of those earnings releases.2009. We have reviewed and discussed with management and KPMG LLP Pioneer Drilling Company’s audited financial statements as of and for the fiscal year ended MarchDecember 31, 2007.2009.
In addition, weWe have discussed with KPMG LLP the matters required to be discussed by Statement ofon Auditing Standards No. 61,Communication with Audit Committees as amended, (AICPA, Professional Standards, Vol. 1, AU Section 380), as amended, issuedadopted by the Auditing StandardsPublic Company Accounting Oversight Board of the American Institute of Certified Public Accountants.(the “PCAOB”) in Rule 3200T.
We have also reviewed and discussed with management and KPMG LLP management’s report and KPMG LLP’s report and attestation on internal control over financial reporting for the fiscal year ended March 31, 2007 in accordance with Section 404 of the Sarbanes-Oxley Act.
We have received and reviewed the written disclosures and the letter from KPMG LLP required by Independence Standards Board Standard No. 1,Independence Discussionsapplicable requirements of the PCAOB regarding KPMG’s communications with the Audit Committees, as amended,Committee concerning independence, and we have discussed with KPMG LLP its independence from Pioneer Drilling Company.independence.
Based on the reviewsreview and discussions referred to above, we recommended to the boardBoard of directorsDirectors of Pioneer Drilling Company that the audited financial statements referred to above be included in Pioneer Drilling Company’s annual report on Form 10-K for the fiscal year ended MarchDecember 31, 2007 filed2009 for filing with the Securities and Exchange Commission.
| The Audit Committee |
Dean A. Burkhardt |
John Michael Rauh (Chairman) C. John Thompson |
The information above in the Report of the Audit Committee shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C or to the liabilities of Section 18 of the Exchange Act, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 (the “Securities Act”) or the Exchange Act, except to the extent that the Company specifically requests that the information be treated as soliciting material or specifically incorporates the information by reference.
32
43
PROPOSAL 2
APPROVAL OF PIONEER DRILLING COMPANY 2007 INCENTIVE PLAN
On June 15, 2007, our board of directors adopted the 2007 Incentive Plan, effective upon shareholder approval. Our board of directors believes the 2007 Incentive Plan will be important in achieving the benefits arising from ownership of its shares of common stock by our corporate officers, key employees, consultants and directors. The 2007 Incentive Plan is an important part of our officer, key employee, consultant and director compensation program and will help us attract and retain officers, key employees, consultants and directors. Share ownership through the 2007 Incentive Plan will encourage their sense of proprietorship and create additional incentives to use their best efforts to achieve our long-term success. The following description of the 2007 Incentive Plan is a summary of certain provisions and is qualified in its entirety by reference to the 2007 Incentive Plan, which is attached to this proxy statement as Annex A.
Summary of the 2007 Incentive Plan
The 2007 Incentive Plan is designed to attract and retain officers, key employees, consultants and qualified directors, to encourage the sense of proprietorship of such employees, consultants and directors and to stimulate the active interest of such persons in the development and financial success of our company and its subsidiaries. The 2007 Incentive Plan is administered by the Compensation Committee. The 2007 Incentive Plan provides for various types of awards to be granted to participants. Under the 2007 Incentive Plan, options to purchase shares of our common stock and stock appreciation rights may be granted, but exercise prices can be no less than the fair market value of a share of our common stock on the date of grant. In addition, the 2007 Incentive Plan permits grants of shares of our common stock or of rights to receive shares of our common stock, or cash or a combination of both, including restricted, unrestricted, performance and phantom stock, on such terms as the Compensation Committee may determine. The 2007 Incentive Plan also provides for cash or stock bonus awards based on objective performance goals pre-established by the Compensation Committee. Options and stock appreciation rights must have fixed terms no longer than ten years; restricted stock that is not performance-based must be restricted for at least three years, and earlier vesting of stock awards is generally limited to death, disability, retirement or change in control events. 2007 Incentive Plan shares can be used as the form of payment for any other compensation payable by us.
Shares Reserved. The 2007 Incentive Plan currently provides for a maximum of 3,000,000 shares of our common stock as to which awards may be granted (of which 1,000,000 are authorized for awards other than options or stock appreciation rights). For additional information on awards made and shares reserved under all of our equity compensation plans, please see “Equity Compensation Plan Information” below. The number of shares of our common stock available for issuance under the 2007 Incentive Plan shall be reduced by the number of shares subject to options or stock appreciation rights exercised and the number of shares awarded, and will not be increased by any shares tendered in payment of an option exercise price or for tax withholding for any award. As of June 18, 2007, the closing price per share of our common stock on the American Stock Exchange was $15.14.
Selection of Participants. The Compensation Committee selects the participants and determines the number and type of awards to be granted to each such participant. Participants who may be granted awards under the 2007 Incentive Plan include any officer, employee or consultant of our company or any of its subsidiaries and any nonemployee director of our company. As of June 1, 2007, we had approximately 1,700 employees, including four executive officers, and five nonemployee directors.
Awards may be granted as alternatives to or in replacement of (a) awards outstanding under our 2003 Stock Plan or any other plan or arrangement of ours, or (b) awards outstanding under a plan or arrangement of a business or entity all or part of which is acquired by us; provided, however, that except for adjustments to account for a corporate transaction as described below, the grant price of any option or stock appreciation right shall not be decreased, including by means of issuance of a substitute option or stock appreciation right with a lower grant price, without shareholder approval. The Compensation Committee may permit or require the deferral of any award payment, subject to such rules and procedures as it may establish, and in addition may include provisions in awards for the payment or crediting of interest or dividend equivalents, including converting such credits into deferred share equivalents.
Stock Options. The Compensation Committee determines, in connection with each option granted to officers, employees, consultants or nonemployee directors, the exercise price, whether that price is payable in cash (and whether that may include proceeds of a sale assisted by a third party) or shares of our common stock or both, the terms and
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conditions of exercise, the expiration date, whether the option will qualify as an incentive stock option under the Internal Revenue Code of 1986, as amended (the “Code”), or a nonqualified stock option, restrictions on transfer of the option, and other provisions not inconsistent with the 2007 Incentive Plan. Incentive stock options may not be granted to consultants or nonemployee directors. The term of an option may not exceed ten years from the date of grant. Three million of the shares available under the 2007 Incentive Plan may be used for grants of incentive stock options.
Stock Appreciation Rights. The Compensation Committee is authorized to grant stock appreciation rights, or SARs, to employees and nonemployee directors. Every SAR entitles the participant, on exercise of the SAR, to receive shares of common stock with a value equal to the excess of the market value of a specified number of shares of common stock at the time of exercise, over the exercise price established by the Compensation Committee. The term of any SAR may not exceed ten years from the date of grant. SARs may be granted in tandem with options, subject to such terms and restrictions as established by the Compensation Committee.
Stock Awards and Cash Awards. In addition, the 2007 Incentive Plan authorizes the Compensation Committee to grant employees and nonemployee directors stock awards consisting of shares of our common stock or of a right to receive shares of our common stock, or their cash equivalent or a combination of both, in the future and cash bonuses payable solely on account of the attainment of one or more objective performance goals that have been pre-established by the Compensation Committee. Such awards may be subject to such terms and conditions, restrictions and contingencies, not inconsistent with the 2007 Incentive Plan, as may be determined by the Compensation Committee. Among other things, stock awards can be, and cash bonuses that qualify as cash awards under the 2007 Incentive Plan must be, conditioned on the achievement of single or multiple performance goals. Any stock award which is not conditioned on the achievement of any performance goals will have a minimum restriction period of three years, provided that awards may vest ratably over such period. Any stock award which is conditioned on the achievement of any performance goals will have a minimum restriction period of one year.
Award Limits. No participant may be granted, in any one-year period, options or SARs that are exercisable for more than 400,000 shares of our common stock, stock awards covering more than 200,000 shares of our common stock, or a combination of cash and other awards other than options and SARs having a value greater than $3,000,000.
Performance Awards. Any award available under the 2007 Incentive Plan may be made as a performance award. Performance awards not intended to qualify as qualified performance-based compensation under Code Section 162(m) will be based on achievement of such goals and are subject to such terms, conditions and restrictions as the Compensation Committee or its delegate will determine. Performance awards granted under the 2007 Incentive Plan that are intended to qualify as qualified performance-based compensation under Code Section 162(m) must be paid, vested or otherwise deliverable solely on account of the attainment of one or more pre-established, objective performance goals established by the Compensation Committee. The performance goals may be cumulative, annual or end-of-performance-period goals, relative to a peer group or based on increases or changes relative to stated values and based on any one or more of the following measures:
increased revenue;
net income measures (including but not limited to income after capital costs and income before or after taxes);
stock price measures (including but not limited to growth measures and total shareholder return);
price per share of common stock;
market share;
net earnings;
earnings per share (actual or targeted growth);
earnings before interest, taxes, depreciation and amortization (“EBITDA”);
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earnings before interest, taxes and amortization (“EBITA”);
economic value added (or an equivalent metric);
market value added;
debt-to-equity ratio;
cash flow measures (including cash flow per share, cash flow return on capital, cash flow return on tangible capital, net cash flow, net cash flow before financing activities and improvement in or attainment of working capital levels);
return measures (including but not limited to return on equity, return on average assets, return on capital, risk-adjusted return on capital, return on investors’ capital and return on average equity);
operating measures (including operating income, funds from operations, cash from operations, after-tax operating income, net operating profit after tax, revenue volumes, operating efficiency, rig fleet day rates and rig fleet utilization);
expense measures (including but not limited to overhead cost, general and administrative expense and improvement in or attainment of expense levels);
margins;
shareholder value;
proceeds from dispositions;
total market value;
reliability;
productivity;
corporate values measures (including ethics compliance, environmental and safety); and
debt reduction.
Unless otherwise stated, such a performance goal need not be based on an increase or positive result under a particular business criterion and could include, for example, maintaining thestatus quo, performance relative to a peer group or limiting economic losses (measured, in each case, by reference to specific business criteria).
Cash awards, as well as the above-mentioned performance measures for stock awards and cash awards, are included in the 2007 Incentive Plan to enable the Compensation Committee to make awards that qualify as qualified performance-based compensation under Code Section 162(m). The Compensation Committee can satisfy those requirements by, among other things, including provisions in stock awards and cash bonuses that will make them payable solely on account of the attainment of one or more pre-established, objective performance goals based on performance measures that have been approved by our shareholders. Although the Compensation Committee does not have to include such provisions in stock awards or cash bonuses, the inclusion of such provisions and compliance with certain other requirements of Section 162(m) would enable us to take a tax deduction for such compensation that we might not otherwise be able to take.
Nonemployee Director Awards. On becoming a director, each nonemployee director of ours will be granted a
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fully vested nonqualified option to purchase 10,000 shares of common stock and, as of the close of business on the date of our annual meeting of shareholders for each year after the year in which the Plan is approved by our shareholders, each nonemployee director then serving will be granted a fully vested nonqualified option to purchase 10,000 shares of common stock. Our board of directors may, in its discretion, determine to increase, from time to time, the number of shares subject to such options awarded after such determination, provided that any such increase in any single calendar year does not exceed 10,000 shares per each grant. Each nonemployee director’s option shall expire five years from the date of grant. Additionally, the Compensation Committee may grant a nonemployee director an award in accordance with the same terms governing all other awards to employees under the 2007 Incentive Plan. Any award granted to a nonemployee director will be embodied in an award agreement, which will be signed by the nonemployee director to whom the award is granted and by an authorized officer for and on behalf of us. Effective upon shareholder approval of the 2007 Incentive Plan, we will amend our 2003 stock plan to eliminate the similar provisions under that plan which currently provide for annual, automatic grants of stock options to our nonemployee directors.
Adjustments. In the event of a corporate transaction involving us (including any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination or exchange of shares), our board of directors will make appropriate adjustments to (1) the number of shares of our common stock covered by awards in the form of common stock or units denominated in common stock, (2) the exercise or other price in respect of such awards, and (3) the appropriate fair market value and other price determinations for such awards, (4) the number of shares of our common stock covered by awards to directors automatically granted, and (5) the award limits, to give effect to such transaction; provided that such adjustments will only be as necessary to maintain the proportionate interest of the holders of the awards and preserve, without exceeding, the value of such awards. Outside of such a corporate transaction context, no award under the 2007 Incentive Plan may be repriced, replaced, regranted or modified without shareholder approval if the effect would be to reduce the exercise price for the shares underlying the award.
Duration; Plan Amendments. The 2007 Incentive Plan has a term of ten years from the date of shareholder approval. Our board of directors may at any time amend, suspend or terminate the 2007 Incentive Plan, but in doing so cannot adversely affect any outstanding award without the grantee’s written consent or make any amendment without shareholder approval, to the extent such shareholder approval is required by applicable law or the exchange on which the shares are traded.
Applicability of ERISA; Tax Qualification. The 2007 Incentive Plan is not subject to the provisions of the Employee Retirement Income Security Act of 1974, nor is it qualified under Section 401(a) of the Code.
Certain Federal Income Tax Consequences of Awards Under the 2007 Incentive Plan
The following is a summary of the general rules of present federal income tax law relating to the tax treatment of incentive stock options, nonqualified stock options, SARs, stock awards and cash awards under the 2007 Incentive Plan. The discussion is general in nature and does not take into account a number of considerations, which may apply, based on the circumstances of a particular participant under the 2007 Incentive Plan.
Options. Some of the options issuable under the 2007 Incentive Plan may constitute “incentive stock options” within the meaning of Code Section 422, while other options granted under the 2007 Incentive Plan will be nonqualified stock options. The Code provides for tax treatment of stock options qualifying as incentive stock options, which may be more favorable to employees than the tax treatment of nonqualified stock options. On grant of either form of option, the optionee will not recognize income for tax purposes and we will not receive any deduction. Generally, on the exercise of an incentive stock option, the optionee will recognize no income for U.S. federal income tax purposes. However, the difference between the exercise price of the incentive stock option and the fair market value of the underlying shares at the time of exercise is an item of tax adjustment that may require payment of an alternative minimum tax. On the sale of shares acquired by exercise of an incentive stock option (assuming that the sale does not occur within two years of the date of grant of the option or within one year from the date of exercise), any gain will be taxed to the optionee as long-term capital gain. In contrast, on the exercise of a nonqualified option, the optionee recognizes taxable income (subject to withholding) in an amount equal to the difference between the fair market value of the underlying shares on the date of exercise and the exercise price. On any sale of such shares by the optionee, any difference between the sale price and the fair market value of the shares on the date of exercise of the nonqualified option will be treated generally as capital gain or loss. No deduction is available to us on the grant or exercise of an incentive stock option (although a deduction may be available if the employee sells the shares acquired on exercise before the applicable holding period expires), whereas on exercise of a nonqualified stock option, we are entitled
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to a deduction in an amount equal to the income recognized by the optionee. Except in the case of the death or disability of an optionee, an optionee has three months after termination of employment in which to exercise an incentive stock option and retain favorable tax treatment at exercise. An option exercised more than three months after an optionee’s termination of employment other than on death or disability of an optionee cannot qualify for the tax treatment applicable to incentive stock options. Any such option would be treated as a nonqualified stock option instead.
Stock Appreciation Rights. The fair market value of any shares of our common stock received by the holder on the exercise of SARs under the 2007 Incentive Plan will be subject to ordinary income tax in the year of receipt, and we will be entitled to a deduction for that amount.
Stock Awards. A grant of shares of our common stock or a cash equivalent that is not subject to vesting restrictions will result in taxable income for federal income tax purposes to the recipient at the time of grant in an amount equal to the fair market value of the shares or the amount of cash awarded. We would be entitled to a corresponding deduction at that time for the amount included in the recipient’s income.
Generally, a grant of shares of our common stock under the 2007 Incentive Plan subject to vesting and transfer restrictions will not result in taxable income to the recipient for federal income tax purposes or a tax deduction to us in the year of the grant. The value of the shares will generally be taxable to the recipient as compensation income in the years in which the restrictions on the shares lapse. Such value will be the fair market value of the shares on the dates the restrictions terminate. Any recipient, however, may elect pursuant to Code Section 83(b) to treat the fair market value of the shares on the date of such grant as compensation income in the year of the grant of restricted shares, provided the recipient makes the election pursuant to Code Section 83(b) within 30 days after the date of the grant. In any case, we will receive a deduction for federal income tax purposes corresponding in amount to the amount of compensation included in the recipient’s income in the year in which that amount is so included.
Cash Awards. Cash awards are taxable income to the recipient for federal income tax purposes at the time of payment. The recipient will have compensation income equal to the amount of cash paid, and we will have a corresponding deduction for federal income tax purposes.
Other. In general, a federal income tax deduction is allowed to us in an amount equal to the ordinary income recognized by a participant with respect to awards under the 2007 Incentive Plan, provided that such amount constitutes an ordinary and necessary business expense of ours, that such amount is reasonable, and that the qualified performance-based compensation requirements of Code Section 162(m) are satisfied.
A participant’s tax basis in vested shares purchased under the 2007 Incentive Plan is equal to the sum of the price paid for the shares, if any, and the amount of ordinary income recognized by the participant on the transfer of vested shares. The participant’s holding period for the shares begins just after the transfer to the participant of vested shares. If a participant sells shares, any difference between the amount realized in the sale and the participant’s tax basis in the shares is taxed as long-term or short-term capital gain or loss (provided the shares are held as a capital asset on the date of sale), depending on the participant’s holding period for the shares.
Section 409A. Code Section 409A applies to nonqualified deferred compensation arrangements and imposes significant penalties for noncompliance. Specifically, if the deferred compensation arrangement does not comply with Section 409A, deferred amounts will be taxed currently at the participant’s marginal rate, interest is assessed at the Internal Revenue Service (“IRS”) underpayment rate plus 1%, measured from the later of the deferral date or vesting date, and a penalty is assessed equal to 20% of the taxable amount of compensation. We intend that any awards under the Plan will either be exempt from or satisfy the requirements of Section 409A.
Estimated Benefits
Because it is within the discretion of the Compensation Committee to determine which individuals receive awards and the amount and type of awards received, it is not presently possible to determine the number of individuals to whom awards will be made in the future under the 2007 Incentive Plan or the amounts of such awards. Although not necessarily indicative of future awards that may be made under the 2007 Incentive Plan, information regarding option grants in the fiscal year ended March 31, 2007 can be found above under the heading “Executive Compensation - Option Grants in Last Fiscal Year.”
Each nonemployee director, subject to shareholder approval of the 2007 Incentive Plan, will receive a fully vested nonqualified option to purchase 10,000 shares of common stock each year, beginning in 2008, at which point the automatic grant under the 2003 Stock Plan will cease.
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Equity Compensation Plan Information
The following table summarizes, as of March 31, 2007, the indicated information regarding equity compensation to our employees, officers, directors and other persons under our equity compensation plans. These plans use or are based on shares of our common stock.
Plan category | Number of securities to (a) | Weighted-average (b) | Number of securities (c) | ||||
Equity compensation plans approved by security holders | 1,946,500 | $ | 9.29 | 1,228,333 | |||
Equity compensation plans not approved by security holders | — | — | — | ||||
Total | 1,946,500 | 9.29 | 1,228,333 | ||||
In May and June 2007, we granted 854,500 options to purchase our common stock to 47 employees and officers and to five non-employee directors.
Vote Required
Assuming the presence of a quorum, the affirmative vote of a majority of the votes entitled to be cast by the shareholders that vote for or against or expressly abstain from voting is necessary to approve the 2007 Incentive Plan. The enclosed form of proxy provides a means for you to vote for, to vote against or to abstain from voting with respect to the approval of the 2007 Incentive Plan.If you execute and return a proxy, the persons named in the accompanying proxy will vote in accordance with the choice specified thereon, or if no choice is properly indicated, in favor of the approval of the 2007 Incentive Plan. In determining whether this item has received the requisite number of affirmative votes, an abstention will have the effect of a vote against the approval of the 2007 Incentive Plan, and a broker non-vote will not have any effect on the vote.Our board of directors unanimously recommends a vote “FOR” the approval of the 2007 Incentive Plan.
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PROPOSAL 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTSAUDITORS
The audit committee of our boardBoard of directorsDirectors has selected KPMG LLP to serve as our independent registered public accounting firm for the fiscal year ending MarchDecember 31, 2008.2010. KPMG LLP has served as our independent public accountants since 1979. Although shareholder ratification is not required, the board has directed that such appointment be submitted to the shareholders for ratification at the annual meeting. If our shareholders do not ratify the appointment of KPMG LLP has served as ourat the annual meeting, the audit committee will consider such event in its selection of the Company’s independent registered public accountants since 1979.accounting firm for the 2011 fiscal year. Additionally, even if the appointment is ratified, the audit committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the 2010 fiscal year if it determines that such a change would be in the best interests of the Company and its shareholders. Representatives of KPMG LLP will be present at the meeting, will be given an opportunity to make a statement if they so desire and will be available to respond to appropriate questions of any shareholders.
Assuming the presence of a quorum, the affirmative vote of a majority of the votes entitled to be cast by the shareholders that vote for or against or expressly abstain from voting is necessary to ratify the selection of KPMG LLP as our independent registered public accounting firm for the fiscal year ending MarchDecember 31, 2008.2010. The enclosed form of proxy provides a means for you to vote for, to vote against or to abstain from voting with respect to the ratification of selection of the independent registered public accounting firm.If you execute and return a proxy, the persons named in the accompanying proxy will vote in accordance with the choice specified thereon, or if no choice is properly indicated, will vote in favor of the ratification of the selection of KPMG LLP as our independent registered public accounting firm. In determining whether this item has received the requisite number of affirmative votes, an abstention will have the effect of a vote against the ratification of the appointment of our independent registered public accounting firm, and a broker non-vote will not have any effect on the vote.
Principal Accounting Fees and Services
The aggregate fees billed by KPMG LLP in the fiscal years ended December 31, 2009 and December 31, 2008 for services are as follows:
Type of Fees | Fiscal Year Ended December 31, 2009 | Fiscal Year Ended December 31, 2008 | ||||
Audit Fees | $ | 887,658 | $ | 1,135,000 | ||
Audit Fees. The include aggregate fees billed for professional services rendered by KPMG LLP for the audit of our annual financial statements, audit of our internal control over financial reporting and review of financial statements included in our Form 10-Qs were $370,000 in fiscal 2007 and $370,000 in fiscal 2006.
Audit-Related Fees. There were no fees billed for assurance or related services to usthat are normally provided by KPMG LLP that were related to the performance of the audit orprincipal auditor (e.g., comfort letters, statutory audits, consents and assistance with and review of our financial statementsdocuments filed with the SEC) in the fiscal years ended December 31, 2009 and not reported in Audit Fees above in fiscal 2007, and the aggregate of such fees in fiscal 2006 was $35,970. The fiscal 2006 audit-related fees were for accounting services related to other public filings and acquisitions.
Tax Fees. There were no fees billed for professional services rendered to us by KPMG LLP for tax compliance, tax advice or tax planning in either fiscal 2007 or fiscal 2006.
All Other Fees. There were no fees billed by KPMG LLP for products or services provided to us by KPMG LLP in either fiscal 2007 or fiscal 2006 other than the services reported in Audit Fees above.December 31, 2008.
Audit Committee’s Pre-Approval Policies and Procedures.The audit committee has established a policy for the pre-approval of audit and non-audit services performed for us by the independent auditors, which also specifies the types of services that the independent auditors may and may not provide to us. The policy provides for general pre-approval of services and specific case-by-case approval of certain services. The services that are pre-approved include audit services and audit-related services, such as due diligence services pertaining to potential business acquisitions and dispositions, and may also include other services. The audit committee approved all of the fees and services described above. At the present time, we use a third party other than KPMG LLP to prepare our tax returns and assist with tax-compliance issues. The term of any pre-approval is 12twelve months and is generally subject to certain specific budgeted amounts or ratios, as determined by the audit committee. The audit committee may revise the list of general pre-approved services from time to time based on
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subsequent determinations. Unless a type of service has received general pre-approval, it will require specific pre-approval by the audit committee. Any proposed services which were addressed in the pre-approval, but which exceed pre-approved cost levels or budgeted amounts, will also require specific pre-approval by the audit committee. The audit committee does not delegate its responsibilities concerning pre-approval of services to management. The independent registered public accounting firm and management are required to periodically report to the audit committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval, and the fees for services performed to date.
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During the fiscal 2007,year ended December 31, 2009, no pre-approval requirements were waived pursuant to the limited waiver provisions in applicable rules of the SEC.
Our boardBoard of directorsDirectors unanimously recommends a vote “FOR” the ratification of the appointment of KPMG LLP as independent auditors of Pioneer Drilling Company for the fiscal year ending MarchDecember 31, 2008.2010.
EXPENSES RELATED TO THIS PROXY SOLICITATION
We will pay all expenses relating to this proxy solicitation. In addition to this solicitation by mail, our officers, directors and regular employees may solicit proxies by telephone or personal calls without extra compensation for that activity. We also expect to reimburse banks, brokers and other persons for reasonable out-of-pocket expenses in forwarding proxy material to beneficial owners of our common stock and obtaining the proxies of those owners. We estimate these expenses to be approximately $50,000.
OTHER INFORMATION
Date for Submission of Shareholder Proposals
Under rules the SEC has established, any shareholder who wishes to have a qualified proposal considered for inclusion in our proxy statement for our 20082011 Annual Meeting of Shareholders must send notice of the proposal to our Corporate Secretary at our principal executive offices, 1250 N.E. Loop 410, Suite 1000, San Antonio, Texas 78209, so that we receive thatsuch notice by no later than February 26, 2008,December 10, 2010, unless the date of our 20082011 Annual Meeting of Shareholders is more than 30 days from the anniversary date of our 20072010 Annual Meeting of Shareholders, in which case the deadline is a reasonable time before we print and mail our proxy materials for the 20082011 Annual Meeting of Shareholders. If you submit a shareholder proposal, you must provide your name and address, the number of shares of common stock you hold of record or beneficially, the date or dates on which you acquired those shares and documentary support for any claim of beneficial ownership.
In addition, our bylaws establish an advance notice procedure for shareholder proposals to be brought before an annual meeting. In general, the procedure provides that shareholders must submit proposals to us in writing containing certain information specified in our bylaws not earliermore than 180 days and not less than 90 days prior to the first anniversary of our preceding year’s annual meeting. Accordingly, in order to be brought before our 20082011 Annual Meeting of Shareholders, any such proposal must be submitted so that we receive the proposal no earlier than February 5, 2008November 15, 2010 and no later than the close of business on May 5, 2008.February 14, 2011. Shareholders should submit any such proposals to our Corporate Secretary at Pioneer Drilling Company, 1250 N.E. Loop 410, Suite 1000, San Antonio, Texas 78209. These requirements are in addition to the SEC’s requirements that a shareholder must comply with to have a shareholder proposal included in our proxy statement.
Shareholder Communications
Our board of directors has provided for a process for shareholders to send communications to the board of directors. Any shareholder can send communications to the board of directors by mail as follows:
Board of Directors of Pioneer Drilling Company
c/o Corporate Secretary
1250 N.E. Loop 410, Suite 1000
San Antonio, Texas 78209
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All shareholder communications will be relayed to all board members. Communications from an officer or director of the Company will not be viewed as shareholder communications for purposes of the procedure. Communications from an employee or agent of the Company will be viewed as shareholder communications for purposes of the procedure only if those communications are made solely in such employee’s or agent’s capacity as a shareholder.
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Householding
The SEC permits a single set of annual reports and proxy statements to be sent to any household at which two or more shareholders reside if they appear to be members of the same family. Each shareholder continues to receive a separate proxy card. This procedure, referred to as householding, reduces the volume of duplicate information shareholders receive and reduces mailing and printing expenses. A number of brokerage firms have instituted householding.
As a result, if you hold your shares though a broker and you reside at an address at which two or more shareholders reside, you will likely be receiving only one annual report and proxy statement unless any shareholder at that address has given the broker contrary instructions. However, if any such beneficial shareholder residing at such an address wishes to receive a separate annual report or proxy statement in the future, or if any such beneficial shareholder that elected to continue to receive separate annual reports or proxy statements wishes to receive a single annual report or proxy statement in the future, that shareholder should contact their broker or send a request to our Corporate Secretary at our principal executive offices, 1250 N.E. Loop 410, Suite 1000, San Antonio, Texas 78209, telephone number (210) 828-7689. We will deliver, promptly upon written or oral request to the corporate secretary,Corporate Secretary, a separate copy of the 20062009 annual report and this proxy statement to a beneficial shareholder at a shared address to which a single copy of the documents was delivered.
Annual Report and Additional Materials
Our annual report for the fiscal year ended December 31, 2009 is being distributed with this proxy statement.Copies of our annual report on Form 10-K for such period (including the financial statements and the financial statement schedules required to be filed with the Securities and Exchange Commission pursuant to Rule 13a-1 for our most recent fiscal year, but excluding exhibits) may be obtained without charge upon written or oral request to our Corporate Secretary at our principal executive offices, 1250 N.E. Loop 410, Suite 1000, San Antonio, Texas 78209, telephone number (210) 828-7689.
Other Matters
Our board of directors does not intend to bring any other matters before the annual meeting and has not been informed that any other matters are to be presented by others. If any other matters properly come before the annual meeting, the persons named in the enclosed form of proxy will have discretion to vote all proxies according to their best judgment. The form of proxy provides that the persons named as proxies have discretionary authority to vote on matters not known or determined on the date of this proxy statement.
| By Order of the Board of Directors |
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Carlos R. Peña Vice President, General Counsel, Secretary and Compliance Officer |
San Antonio, Texas
June 25, 2007April 9, 2010
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Annex A
PIONEER DRILLING COMPANY
2007 INCENTIVE PLAN
1.Plan. This 2007 Incentive Plan of Pioneer Drilling Company (this “Plan”) was adopted by Pioneer Drilling Company, a Texas corporation (the “Company”), to reward certain corporate officers, key employees, consultants and directors of the Company or its Subsidiaries by enabling them to acquire shares of common stock of the Company and/or through the provision of cash payments.
2.Objectives. This Plan is designed to attract and retain officers, key employees and consultants of the Company and its Subsidiaries, to attract and retain qualified directors of the Company, to encourage the sense of proprietorship of such officers, employees, consultants and directors and to stimulate the active interest of such persons in the development and financial success of the Company and its Subsidiaries. These objectives are to be accomplished by making Awards under this Plan and thereby providing Participants with a proprietary interest in the growth and performance of the Company and its Subsidiaries.
3.Definitions. As used herein, the terms set forth below shall have the following respective meanings:
“Authorized Officer” means the Chairman of the Board or the Chief Executive Officer of the Company (or any other senior officer of the Company to whom either of them shall delegate the authority to execute any Award Agreement).
“Award” means the grant of any Option, SAR, Stock Award, Performance Award or Cash Award, whether granted singly, in combination or in tandem, to a Participant pursuant to such applicable terms, conditions and limitations as the Committee may establish in accordance with the objectives of the Plan.
“Award Agreement” means any written agreement between the Company and a Participant setting forth the terms, conditions and limitations applicable to an Award.
“Board” means the Board of Directors of the Company.
“Cash Award” means an award denominated in cash.
“Code” means the Internal Revenue Code of 1986, as amended from time to time.
“Committee” means the Compensation Committee of the Board or such other committee of the Board as may be designated by the Board to administer the Plan.
“Common Stock” means the Common Stock, par value $0.10 per share, of the Company.
“Director” means an individual serving as a member of the Board.
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“Dividend Equivalents” means, with respect to shares of Restricted Stock or Restricted Stock Units, with respect to which shares are to be issued at the end of the Restriction Period, an amount equal to all dividends and other distributions (or the economic equivalent thereof) that are payable to shareholders of record during the Restriction Period on a like number of shares of Common Stock.
“Employee” means an employee of the Company or any of its Subsidiaries and an individual who has agreed to become an employee of the Company or any of its Subsidiaries and actually becomes such an employee within the following six months.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Fair Market Value” of a share of Common Stock means, as of a particular date, (i) if shares of Common Stock are listed on a national securities exchange, the closing sales price per share of Common Stock on the consolidated transaction reporting system for the principal national securities exchange on which shares of Common Stock are listed on that date, or, if there shall have been no such sales reported on that date, on the last preceding date on which such a sale was so reported, (ii) if the Common Stock is not so listed, the mean between the closing bid and asked price on that date, or, if there are no such prices available for such date, on the last preceding date on which such prices shall be available, as reported by the National Quotation Bureau Incorporated, or (iii) if shares of Common Stock are not publicly traded, the most recent value determined by an independent appraiser appointed by the Company for such purpose.
“Incentive Option” means an Option that is intended to comply with the requirements set forth in Section 422 of the Code.
“Option” means a right to purchase a specified number of shares of Common Stock at a specified price.
“Nonqualified Option” means an Option that is not intended to comply with the requirements set forth in Section 422 of the Code.
“Participant” means an Employee, consultant or Director to whom an Award has been made under this Plan.
“Performance Award” means an award made pursuant to this Plan to a Participant who is an Employee, which Award is subject to the attainment of one or more Performance Goals. Performance Awards may be Stock Awards or Cash Awards.
“Performance Goal” means a standard established by the Committee, to determine in whole or in part whether a Performance Award shall be earned.
“Restricted Stock” means any Common Stock that is restricted or subject to forfeiture provisions.
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“Restricted Stock Unit” means a unit evidencing the right to receive one share of Common Stock or equivalent value (as determined by the Committee) that is restricted or subject to forfeiture provisions.
“Restriction Period” means a period of time beginning as of the date upon which an Award of Restricted Stock or Restricted Stock Units is made pursuant to this Plan and ending as of the date upon which the Common Stock subject to such Award is issued (if not previously issued), no longer restricted or subject to forfeiture provisions.
“SAR” means a right to receive a payment, in cash or Common Stock, equal to the excess of the Fair Market Value or other specified valuation of a specified number of shares of Common Stock on the date the right is exercised over a specified strike price, in each case, as determined by the Committee.
“Stock Award” means an award in the form of shares of Common Stock or units denominated in shares of Common Stock.
“Subsidiary” means (i) in the case of a corporation, any corporation of which the Company directly or indirectly owns shares representing 50% or more of the combined voting power of the shares of all classes or series of capital stock of such corporation which have the right to vote generally on matters submitted to a vote of the shareholders of such corporation and (ii) in the case of a partnership or other business entity not organized as a corporation, any such business entity of which the Company directly or indirectly owns 50% or more of the voting, capital or profits interests (whether in the form of partnership interests, membership interests or otherwise).
4.Eligibility.
(a)Employees. Employees eligible for Awards under this Plan are: (i) the officers of the Company; and (ii) those other employees who hold positions of responsibility and whose performance, in the judgment of the Committee, can have a significant effect on the success of the Company and its Subsidiaries.
(b)Consultants. Consultants eligible for Awards under this Plan are those consultants to the Company or Subsidiaries whose performance, in the judgment of the Committee, can have or have had a significant effect on the success of the Company and its Subsidiaries.
(c)Directors. Directors eligible for Awards under this Plan, in their capacities as Directors, are those who are not employees of the Company or any of its Subsidiaries (“Nonemployee Directors”).
5.Common Stock Available for Awards. Subject to the provisions of paragraph 15 hereof, there shall be available for Awards under this Plan granted wholly or partly in Common Stock (including rights or options that may be exercised for or settled in Common Stock) an aggregate of 3,000,000 shares of Common Stock. In the discretion of the Committee, all 3,000,000 shares of Common Stock may be granted as Incentive Options. No more than 1,000,000 shares of Common Stock shall be available under this Plan for Awards other than
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Options or SARs. Additionally, the number of shares of Common Stock that are the subject of Awards under this Plan, that are cancelled, forfeited, terminated or expire unexercised, shall again immediately become available for Awards hereunder. The number of shares reserved for issuance under the Plan shall be reduced only to the extent that shares of Common Stock are actually issued in connection with the exercise or settlement of an Award; provided, however, that the number of shares reserved for issuance shall be reduced by the total number of Options or SARs exercised. The number of shares reserved for issuance under the Plan shall not be increased by (i) any shares tendered or Award surrendered in connection with the purchase of shares upon the exercise of an Option as described in paragraph 11 or (ii) any shares deducted from an Award payment in connection with the Company’s tax withholding obligations as described in paragraph 12.The Committee may from time to time adopt and observe such procedures concerning the counting of shares against the Plan maximum as it may deem appropriate. The Committee and the appropriate officers of the Company shall be authorized to, from time to time, take all such actions as any of them may determine are necessary or appropriate to file any documents with governmental authorities, stock exchanges and transaction reporting systems as may be required to ensure that shares of Common Stock are available for issuance pursuant to Awards.
6.Administration.
(a)Authority of the Committee. This Plan shall be administered by the Committee. Subject to the provisions hereof, the Committee shall have full and exclusive power and authority to administer this Plan and to take all actions that are specifically contemplated hereby or are necessary or appropriate in connection with the administration hereof. The Committee shall also have full and exclusive power to interpret this Plan and to adopt such rules, regulations and guidelines for carrying out this Plan as it may deem necessary or proper, all of which powers shall be exercised in the best interests of the Company and in keeping with the objectives of this Plan. Subject to paragraph 6(c) hereof, the Committee may, in its discretion, provide for the extension of the exercisability of an Award, accelerate the vesting or exercisability of an Award, eliminate or make less restrictive any restrictions contained in an Award, waive any restriction or other provision of this Plan or an Award or otherwise amend or modify an Award in any manner that is (i) not adverse to the Participant to whom such Award was granted, (ii) consented to by such Participant or (iii) authorized by paragraph 15(c) hereof; provided, however, that no such action shall permit the term of any Option to be greater than ten years from the applicable grant date. The Committee may make an Award to an individual who it expects to become an employee of the Company or any of its Subsidiaries within the next six months, with such Award being subject to the individual’s actually becoming an employee within such time period, and subject to such other terms and conditions as may be established by the Committee. The Committee may correct any defect or supply any omission or reconcile any inconsistency in this Plan or in any Award in the manner and to the extent the Committee deems necessary or desirable to further the Plan purposes. Any decision of the Committee in the interpretation and administration of this Plan shall lie within its sole and absolute discretion and shall be final, conclusive and binding on all parties concerned.
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(b)Limitation of Liability. No member of the Committee or officer of the Company to whom the Committee has delegated authority in accordance with the provisions of paragraph 7 of this Plan shall be liable for anything done or omitted to be done by him or her, by any member of the Committee or by any officer of the Company in connection with the performance of any duties under this Plan, except for his or her own willful misconduct or as expressly provided by statute.
(c)Prohibition on Repricing of Awards. No Award may be repriced, replaced, regranted through cancellation or modified without shareholder approval (except in connection with a change in the Company’s capitalization), if the effect would be to reduce the exercise price for the shares underlying such Award.
7.Delegation of Authority. The Committee may delegate to the Chief Executive Officer and to other senior officers of the Company its duties under this Plan pursuant to such conditions or limitations as the Committee may establish.
8.Awards. (a) Except as otherwise provided in paragraph 9 hereof pertaining to Awards to Nonemployee Directors, the Committee shall determine the type or types of Awards to be made under this Plan and shall designate from time to time the Participants who are to be the recipients of such Awards. Each Award shall be embodied in an Award Agreement, which shall contain such terms, conditions and limitations as shall be determined by the Committee in its sole discretion and shall be signed by the Participant to whom the Award is made and by an Authorized Officer for and on behalf of the Company. Awards may consist of those listed in this paragraph 8(a) and may be granted singly, in combination or in tandem. Awards may also be made in combination or in tandem with, in replacement of, or as alternatives to, grants or rights under this Plan or any other plan of the Company or any of its Subsidiaries, including the plan of any acquired entity; provided that, except as contemplated in paragraph 15 hereof, no Option may be issued in exchange for the cancellation of an Option with a higher exercise price nor may the exercise price of any Option be reduced. All or part of an Award may be subject to conditions established by the Committee, which may include, but are not limited to, continuous service with the Company and its Subsidiaries, achievement of specific business objectives, increases in specified indices, attainment of specified growth rates and other comparable measurements of performance. Upon the termination of employment by a Participant who is an Employee, any unexercised, deferred, unvested or unpaid Awards shall be treated as set forth in the applicable Award Agreement.
(i)Option. An Award may be in the form of an Option. An Option awarded pursuant to this Plan may consist of an Incentive Option or a Nonqualified Option. Incentive Options may not be awarded to Nonemployee Directors. The price at which shares of Common Stock may be purchased upon the exercise of an Option shall be not less than the Fair Market Value of the Common Stock on the date of grant. The term of an Option shall not exceed ten years from the date of grant. Subject to the foregoing provisions, the terms, conditions and limitations applicable to any Options awarded pursuant to this Plan, including the term of any Options and the date or dates upon which they become exercisable, shall be determined by the Committee.
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(ii)Stock Appreciation Right. An Award may be in the form of an SAR. The strike price for an SAR shall not be less than the Fair Market Value of the Common Stock on the date on which the SAR is granted. The term of an SAR shall not exceed ten years from the date of grant. Subject to the foregoing limitations, the terms, conditions and limitations applicable to any SARs awarded pursuant to this Plan, including the term of any SARs and the date or dates upon which they become exercisable, shall be determined by the Committee.
(iii)Stock Award. An Award may be in the form of a Stock Award. The terms, conditions and limitations applicable to any Stock Awards granted pursuant to this Plan shall be determined by the Committee, subject to the limitations specified below. Any Stock Award which is not a Performance Award shall have a minimum Restriction Period of three years from the date of grant, provided that (i) the Committee may provide for earlier vesting following a change in control or other specified events involving the Company or upon an Employee’s termination of employment by reason of death, disability or retirement, (ii) such three-year minimum Restricted Period shall not apply to a Stock Award that is granted in lieu of salary or bonus, and (iii) vesting of a Stock Award may occur incrementally over the three-year minimum Restricted Period.
(iv)Cash Award. An Award may be in the form of a Cash Award. The terms, conditions and limitations applicable to any Cash Awards granted pursuant to this Plan shall be determined by the Committee.
(v)Performance Award. Without limiting the type or number of Awards that may be made under the other provisions of this Plan, an Award may be in the form of a Performance Award. The terms, conditions and limitations applicable to any Performance Awards granted to Participants pursuant to this Plan shall be determined by the Committee, subject to the limitations specified below. Any Stock Award which is a Performance Award shall have a minimum Restriction Period of one year from the date of grant, provided that the Committee may provide for earlier vesting following a change in control or other specified events involving the Company, or upon a termination of employment by reason of death, disability or retirement. The Committee shall set Performance Goals in its discretion which, depending on the extent to which they are met, will determine the value and/or amount of Performance Awards that will be paid out to the Participant and/or the portion of an Award that may be exercised.
(A)Nonqualified Performance Awards. Performance Awards granted to Employees or Nonemployee Directors that are not intended to qualify as qualified performance-based compensation under Section 162(m) of the Code shall be based on achievement of such Performance Goals and be subject to such terms, conditions and restrictions as the Committee or its delegate shall determine.
(B)Qualified Performance Awards. Performance Awards granted to Employees under the Plan that are intended to qualify as qualified performance-based compensation under Section 162(m) of the Code shall be paid, vested or otherwise deliverable solely on account of the attainment of one or more pre-established, objective Performance Goals established by the Committee in accordance with Section 162(m) of
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the Code prior to the earlier to occur of (x) 90 days after the commencement of the period of service to which the Performance Goal relates and (y) the lapse of 25% of the period of service (as scheduled in good faith at the time the goal is established), and in any event while the outcome is substantially uncertain. A Performance Goal is objective if a third party having knowledge of the relevant facts could determine whether the goal is met. Such a Performance Goal may be based on one or more business criteria that apply to the Employee, one or more business units, divisions or sectors of the Company, or the Company as a whole, and if so desired by the Committee, by comparison with a peer group of companies. A Performance Goal may include one or more of the following:
increased revenue;
net income measures (including but not limited to income after capital costs and income before or after taxes);
stock price measures (including but not limited to growth measures and total shareholder return);
price per share of Common Stock;
market share;
net earnings;
earnings per share (actual or targeted growth);
earnings before interest, taxes, depreciation, and amortization (“EBITDA”);
earnings before interest, taxes and amortization (“EBITA”);
economic value added (or an equivalent metric);
market value added;
debt to equity ratio;
cash flow measures (including but not limited to cash flow per share, cash flow return on capital, cash flow return on tangible capital, net cash flow, net cash flow before financing activities and improvement in or attainment of working capital levels);
return measures (including but not limited to return on equity, return on average assets, return on capital, risk-adjusted return on capital, return on investors’ capital and return on average equity);
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operating measures (including operating income, funds from operations, cash from operations, after-tax operating income; net operating profit after tax, revenue volumes, operating efficiency, rig fleet day rates and rig fleet utilization);
expense measures (including but not limited to overhead cost, general and administrative expense and improvement in or attainment of expense levels);
margins;
shareholder value;
proceeds from dispositions;
total market value;
reliability;
productivity;
corporate values measures (including ethics compliance, environmental, and safety) and
debt reduction.
Unless otherwise stated, such a Performance Goal need not be based upon an increase or positive result under a particular business criterion and could include, for example, maintaining thestatus quo, performance relative to a peer group determined by the Committee or limiting economic losses (measured, in each case, by reference to specific business criteria). In interpreting Plan provisions applicable to Performance Goals and Qualified Performance Awards, it is the intent of the Plan to conform with the standards of Section 162(m) of the Code and Treasury Regulation §1.162-27(e)(2)(i), as to grants to those Employees whose compensation is, or is likely to be, subject to Section 162(m) of the Code, and the Committee in establishing such goals and interpreting the Plan shall be guided by such provisions. Prior to the payment of any compensation based on the achievement of Performance Goals applicable to Qualified Performance Awards, the Committee must certify in writing that applicable Performance Goals and any of the material terms thereof were, in fact, satisfied. Subject to the foregoing provisions, the terms, conditions and limitations applicable to any Qualified Performance Awards made pursuant to this Plan shall be determined by the Committee.
(b) Notwithstanding anything to the contrary contained in this Plan, the following limitations shall apply to any Awards made hereunder:
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(i) no Participant may be granted, during any one-year period, Awards consisting of Options or SARs that are exercisable for more than 400,000 shares of Common Stock;
(ii) no Participant may be granted, during any one-year period, Stock Awards covering or relating to more than 200,000 shares of Common Stock (the limitation set forth in this clause (ii), together with the limitation set forth in clause (i) above, being hereinafter collectively referred to as the “Stock-based Awards Limitations”); and
(iii) no Participant may be granted Awards consisting of cash or in any other form permitted under this Plan (other than Awards consisting of Options or SARs or otherwise consisting of shares of Common Stock or units denominated in such shares) in respect of any one-year period having a value determined on the date of grant in excess of $3,000,000.
9.Awards to Nonemployee Directors.
(a) Upon becoming a Director, each Nonemployee Director shall receive a fully-vested Nonqualified Option to purchase 10,000 shares of Common Stock, and as of the close of business on the date on which the Company’s regular annual meeting of shareholders is held for each year after the year in which the Plan is approved by the shareholders of the Company, each Nonemployee Director then serving shall receive a fully-vested Nonqualified Option to purchase 10,000 shares of Common Stock (individually, a “Nonemployee Director’s Option,” and collectively, “Nonemployee Directors’ Options”). The Board may, in its discretion, determine to increase, from time to time, the number of shares subject to Nonemployee Directors’ Options awarded after such determination, provided that any such increase in any single calendar year shall not exceed 10,000 shares per Nonemployee Director’s Option. Each Nonemployee Director’s Option shall expire five years from the date of grant; otherwise, a Nonemployee Director’s Option shall not be subject to forfeiture or termination. Upon the termination of the Plan or the unavailability of shares of Common Stock for issuance under the Plan, no additional Nonemployee Directors’ Options shall be granted pursuant to this sub-paragraph.
(b) Additionally, the Committee may grant a Nonemployee Director of the Company one or more Awards and establish the terms thereof in accordance with paragraph 8 consistent with the provisions therein for the granting of Awards to Employees and subject to the applicable terms, conditions and limitations set forth in this Plan and the applicable Award Agreement.
10.Award Payment; Dividends; Substitution.
(a)General. Payment of Awards may be made in the form of cash or Common Stock, or a combination thereof, and may include such restrictions as the Committee shall determine, including, in the case of Common Stock, restrictions on transfer and forfeiture provisions. If payment of an Award is made in the form of
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Restricted Stock, the applicable Award Agreement relating to such shares shall specify whether they are to be issued at the beginning or end of the Restriction Period. In the event that shares of Restricted Stock are to be issued at the beginning of the Restriction Period, the certificates evidencing such shares (to the extent that such shares are so evidenced) shall contain appropriate legends and restrictions that describe the terms and conditions of the restrictions applicable thereto. In the event that shares of Restricted Stock are to be issued at the end of the Restricted Period, the right to receive such shares shall be evidenced by book entry registration or in such other manner as the Committee may determine.
(b)Deferral. With the approval of the Committee, amounts payable in respect of Awards may be deferred and paid either in the form of installments or as a lump-sum payment; provided, however, that if deferral is permitted, each provision of the Award shall be interpreted to permit the deferral only as allowed in compliance with the requirements of Section 409A of the Code and any provision that would conflict with such requirements shall not be valid or enforceable. The Committee intends that any Awards under the Plan satisfy the applicable requirements of Section 409A of the Code to avoid imposition of applicable taxes thereunder. The Committee may permit selected Participants to elect to defer payments of some or all types of Awards in accordance with procedures established by the Committee. Any deferred payment of an Award, whether elected by the Participant or specified by the Award Agreement or by the Committee, may be forfeited if and to the extent that the Award Agreement so provides.
(c)Dividends and Interest. Rights to dividends or Dividend Equivalents may be extended to and made part of any Award consisting of shares of Common Stock or units denominated in shares of Common Stock, subject to such terms, conditions and restrictions as the Committee may establish. The Committee may also establish rules and procedures for the crediting of interest on deferred cash payments and Dividend Equivalents for Awards consisting of shares of Common Stock or units denominated in shares of Common Stock.
11.Stock Option Exercise. The price at which shares of Common Stock may be purchased under an Option shall be paid in full at the time of exercise in cash or, if elected by the Participant, the Participant may purchase such shares by means of tendering Common Stock or surrendering another Award, including Restricted Stock, valued at Fair Market Value on the date of exercise, or any combination thereof. The Committee shall determine acceptable methods for Participants to tender Common Stock or other Awards; provided that any Common Stock that is or was the subject of an Award may be so tendered only if it has been held by the Participant for at least six months. The Committee may provide for procedures to permit the exercise or purchase of such Awards by use of the proceeds to be received from the sale of Common Stock issuable pursuant to an Award. Unless otherwise provided in the applicable Award Agreement, in the event shares of Restricted Stock are tendered as consideration for the exercise of an Option, a number of the shares issued upon the exercise of the Option, equal to the number of shares of Restricted Stock used as consideration thereof, shall be subject to the same restrictions as the Restricted Stock so submitted as well as any additional restrictions that may be imposed by the Committee.
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12.Taxes. The Company shall have the right to deduct applicable taxes from any Award payment and withhold, at the time of delivery or vesting of cash or shares of Common Stock under this Plan, an appropriate amount of cash or number of shares of Common Stock or a combination thereof for payment of taxes required by law or to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for withholding of such taxes. The Committee may also permit withholding to be satisfied by the transfer to the Company of shares of Common Stock theretofore owned by the holder of the Award with respect to which withholding is required. If shares of Common Stock are used to satisfy tax withholding, such shares shall be valued based on the Fair Market Value when the tax withholding is required to be made.
13.Amendment, Modification, Suspension or Termination. The Board may amend, modify, suspend or terminate this Plan for the purpose of meeting or addressing any changes in legal requirements or for any other purpose permitted by law, except that (i) no amendment or alteration that would adversely affect the rights of any Participant under any Award previously granted to such Participant shall be made without the consent of such Participant and (ii) no amendment or alteration shall be effective prior to its approval by the shareholders of the Company to the extent shareholder approval is otherwise required by applicable legal requirements.
14.Assignability. Unless otherwise determined by the Committee in the Award Agreement, no Award or any other benefit under this Plan shall be assignable or otherwise transferable. Any attempted assignment of an Award or any other benefit under this Plan in violation of this paragraph 14 shall be null and void.
15.Adjustments.
(a) The existence of outstanding Awards shall not affect in any manner the right or power of the Company or its shareholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the capital stock of the Company or its business or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stock (whether or not such issue is prior to, on a parity with or junior to the Common Stock) or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding of any kind, whether or not of a character similar to that of the acts or proceedings enumerated above.
(b) In the event of any subdivision or consolidation of outstanding shares of Common Stock, declaration of a dividend payable in shares of Common Stock or other stock split, then (i) the number of shares of Common Stock reserved under this Plan, (ii) the number of shares of Common Stock covered by outstanding Awards in the form of Common Stock or units denominated in Common Stock, (iii) the exercise or other price in respect of such Awards, (iv) the Stock-based Award Limitations described in paragraph 8(b) hereof, (v) the number of shares of Common Stock covered by Awards to Directors granted pursuant to paragraph 9 hereof, and (vi) the appropriate Fair Market Value and other price determinations for such Awards shall each be proportionately adjusted by the Board to reflect such transaction. In the event of any other
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recapitalization or capital reorganization of the Company, any consolidation or merger of the Company with another corporation or entity, the adoption by the Company of any plan of exchange affecting the Common Stock or any distribution to holders of Common Stock of securities or property (other than normal cash dividends or dividends payable in Common Stock), the Board shall make appropriate adjustments to (i) the number of shares of Common Stock covered by Awards in the form of Common Stock or units denominated in Common Stock, (ii) the exercise or other price in respect of such Awards, and (iii) the appropriate Fair Market Value and other price determinations for such Awards, (iv) the number of shares of Common Stock covered by Awards to Directors automatically granted pursuant to paragraph 9 hereof and (v) the Stock-based Award Limitations described in paragraph 8(b) hereof, to give effect to such transaction shall each be proportionately adjusted by the Board to reflect such transaction; provided that such adjustments shall only be such as are necessary to maintain the proportionate interest of the holders of the Awards and preserve, without exceeding, the value of such Awards.
(c) In the event of a corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation, the Board may make such adjustments to Awards or other provisions for the disposition of Awards as it deems equitable, and shall be authorized, in its discretion, (i) to provide for the substitution of a new Award or other arrangement (which, if applicable, may be exercisable for such property or stock as the Board determines) for an Award or the assumption of the Award, regardless of whether in a transaction to which Section 424(a) of the Code applies, (ii) to provide, prior to the transaction, for the acceleration of the vesting and exercisability of, or lapse of restrictions with respect to, the Award and, if the transaction is a cash merger, provide for the termination of any portion of the Award that remains unexercised at the time of such transaction or (iii) to provide for the acceleration of the vesting and exercisability of an Award and the cancellation thereof in exchange for such payment as shall be mutually agreeable to the Participant and the Board.
16.Restrictions. No Common Stock or other form of payment shall be issued with respect to any Award unless the Company shall be satisfied based on the advice of its counsel that such issuance will be in compliance with applicable federal and state securities laws. Certificates evidencing shares of Common Stock delivered under this Plan (to the extent that such shares are so evidenced) may be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any securities exchange or transaction reporting system upon which the Common Stock is then listed or to which it is admitted for quotation and any applicable federal or state securities law. The Committee may cause a legend or legends to be placed upon such certificates (if any) to make appropriate reference to such restrictions.
17.Unfunded Plan. Insofar as it provides for Awards of cash, Common Stock or rights thereto, this Plan shall be unfunded. Although bookkeeping accounts may be established with respect to Participants who are entitled to cash, Common Stock or rights thereto under this Plan, any such accounts shall be used merely as a bookkeeping convenience. The Company shall not be required to segregate any assets that may at any time be represented by cash, Common Stock or rights thereto, nor shall this Plan be construed as providing for such
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segregation, nor shall the Company, the Board or the Committee be deemed to be a trustee of any cash, Common Stock or rights thereto to be granted under this Plan. Any liability or obligation of the Company to any Participant with respect to an Award of cash, Common Stock or rights thereto under this Plan shall be based solely upon any contractual obligations that may be created by this Plan and any Award Agreement, and no such liability or obligation of the Company shall be deemed to be secured by any pledge or other encumbrance on any property of the Company. Neither the Company nor the Board nor the Committee shall be required to give any security or bond for the performance of any obligation that may be created by this Plan.
18.Section 409A of the Code. Notwithstanding anything in this Plan to the contrary, if any Plan provision or Award under the Plan would result in the imposition of an applicable tax under Section 409A of the Code and related regulations and Treasury pronouncements, that Plan provision or Award will be reformed to avoid imposition of the applicable tax and no such action shall be deemed to adversely affect the Participant’s rights to an Award.
19.Governing Law. This Plan and all determinations made and actions taken pursuant hereto, to the extent not otherwise governed by mandatory provisions of the Code or the securities laws of the United States, shall be governed by and construed in accordance with the laws of the State of Texas.
20.No Right to Employment or Directorship. Nothing in the Plan or an Award Agreement shall interfere with or limit in any way the right of the Company or a Subsidiary to terminate any Participant’s employment or other service relationship at any time, nor confer upon any Participant any right to continue in the capacity in which he or she is employed or otherwise serves the Company or any Subsidiary. Further, nothing in the Plan or an Award Agreement constitutes any assurance or obligation of the Board to nominate any Director for re-election by the Company’s shareholders.
21.Successors. All obligations of the Company under the Plan with respect to Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.
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22.Effectiveness. This Plan shall be effective upon the approval by the holders of a majority of shares of votes entitled to vote on the approval of this Plan and who vote for or against or expressly abstain from voting with respect to the approval of this Plan at the 2007 annual meeting of the Company’s shareholders to be held on August 3, 2007 or any adjournment or postponement thereof. If the shareholders of the Company should fail to so approve this Plan prior to such date, this Plan shall terminate and cease to be of any further force or effect, and all grants of Awards hereunder shall be null and void. Notwithstanding the foregoing, the Plan shall continue in effect for a term of ten years after the date on which the shareholders of the Company approve the Plan, unless sooner terminated by action of the Board.
IN WITNESS WHEREOF, Pioneer Drilling Company has caused this Plan to be executed by its duly authorized officer, effective as provided herein.
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A-1446
(Front of Card)
PIONEER DRILLING COMPANY
Proxy for the Annual Meeting of Shareholders
to be Held on August 3, 2007May 14, 2010
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Wm. Stacy Locke and William D. Hibbetts,Lorne E. Phillips, and each of them, with full power of substitution and resubstitution, to represent the undersigned and to vote all the shares of common stock of Pioneer Drilling Company, a Texas corporation (the “Company”), which the undersigned is entitled to vote at the Annual Meeting of Shareholders of the Company to be held on August 3, 2007May 14, 2010 and at any adjournmentadjournments or postponementpostponements thereof (1) as hereinafter specified on the proposals listed on the reverse side hereof and as more particularly described in the Proxy Statement of the Company dated June 25, 2007April 9, 2010 (the “Proxy Statement”) and (2) in their discretion on such other matters as may properly come before the meeting.
Every properly signed proxy that is returned prior to the meeting will be voted in accordance with the specifications made thereon.If not otherwise specified, the shares represented by this proxy will be voted (1) FOR the nominee listed in Proposal 1 (2) FOR the approval of the Pioneer Drilling Company 2007 Incentive Plan referred to in Proposal 2, and (3)(2) FOR the ratification of KPMG LLP as our independent auditors for the fiscal year ending MarchDecember 31, 2008,2010, as set forth in Proposal 3.2.
The undersigned hereby acknowledges receipt of the Company’s Annual Report for the fiscal year ended MarchDecember 31, 2007 and its2009, the Notice of 20072010 Annual Meeting of Shareholders and the related Proxy Statement.
(Back of Card)
Please mark, sign and date your Proxy Card
and promptly return it in the enclosed envelope.
ANNUAL MEETING OF SHAREHOLDERS
PIONEER DRILLING COMPANY
August 3, 2007May 14, 2010
Please fold and detach here.
x Please mark votes in blue or black ink, as in this example.
The board of directors recommends a vote FOR each of the following proposals:
PROPOSAL 1. To elect the nominee listed below to the board of directors of Pioneer Drilling Company to serve until his successor is elected and qualified.Company.
¨ | FOR the nominee
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| ¨ WITHHOLD AUTHORITY to vote for the nominee listed at right. | NOMINEE:
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PROPOSAL 2. To approve the Pioneer Drilling Company 2007 Incentive Plan.
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PROPOSAL 3. To ratify the appointment of KPMG LLP as the Company’s independent auditors for the fiscal year ending MarchDecember 31, 2008.2010.
¨ | FOR | ¨ AGAINST | ¨ | ABSTAIN |
|
|
In their discretion, the proxies are authorized to vote on any other matter that may properly come before the meeting or any adjournment or postponement thereof.
The undersigned hereby revokes all previous proxies given by the undersigned with respect to the Company’s 20072010 Annual Meeting of Shareholders and related to the shares of common stock covered hereby.
Please mark, sign, date and return the proxy card promptly using the enclosed envelope.
| Date: | Signature: | |||||||
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MARK HERE FOR ADDRESS CHANGE ¨ AND NOTE AT LEFT | ||||||||
NOTE: Please sign exactly as your name(s) appears on this card. Joint owners should each sign. When signing as attorney, executor, administrator, trustee, guardian or other similar capacity, please give full title as such. If a corporation, please print full corporation name and have authorized officer sign and indicate title. If a partnership, please print partnership name and have authorized person sign and indicate title.
