2019Proxy StatementCOMMITTED TO OUR VALUES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant ☒ 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)) | |
| ☒ | Definitive Proxy Statement | |
| ☐ | Definitive Additional Materials | |
| ☐ | Soliciting Material under §240.14a-12 | |
Talos Energy Inc.
(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)all boxes that apply):
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2019Proxy StatementCOMMITTED TO OUR VALUES
| NOTICE OF |  |
| Meeting Date & Time: | Meeting Place: | Record Date: | ||
May 10: | Three Allen Center 333 Clay Street, Suite 3300 Houston, Texas 77002 | March |
To the stockholders of Talos Energy Inc.:
Notice is hereby given that the 20202022 Annual Meeting of Stockholders of Talos Energy Inc. (the “Company”) will be held at Three Allen Center, 333 Clay Street, Suite 3300, Houston, Texas 77002, on May 12, 2020,11, 2022, at 10:3000 a.m., Central Time (the “Annual Meeting”). The Annual Meeting is being held for the following purposes:
| 1. | To elect to the Company’s Board of Directors the | |||||
| 2. | To ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, | |||||
| 3. | To approve, on anon-binding advisory basis, the Company’s Named Executive Officer compensation for the fiscal year ended December 31, | |||||
| 4. | To transact such other business as may properly come before the Annual Meeting or any adjournments or postponements thereof. | |||||
Each outstanding share of the Company’s common stock (NYSE: TALO) entitles the holder of record at the close of business on March 16, 2020,22, 2022, to receive notice of and to vote at the Annual Meeting or any adjournments or postponements of the Annual Meeting.
We intend to hold the Annual Meeting in person. However, we are actively monitoring the ongoing coronavirus disease 2019 (COVID-19)(“COVID-19”) outbreak and the increasingly severe protocols that federal, state and local governments have imposed,pandemic, and we are sensitive to the public health and travel concerns our stockholders may have. In the event it is not possible or advisable to hold the Annual Meeting in person, we will announce alternative arrangements for the meeting as promptly as practicable, which may include holding the meeting partially or solely by means of remote communication. Please monitor our Annual Meeting website at WWW.ENVISIONREPORTS.COM/WWW.PROXYDOCS.COM/TALO for updated information. If you are planning to attend the Annual Meeting, please check the website ten days prior to the meeting date. If we do hold the Annual Meeting partially or solely by means of remote communication, we currently intend to resume holdingin-person meetings for our 20212023 Annual Meeting of Stockholders and thereafter, assuming normal circumstances. As always, we encourage you to vote your shares prior to the Annual Meeting.
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, WE URGE YOU TO VOTE YOUR SHARES BY INTERNET, BY TELEPHONE, OR BY SIGNING, DATING AND RETURNING THE PROXY CARD YOU WILL RECEIVE. IF YOU CHOOSE TO ATTEND THE ANNUAL MEETING, YOU MAY STILL VOTE YOUR SHARES IN PERSON, EVEN THOUGH YOU HAVE PREVIOUSLY VOTED OR RETURNED YOUR PROXY BY ANY OF THE METHODS DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT. IF YOUR SHARES ARE HELD IN A BANK OR BROKERAGE ACCOUNT, PLEASE REFER TO THE MATERIALS PROVIDED BY YOUR BANK OR BROKER FOR VOTING INSTRUCTIONS.
ALL STOCKHOLDERS ARE EXTENDED A CORDIAL INVITATION TO ATTEND THE ANNUAL MEETING.
Talos Energy Inc. Three Allen Center 333 Clay Street, Suite 3300 Houston, Texas 77002
| By Order of the Board of Directors,
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Houston, Texas April | Neal P. Goldman Chairman of the Board |
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
STOCKHOLDER MEETING TO BE HELD ON MAY 12, 2020:11, 2022: THIS PROXY STATEMENT, THE PROXY CARD
AND OUR ANNUAL REPORT ARE AVAILABLE AT WWW.EDOCUMENTVIEW.COM/WWW.PROXYDOCS.COM/TALO.
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Security Ownership of Certain Beneficial Owners and Management | ||||
Proposal Two: Ratification of Appointment of Independent Registered Public Accounting Firm | ||||
Proposal Three:Non-Binding Advisory Vote on the Company’s Named Executive Officer Compensation | ||||
Stockholder Proposals; Identification of Director Candidates | ||||
TALOS ENERGY INC.
Three Allen Center
333 Clay Street, Suite 3300
Houston, Texas 77002
PROXY STATEMENT
20202022 ANNUAL MEETING OF STOCKHOLDERS
The Board of Directors (the “Board of Directors” or the “Board”) of Talos Energy Inc. (the “Company,”“Company”) requests your proxy for the 20202022 Annual Meeting of Stockholders that will be held on May 12, 2020,11, 2022, at 10:3000 a.m. Central Time, at Three Allen Center, 333 Clay Street, Suite 3300, Houston, Texas 77002 (the “Annual Meeting”). By granting the proxy, you authorize the persons named on the proxy to represent you and vote your shares at the Annual Meeting. Those persons will also be authorized to vote your shares at any adjournments or postponements of the Annual Meeting, and with respect to any other matters that properly come before the Annual Meeting or any adjournments or postponements thereof. This Proxy Statement, the enclosed proxy card and our Annual Report onForm 10-K for the fiscal year ended December 31, 20192021 (our “Annual Report”) are being mailed to stockholders beginning April 8, 2020.6, 2022.
We intend to hold the Annual Meeting in person. However, we are actively monitoring the ongoing coronavirus disease 2019 (COVID-19)(“COVID-19”) outbreak and the increasingly severe protocols that federal, state and local governments have imposed,pandemic, and we are sensitive to the public health and travel concerns our stockholders may have. In the event it is not possible or advisable to hold the Annual Meeting in person, we will announce alternative arrangements for the meeting as promptly as practicable, which may include holding the meeting partially or solely by means of remote communication. Please monitor our Annual Meeting website at WWW.EDOCUMENTVIEW.COM/WWW.PROXYDOCS.COM/TALO for updated information. If you are planning to attend the Annual Meeting, please check the website ten days prior to the meeting date. If we do hold the Annual Meeting partially or solely by means of remote communication, we currently intend to resume holdingin-person meetings for our 20212023 Annual Meeting of Stockholders and thereafter, assuming normal circumstances. As always, we encourage you to vote your shares prior to the Annual Meeting.
Purpose of the Annual Meeting
The purpose of the Annual Meeting is for our stockholders to consider and act upon the proposals described in this Proxy Statement and any other matters that properly come before the Annual Meeting or any adjournments or postponements thereof.
Proposals to be Voted Upon at the Annual Meeting
At the Annual Meeting, our stockholders will be asked to consider and vote upon the following fourthree proposals:
Proposal ONE: To elect to the Board the threetwo Class III directors set forth in this Proxy Statement, each of whom will hold office until the 20232025 Annual Meeting of Stockholders and until his or her successor is elected and qualified or until his or her earlier death, resignation or removal.
Proposal TWO: To ratify the appointment of Ernst & Young LLP (“EY”) as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2020.2022.
Proposal THREE: To approve, on anon-binding advisory basis, the Company’s Named Executive Officer compensation, as disclosed in this Proxy Statement, for the fiscal year ended December 31, 2019.2021.
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In addition, any other matters that properly come before the Annual Meeting or any adjournments or postponements thereof will be considered. Management is presently aware of no other business to come before the Annual Meeting.
Recommendation of the Board
The Board recommends that you vote FOR the election to the Board of each of the director nominees (Proposal ONE) named in this Proxy Statement; FOR the ratification of the appointment of EY as our independent registered public accounting firm for the fiscal year ending December 31, 20202022 (Proposal TWO); and FOR the approval, on anon-binding advisory basis, of the Company’s Named Executive Officer compensation for the fiscal year ended December 31, 20192021 (Proposal THREE).
Voting at the Annual Meeting
Our common stock, par value $0.01 per share (our “common stock”), is the only class of securities that entitle holders to vote generally at meetings of the Company’s stockholders. Holders of our common stock will vote as a single class on all matters presented at the Annual Meeting. Each share of our common stock outstanding on the March 16, 202022, 2022 (the “Record Date”) entitles the holder to one vote at the Annual Meeting.
If on the Record Date you held shares of our common stock that are represented by stock certificates or registered directly in your name with our transfer agent, Computershare Trust Company, N.A. (“Computershare”), you are considered the stockholder of record with respect to those shares and Computershare is sending these proxy materials directly to you on our behalf. Proxies may also be solicited on behalf of the Board of Directors, without additional compensation, by our directors, officers and other regular employees. We have not retained a professional proxy solicitor or other firm to assist with the solicitation of proxies, although we may do so if deemed appropriate. As a stockholder of record as of the Record Date, you may vote in person at the Annual Meeting or by proxy. Whether or not you plan to attend the Annual Meeting in person, you may vote by internet or by telephone by following the instructions on your proxy card. Whether or not you plan to attend the Annual Meeting, we urge you to vote by way of the internet, by telephone or by filling out and returning the enclosed proxy card. If you submit a proxy but do not give voting instructions as to how your shares should be voted on a particular proposal at the Annual Meeting, your shares will be voted in accordance with the recommendations of the Board stated in this Proxy Statement. Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before its use by (1) delivering a written notice of revocation addressed to Talos Energy Inc., Attn: William S. Moss III, Three Allen Center, 333 Clay Street, Suite 3300, Houston, Texas 77002, (2) duly executing a proxy bearing a later date, (3) voting again by Internet or by telephone or (4) attending the Annual Meeting and voting in person. Your last vote or proxy will be the vote or proxy that is counted. Attendance at the Annual Meeting will not cause your previously granted proxy to be revoked unless you vote or specifically so request.
If on the Record Date you held shares of our common stock in an account with a brokerage firm, bank or other nominee, then you are a beneficial owner of the shares and hold such shares in “street name,” and these proxy materials will be forwarded to you by that organization. As a beneficial owner, you have the right to direct your broker, bank or other nominee on how to vote the shares held in their account, and the nominee has enclosed or provided voting instructions for you to use in directing it how to vote your shares. The nominee that holds your shares, however, is considered the stockholder of record for purposes of voting at the Annual Meeting. Because you are not the stockholder of record, you may not vote your shares in person at the Annual Meeting unless you bring to the Annual Meeting a letter from your broker, bank or other nominee confirming your beneficial ownership of the shares as of the Record Date. Whether or not you plan to attend the Annual Meeting, we urge you to vote by following the voting instructions provided to you to ensure that your vote is counted.
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If you are a beneficial owner and do not vote, and your broker, bank or other nominee does not have discretionary power to vote your shares, your shares may constitute “brokernon-votes.” Brokernon-votes occur
when shares held by a broker for a beneficial owner are not voted with respect to a particular proposal and generally occur because the broker (1) does not receive voting instructions from the beneficial owner and (2) lacks discretionary authority to vote the shares. Brokers and other nominees have discretionary authority to vote on the ratification of our independent public accounting firm for clients who have not provided voting instructions. However, without voting instructions from their clients, they cannot vote on“non-routine” proposals, including the election of directors. Shares that constitute brokernon-votes will be counted for the purpose of establishing a quorum at the Annual Meeting. Voting results will be tabulated and certified by the inspector of elections appointed for the Annual Meeting.
A list of stockholders entitled to vote at the Annual Meeting will be available for inspection during ordinary business hours for a period of ten days before the Annual Meeting at our offices located at Three Allen Center, 333 Clay Street, Suite 3300, Houston, Texas 77002. The list will also be available for inspection at the Annual Meeting.
Quorum Requirement for the Annual Meeting
The presence, in person or by proxy, at the Annual Meeting of the persons holding shares of our outstanding common stock on the Record Date that represent a majority of the voting power of all outstanding shares of our common stock entitled to vote at the Annual Meeting will constitute a quorum, permitting us to conduct our business at the Annual Meeting. On the Record Date, there were 54,342,27382,519,003 shares of our common stock held by 299151 stockholders of record. Both abstentions (i.e., if you or your broker mark “ABSTAIN” on a proxy or voting instruction form, or if a stockholder of record attends the Annual Meeting, but does not vote (either before or during the Annual Meeting)) and brokernon-votes will be considered to be shares present at the Annual Meeting for purposes of establishing a quorum.
Required Votes
Election of Directors. Each nominee for director will be elected by the affirmative vote of a majority of the votes cast with respect to such nominee’s election at the Annual Meeting. This means that the number of shares voted “for” a nominee must exceed the number of shares voted “against” that nominee. Abstentions and brokernon-votes are not taken into account in determining the outcome of the election of directors.
Ratification of our Independent Public Accounting Firm. Approval of the proposal to ratify the Audit Committee’s appointment of EY as our independent registered public accounting firm for the fiscal year ending December 31, 20202022 requires the affirmative vote of a majority of the votes cast affirmatively or negatively at the Annual Meeting by the holders entitled to vote on the proposal. Abstentions and brokernon-votes are not taken into account in determining the outcome of this proposal.
Approval of Named Executive Officer Compensation. Approval, on anon-binding advisory basis, of the Company’s Named Executive Officer compensation for the fiscal year ended December 31, 20192021 requires the affirmative vote of a majority of the votes cast affirmatively or negatively at the Annual Meeting by the holders entitled to vote on the proposal. Abstentions and brokernon-votes are not taken into account in determining the outcome of this proposal. This advisory vote on executive compensation is not binding on the Company, the Compensation Committee or the Board. However, the Compensation Committee and the Board will take into account the result of the vote when determining future executive compensation programs. This agenda item is also known as the“say-on-pay” vote.
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Resignation Policy
In the event of an uncontested election of directors (i.e., an election at which the number of nominees does not exceed the number of directors to be elected) that results in an incumbent director nominee receiving a greater number of votes “against” his election than votes “for” election, the resignation policy included in our Corporate Governance Guidelines requires that such nominee promptly tender his resignation to our Board of Directors.
The resignation policy permits the Board of Directors to delegate to a committee the responsibility to make recommendations regarding any such resignation tendered. The Board is required to take action with respect such resignation, taking into account any such committee recommendation (if applicable), and thereafter disclose the Board’s determination, as well as the rationale if the Board decided to reject such resignation.
Solicitation of Proxies
We will bear the cost of solicitation of proxies. This includes the charges and expenses of brokerage firms and others for forwarding solicitation material to beneficial owners of our outstanding common stock. We may solicit proxies by mail, personal interview, telephone, or via the Internet through our directors, officers and other regular employees, who will receive no additional compensation for their services.
Default Voting
A proxy that is properly completed and submitted will be voted at the Annual Meeting in accordance with the instructions on the proxy. If you properly execute and submit a proxy, but do not provide any voting instructions, your shares will be voted FOR the election to the Board of each of the director nominees listed in Proposal ONE, FOR Proposal TWO and FOR Proposal THREE.
If any other business properly comes before the stockholders for a vote at the Annual Meeting, your shares will be voted in accordance with the discretion of the holders of the proxy. The Board of Directors knows of no matters, other than those previously stated, to be presented for consideration at the Annual Meeting.
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PROPOSAL ONE: ELECTION OF DIRECTORS
Nominees for Election as Directors
At the recommendation of the GovernanceNominating & NominatingGovernance Committee, the Board of Directors has nominated the following individuals for election as Class III directors of the Company, to serve for three-year terms beginning at the Annual Meeting and expiring at the 20232025 Annual Meeting of Stockholders, and until either they arere-elected or their successors are elected and qualified or until their earlier death, resignation or removal:
Mr. Timothy S. DuncanCharles M. Sledge
Mr. John “Brad” JuneauRobert M. Tichio
Mr. Donald R. Kendall, Jr.
Charles M. Sledge Director Age: 56 Director Since: 2018 Committee Memberships: • Nominating & Governance • Audit • Compensation Committee | Mr. Sledge has served as a member of our Board of Directors since May 2018. He previously served as a member of the board of directors of Stone Energy Corporation from March 2017 to May 2018. Mr. Sledge served as the Chief Financial Officer of Cameron International Corporation, an oilfield services company, from 2008 until its sale to Schlumberger Limited in 2016. Prior to that, Mr. Sledge served as the Corporate Controller of Cameron International Corporation from 2001 to 2008. Mr. Sledge serves on the board of Weatherford International and Noble Corporation, both of which he serves as non-executive chairman. He has previously served on the boards of Vine Resources, Inc. and Expro International. Mr. Sledge holds a BS in Accounting from Louisiana State University and is a graduate of the Harvard Business School Advanced Management Program. We believe that Mr. Sledge’s strong financial background, including his 20 years of experience as a financial executive, makes him a valuable member of our Board of Directors. | |
Robert M. Tichio Director Age: 44 Director Since: 2018 Committee Memberships: • Nominating & Governance • Compensation Committee | Mr. Tichio has served as a member of our Board of Directors since May 2018 and previously served as a director of Talos Energy LLC from April 2012 to May 2018. Mr. Tichio is a Partner at Riverstone Holdings and joined Riverstone Holdings in 2006. Prior to joining Riverstone Holdings, Mr. Tichio was in the Principal Investment group of Goldman Sachs, which manages the firm’s private corporate equity investments. Mr. Tichio began his career at J.P. Morgan in the Mergers & Acquisitions group, where he concentrated on assignments that included public company combinations, asset sales, takeover defenses and leveraged buyouts. In addition to serving on the boards of a number of Riverstone Holdings portfolio companies and their affiliates, Mr. Tichio has been a director of Centennial Resource Development, Inc. since October 2016, Pipestone Energy Corp. since January 2019, Solid Power, Inc. (fka Decarbonization Plus Acquisition Corp. III) since December 2021 (and DCRC since February 2021) and Decarbonization Plus Acquisition Corp. IV since February 2021. Mr. Tichio previously served as a member of the board of directors of Gibson Energy (TSE-GEI) from 2008 to 2013, Midstates Petroleum Company, Inc. from 2012 to 2015, Northern Blizzard Inc. from 2010 to 2017, EP Energy Corporation from September 2013 to October 2020 and Decarbonization Plus Acquisition Corp. from August 2020 to July 2021. He holds an MBA from Harvard Business School and a bachelor’s degree from Dartmouth College. We believe Mr. Tichio’s extensive energy industry background, particularly his expertise in mergers and acquisitions, brings important experience and skill to our Board of Directors. | |
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Messrs. Duncan, JuneauSledge and KendallTichio are currently serving as directors of the Company. If Mr. Duncan, Mr. JuneauCompany, and Mr. Kendallif they are each elected to the Board, of Directors, the size of the Board will remain at ten members.continue to consist of seven (7) directors. Please see “Stockholders’ Agreements” below for more information. Biographical information for each director nominee is contained in the “Directors and Executive Officers” section below.
The Board of Directors has no reason to believe that its director nominees will be unable or unwilling to serve if elected. If a director nominee becomes unable or unwilling to accept nomination or election, the persons acting under your proxy will vote for the election of a substitute nominee, if any, that the Board of Directors recommends.
Stockholders’ AgreementAgreements
Pursuant to athe Stockholders’ Agreement (the “Stockholders’“Previous Stockholders’ Agreement”) we entered into in connection with the business combination of Talos Energy LLC and Stone Energy Corporation (“Stone”) on May 10, 2018, as amended, (the “Stone Combination”), and our Amended & Restated Bylaws the Board of Directors is to consist of ten members, and(“Bylaws”), certain funds and other alternative investment vehicles managed by Apollo Management VII, L.P. and Apollo Commodities Management, L.P., with respect to Series I (the “Apollo Funds”) and certain entities controlled by or affiliated with Riverstone Energy Partners V, L.P. (the “Riverstone Funds,” and the Apollo Funds and the Riverstone Funds, each a “Stockholder Group”) will, each independently havehad the right to designate, in connection with any annual or special meeting of our stockholders at which directors willwould be elected, (i) two persons for nomination by the Board of Directors for election to the Board (each, a “Nominee”) for so long as such Stockholder Group ownsowned at least (A) 15% of our outstanding common stock or (B) 50% of the number of shares of our common stock issued to such Stockholder Group in connection with the Stone Combination, after appropriate adjustment for any stock split, subdivision, combination or reclassification of any shares (such shares with respect to each Stockholder Group, the “Initial Group Shares,” and collectively, the “Initial Shares”) and (ii) one Nominee for so long as such Stockholder Group ownsowned (A) at least 5% but less than 15% of our outstanding common stock or (B) at least 50% of the number of Initial Group Shares.
Further, the Previous Stockholders’ Agreement also providesprovided that (i) for so long as the Apollo Funds and the Riverstone Funds collectively ownowned at least (A) 50% of our outstanding common stock or (B) 80% of the number of Initial Shares, the Apollo Funds and the Riverstone Funds shall havehad the collective right to designate two Nominees, one of whom qualifiesqualified as an “independent” under the New York Stock Exchange (“NYSE”) listing standards (an “Independent Director”) and the other of whom must have either bebeen our Chief Executive Officer or also qualifyqualified as an Independent Director, and (ii) for so long as the Apollo Funds and the Riverstone Funds collectively ownowned (A) less than 50% of our outstanding common stock but at least 60% of the Initial Shares or (B) less than 80% of the Initial Shares but at least 40% of our outstanding common stock, the Apollo Funds and the Riverstone Funds shall havehad the collective right to designate one Nominee, whom must have either bebeen our Chief Executive Officer or qualifyqualified as an Independent Director.
Pursuant to Amendment No. 1 to the Previous Stockholders’ Agreement entered into as of February 24, 2020, in connection with the Company’s acquisition of certain U.S. Gulf of Mexico producing assets, exploration prospects and acreage, the Previous Stockholders’ Agreement was amended to add certain affiliates of Riverstone Holdings as parties to the Previous Stockholders’ Agreement and to provide that for purposes of calculating whether the affiliates of Riverstone Holdings satisfied certain thresholds related to board nomination rights, the Series A Convertible Preferred Stock of the Company were considered on an as converted basis.
Pursuant to the Amended and Restated Stockholders’ Agreement entered into as of March 29, 2022 (the “Stockholders’ Agreement” and, together with the Previous Stockholders’ Agreement, the “Stockholders’ Agreements”), in connection with the resignation of Board members Olivia Wassenaar, Rajen Mahagoakar and Christine Hommes, the Previous Stockholders’ Agreement was amended and restated to, among other things, (i) terminate the rights of the Apollo Funds under the Previous Stockholders’ Agreement and (ii) eliminate the requirement that the Board consist of ten members. As a result of the Apollo Funds’ reduced ownership after
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Therecent share sales from long-dated funds holding their Company shares, the directors associated with the Apollo Funds andresigned from the Board of Directors, effective December 8, 2021. Thereafter, the Board determined, pursuant to the Bylaws, that the size of the Board shall consist of seven members. Mr. Tichio presently serves as the Riverstone Funds’ designee to the Board.
The Riverstone Funds have agreed to vote their shares of our common stock in favor of any Nomineesnominee designated byand nominated for election to the other Stockholder Group, andBoard in accordance with the terms of the Stockholders’ Agreement and in a manner consistent with the recommendation of the Nominating and Governance Committee with respect to all other Nominees.nominees. For additional information regarding the Previous Stockholders’ Agreement, as amended, and the Apollo Funds’ and the Riverstone Funds’ obligations with respect to voting in the election of nominees not designated by a Stockholder Group,thereto, see “Certain Relationships and Related Party Transactions—Historical Transactions with Affiliates—Stockholders’ Agreements—Previous Stockholders’ Agreement” and the copycopies of the StockholdersPrevious Stockholders’ Agreement and the Amendment No. 1 to the Previous Stockholders’ Agreement, each as filed with our Annual Report. For additional information regarding the Stockholders’ Agreement and the Riverstone Funds’ obligations with respect thereto, including obligations with respect to voting on nominees for election to the Board, see “Certain Relationships and Related Party Transactions—Historical Transactions with Affiliates—Stockholders’ Agreements—Stockholders’ Agreement.” A copy of the Stockholders’ Agreement can be found in our Current Report on Form 8-K filed with the SEC on March 30, 2022.
Vote Required
The election of each director in this Proposal ONE requires the affirmative vote of a majority of the votes cast by the holders entitled to vote in the election of directors. This means that the number of shares voted FOR a nominee must exceed the number of shares voted AGAINST that nominee. Neither abstentions nor brokernon-votes will have any effect on the outcome of the election of directors.
Recommendation
The Board unanimously recommends that stockholders vote FOR the
election to the Board of each of the director nominees.
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DIRECTORS AND EXECUTIVE OFFICERS
After the Annual Meeting, assuming the stockholders elect to the Board of Directors the director nominees set forth in “Proposal ONE: Election of Directors” above, the Board of Directors of the Company will be, and the Named Executive Officers of the Company are:
Name | Age | Title | ||||
Neal P. Goldman(3) | Chairman of the Board | |||||
Timothy S. Duncan | President and Chief Executive Officer, Director | |||||
Charles M. Sledge(1)(2)(3) | Director | |||||
Robert M. |
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John “Brad” Juneau(1)(4) | Director | |||||
Donald R. Kendall, Jr.(1)(2)(4) | Director | |||||
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Robert D. Abendschein | Executive Vice President and | |||||
John A. Parker | Executive Vice President of Exploration | |||||
Shannon E. Young III | Executive Vice President and Chief Financial Officer | |||||
William S. Moss III | Executive Vice President, General Counsel and Secretary | |||||
Gregory M. Babcock | Vice President and Chief Accounting Officer | |||||
| (1) | Member of the Audit Committee. |
| (2) | Member of the Compensation Committee. |
| (3) | Member of the |
| (4) | Member of the Safety, Sustainability and Corporate Responsibility Committee. |
The Board of Directors consists of ten members,is divided into three classes serving staggered three-year terms. Each year, the directors of one class stand forre-election as their terms of office expire. Messrs. Sledge and Tichio and Ms. Wassenaar are designated as Class I directors and their terms of office expire in 2022. Messrs. Duncan, Juneau and Kendall are designated as Class II directors and assuming the stockholders elect them to the Board as set forth in “Proposal ONE: Election of Directors” above, their terms of office will expire in 2025. Messrs. Duncan, Juneau and Kendall are designated as Class II directors and their terms of office expire in 2023. Messrs.Mr. Goldman Trimble and Mahagaokar and Ms. HommesGlover are designated as Class III directors and their terms of office will expire in 2021.2024.
Director Resignations
Effective December 8, 2021, Olivia Wassenaar and Christine Hommes, both directors affiliated with the Apollo Funds, resigned from the Board of Directors, and effective December 9, 2021, Rajen Mahagaokar, a director affiliated with the Riverstone Funds, resigned from the Board of Directors. Each of the foregoing directors were originally appointed to the Board of Directors pursuant to the Previous Stockholders’ Agreement and resigned in accordance with the term of the Previous Stockholders’ Agreement. Each of the foregoing directors indicated that their departure from the Board was not the result of any disagreement with management or the Board. As a result of these resignations, there were seven (7) members serving on the Board. Please see “Stockholders’ Agreements” below for more information.
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Set forth below is biographical information about each of the Company’s directors, director nominees and Named Executive Officers.
Our Directors
Neal P. Goldman Chairman of the Board Age: 52 Director Since: 2018 Committee Memberships: • Nominating & Governance |
Mr. Goldman has served as the Chairman of |
| trading group. Throughout his career, Mr. Goldman has held numerous board representations, including roles as an independent member of the boards of directors of Lightsquared, Inc., Pimco Income Strategy Fund I & II and Catalyst Paper Corporation, as well as a member of the boards of directors of Jacuzzi Brands, Inc. and NII Holdings, Inc. Mr. Goldman received a BA from the University of Michigan and an MBA from the University of Illinois. Based upon Mr. Goldman’s involvement in strategic planning and his experience on multiple boards, we believe that Mr. Goldman is a valuable member of | ||
Timothy S. Duncan President and CEO, Director Age: 49 Director Since: 2018 |
Mr. Duncan has served as our President, | |
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Charles M. Sledge Director Age: 56 Director Since: 2018 Committee Memberships: • Nominating & Governance • Audit • Compensation |
Mr. Sledge has served as a member of |
Robert M. Tichio Director Age: 44 Director Since: 2018 Committee Memberships: • Nominating & Governance • Compensation |
Mr. Tichio has served as a member of | ||
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John “Brad” Juneau Director Age: 62 Director Since: 2018 Committee Memberships: • Audit • Safety, Sustainability and Corporate Responsibility |
Mr. Juneau has served as a member of | |||
| Donald R. Kendall, Jr. Director Age: 69 Director Since: 2018 Committee Memberships: • Compensation • Audit • Safety, Sustainability and Corporate Responsibility
| Mr. Kendall has served as a member of | ||
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Paula R. Glover Director Age: 54 Director Since: 2021 Committee Memberships: • Safety, Sustainability and Corporate Responsibility |
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Director Qualifications and Experience of Our Directors and Director Nominees
The members of our Board possess a broad variety of personal attributes, experience and skills giving our Board the depth and breadth necessary to effectively oversee management on behalf of our stockholders. Our Board is committed to diversity and the importance of different backgrounds, perspectives and views. We currently have two women serving on our Board. The matrix below represents some of the key skills that our Board has identified as particularly valuable to the effective oversight of the Company and the execution of our corporate strategy. The matrix does not include all knowledge, skills, experience or other attributes of our directors and director nominees, which may be relevant and valuable to their service on our Board. The diversity of knowledge, skill, experience and attributes of our directors and director nominees, collectively, lends itself to a highly collaborative and effective Board.
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Total number of directors with particular qualifications and experienceQUALIFICATIONS AND EXPERIENCE
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Board Diversity
Our Board actively seeks to consider women and underrepresented director candidates for membership on the Board. Consistent with our ongoing commitment to creating a balanced Board with diverse viewpoints and deep industry expertise, our Board will continue to maintain its commitment to seeking diverse perspectives and to overseeing an organization that is committed to creating a culture dedicated to diverse experiences, equitable treatment and inclusive behavior.
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Our Other Executive Officers
Robert D. Abendschein Executive VP and Chief Operating Officer Age: 60 Officer Since: 2020 |
Mr. Abendschein has served as our Executive Vice President and | |
John A. Parker Executive VP of Exploration Age: 66 Officer Since: 2018 |
Mr. Parker has served as our Executive Vice President of Exploration since May 2018. Mr. Parker is a founder of Talos Energy LLC and served as its Executive Vice President of Exploration from April 2012 to May 2018. Prior to Talos Energy LLC, Mr. Parker founded Phoenix Exploration | |
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| Shannon E. Young III Executive VP and CFO Age: 51 Officer Since: 2019 |
Mr. Young has served as our Executive Vice President and Chief Financial Officer | ||
| William S. Moss III Executive VP, General Counsel and Secretary Age: 52 Officer Since: 2018 | Mr. Moss has served as our Executive Vice President, General Counsel and Secretary since May 2018. Mr. Moss previously served as Senior Vice President and General Counsel of Talos Energy LLC from May 2013 to May 2018. Prior to Talos Energy LLC, Mr. Moss was a partner at Mayer Brown LLP in Houston where he was the head of the Houston Corporate Practice. Mr. Moss joined Mayer Brown LLP in May 2005. At Mayer Brown LLP, Mr. Moss’s practice focused on mergers and acquisitions, securities offerings and general corporate and securities matters and he represented clients throughout the energy value chain. Mr. Moss joined Talos Energy LLC after having represented Talos Energy LLC as outside counsel in its initial formation and its subsequent acquisition of | ||
Gregory M. Babcock Vice President and Chief Accounting Officer Age: 38 Officer Since: 2019 |
Mr. Babcock has served as our Vice President and Chief Accounting Officer (Principal Accounting Officer) | |||
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MEETINGS AND COMMITTEES OF DIRECTORS
The Board of Directors held fifteenten (10) meetings, consisting of both regular and special meetings, during 2019.2021. During 2019,2021, each of our incumbent directors attended at least 75%70% of the meetings of the Board of Directors and the meetings of the committees of the Board of Directors on which that director served (in each case, which were held during the period for which such incumbent director was a director and a member of the respective committee) except for Messrs. Mahagaokar andMr. Tichio and Ms Wassenaar, who werewas recused from five meetingsone meeting of the Board of Directors due to a potential conflictsconflict of interest with respect to the Riverstone Acquisitions (as defined below in “Certain Relationships and Related Party Transactions”).interest. Excluding the meetings from which they wereMr. Tichio was recused, each of Messrs. Mahagaokar and Tichio and Ms Wassenaarhe attended at least 75%70% of the meetings of the Board of Directors and the meetings of the committees of the Board of Directors on which he or she served.
Executive Sessions. The Board of Directors holds regular executive sessions in which the independent directorsIndependent Directors meet without anynon-independent directors or members of management. The purpose of these executive sessions is to promote open and candid discussion among the independent directors.Independent Directors. The lead director, Mr. Goldman, presides at these meetings and provides the Board of Directors’ guidance and feedback to our management team.
The Board of Directors has four standing committees: the Audit Committee, the Compensation Committee, the GovernanceNominating & NominatingGovernance Committee and the Safety, Sustainability and Corporate Responsibility Committee.
Audit Committee. The primary responsibilities of the Audit Committee are to oversee our accounting and financial reporting processes as well as our affiliated and subsidiary companies, and to oversee the internal and external audit processes. The Audit Committee also assists our Board of Directors in fulfilling its oversight responsibilities by reviewing the financial information that is provided to stockholders and others and the system of internal controls that management and the Board have established. The Audit Committee oversees the independent auditors, including their independence and objectivity. However, the Audit Committee members do not act as professional accountants or auditors, and their functions are not intended to duplicate or substitute for the activities of management and the independent auditors. The Audit Committee is empowered to retain independent legal counsel and other advisors as it deems necessary or appropriate to assist the Audit Committee in fulfilling its responsibilities, and to approve the fees and other retention terms of the advisors. The Audit Committee is also tasked with periodically reviewing all related party transactions in accordance with our applicable policies and procedures and making a recommendation to the Board regarding the initial authorization or ratification of any such transaction.
The responsibilities of the Audit Committee are further detailed in the “Audit Committee Charter” that is posted on our website, www.talosenergy.com, and the “Audit Committee Report” included in this Proxy Statement.
Pursuant to the Previous Stockholders’ Agreement, the Audit Committee must consistconsisted solely of “Company Independent Directors” until Section 3.1 ofthe date that the Stockholders’ Agreement expires. terminated with respect to both the Apollo Funds and the Riverstone Funds.
For additional information regarding the terms of both the Previous Stockholders’ Agreement and the Stockholders’ Agreement, see “Proposal One: Election of Directors—Stockholders’ Agreement”Agreements” and “Certain Relationships and Related Party Transactions—Historical Transactions with Affiliates—Stockholders’ Agreement.Agreements.”
The members of the Audit Committee are Messrs. Sledge (Chair)(Chairman), Kendall and Juneau. The Audit Committee held seveneight meetings during 2019.2021.
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Compensation Committee. Responsibilities of the Compensation Committee, which are discussed in detail in the “Compensation Committee Charter” that is posted on the Company’s website at www.talosenergy.com, include, among other duties, the responsibility to:
periodically review and approve the compensation and other benefits for our employees, officers and independent directors;Independent Directors;
review and approve corporate goals and objectives relevant to the compensation of our executive officers in light of those goals and objectives, and setting compensation for these officers based on those evaluations;
administer the issuance of stock awards under any stock compensation plans;
review and discuss with the Company’s management the Compensation Discussion and Analysis included in this Proxy Statement;
produce the Compensation Committee Report as required by Item 407(e)(5) ofRegulation S-K included in this Proxy Statement;
otherwise discharge the Board’s responsibilities relating to compensation of the Company’s executive officers and directors; and
perform such other functions as the Board may assign to the Compensation Committee from time to time.
The Compensation Committee is delegated all authority of the Board of Directors as may be required or advisable to fulfill its purposes. The Compensation Committee may delegate to its Chairman, any one of its members or any subcommittee it may form, the responsibility and authority for any particular matter, as it deems appropriate from time to time under the circumstances. The Compensation Committee is also generally able to delegate authority to review and approve the compensation of our employees to certain executive officers, including with respect to stock option or stock appreciation rights grants made under any stock option plans, stock compensation plans or stock appreciation rights plans. Pursuant to the Stockholders’ Agreement and subject to certain limitations and qualifications, the Compensation Committee, among other things, determines compensation for our Chief Executive Officer and all executive officers who report directly to the Chief Executive Officer.
Meetings of the Compensation Committee may, at the discretion of the Compensation Committee, include members of the Company’s management, other members of the Board of Directors, consultants or advisors and such other persons as the Compensation Committee believes to be necessary or appropriate.
The Compensation Committee may, in its sole discretion, retain and determine funding for legal counsel, compensation consultants, as well as other experts and advisors (collectively, “Committee Advisors”), including the authority to retain, approve the fees payable to, amend the engagement with and terminate any Committee Advisor, as it deems necessary or appropriate to fulfill its responsibilities. The Compensation Committee assesses the independence of any Committee Advisor prior to retaining such Committee Advisor.
The members of the Compensation Committee arein 2021 were Messrs. Kendall (Chair)(Chairman) and Mahagaokar and Ms. Wassenaar. The Compensation Committee held fourseven meetings during 2019.2021. Ms. Wassenaar and Mr. Mahagaokar resigned from the Board of Directors and the Compensation Committee on December 8, 2021 and December 9, 2021, respectively, and their positions on the Compensation Committee have since been filled by Messrs. Sledge and Tichio.
GovernanceNominating & NominatingGovernance Committee. The GovernanceNominating & NominatingGovernance Committee, subject to the terms of the Stockholders’ Agreement, assists the Board with respect to (i) the organization and membership and function of the Board, including the identification and recommendation of director nominees and the structure and membership of each committee of the Board, (ii) corporate governance principles applicable to us and (iii) our policies and programs that relate to matters of corporate responsibility. The GovernanceNominating & NominatingGovernance Committee, subject to the terms of the Stockholders’ Agreement, reviews and makes recommendations to the Board regarding the composition of the Board of Directors and the structure, format and frequency of the meetings. The GovernanceNominating & NominatingGovernance Committee also reviews and makes recommendations to the Board
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regarding the nature, composition and duties of the committees of the Board and will review and consider any stockholder-recommended candidates for nomination to the Board.
Additional information regarding the functions performed by the GovernanceNominating & NominatingGovernance Committee is set forth in the “Corporate Governance” and “Stockholder Proposals; Identification of Director Candidates” sections included herein and also in the “Governance“Nominating & NominatingGovernance Committee Charter” that is posted on the Company’s website at www.talosenergy.com.www.talosenergy.com.
Pursuant to the Previous Stockholders’ Agreement, the Nominating & Governance & Nominating Committee iswas required to be composed of three directors, including at least two “Company Independent Directors,” until Section 3.1the date that the Previous Stockholders’ Agreement terminated with respect to both the Apollo Funds and the Riverstone Funds. Pursuant to, and in accordance with the terms of the Stockholders’ Agreement, expires.the Nominating & Governance Committee is required to be composed of at least three directors, including a “Riverstone Director,” for so long as the Riverstone Parties have the right to designate a “Riverstone Designee.” For additional information regarding the terms of the Stockholders’ Agreement, see “Proposal One: Election of Directors—Stockholders’ Agreement”Agreements” and “Certain Relationships and Related Party Transactions—Historical Transactions with Affiliates—Stockholders’ Agreement.Agreements.”
The members of the GovernanceNominating & NominatingGovernance Committee are Messrs. Goldman (Chair)(Chairman), Tichio and Sledge. The GovernanceNominating & NominatingGovernance Committee held four meetings during 2019.2021.
Safety, Sustainability and Corporate Responsibility Committee. In February 2021, the Board approved a name change of the Safety Committee to the Safety, Sustainability and Corporate Responsibility Committee to more prominently reflect the committee’s oversight of sustainability and corporate responsibility matters. The Safety, Sustainability and Corporate Responsibility Committee reviews our safety programs and policies and recommends any proposed changes to the Board, monitors our compliance with our safety programs and policies and reviews our safety statistics and reviews significant public policy and legislative and regulatory issues or trends related to safety matters and provides us input with respect to such policies, issues and trends. The Safety, Sustainability and Corporate Responsibility Committee is also expected to meet with our management to review the implementation and effectiveness of our safety programs and policies. Additionally, the Safety, Sustainability and Corporate Responsibility Committee is tasked with the oversight and management of our environmental, social and governance initiatives as well as our sustainability and carbon capture initiatives.
The current members of the Safety, Sustainability and Corporate Responsibility Committee are Ms. Glover (Chairman) and Messrs. Trimble (Chair) and Juneau and Kendall. As noted above, Ms. Hommes.Hommes previously served as chairman of the Safety, Sustainability and Corporate Responsibility Committee until her resignation on December 8, 2021. The Safety, Sustainability and Corporate Responsibility Committee appointed Ms. Glover to serve as Chairman of the Safety, Sustainability and Corporate Responsibility Committee. The Safety, Sustainability and Corporate Responsibility Committee held four meetings during 2019.2021.
Director Compensation
We maintain a non-employee director compensation program pursuant to which members of the Board who are not employees of us or our subsidiaries or investment funds affiliated with or managed by Riverstone Holdings or Apollo are eligible for the following compensation:
Annual base retainer of $80,000 ($150,000 for the Non-Executive Chairman);
Supplemental retainer of (i) $25,000 for the chair of the Audit Committee, (ii) $15,000 for the chairs of the Compensation Committee and the Safety, Sustainability and Corporate Responsibility Committee, and (iii) $10,000 for the chair of the Nominating & Governance Committee;
Supplemental retainer of (i) $12,500 for members of the Audit Committee, (ii) $7,500 for members of the Compensation Committee and the Safety, Sustainability and Corporate Responsibility Committee, and (iii) $5,000 for members of the Nominating & Governance Committee;
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$1,500 for each meeting (both in-person and telephonic) of the Board or a committee beyond 10 meetings of the Board or such committee; and
An annual equity award with a value equal to $160,000 ($230,000 for the Non-Executive Chairman).
The Non-Executive Chairman, who currently also serves as the Chairman of the Nominating & Governance Committee, is not eligible to receive the supplemental retainers provided to chairs and members of the committees. Each director is also reimbursed for reasonable travel and miscellaneous expenses incurred to attend meetings and activities of the Board and the committees.
In accordance with our non-employee director compensation program, we granted RSUs to each non-employee director on March 8, 2021, which vest in full on March 8, 2022, subject to the non-employee director’s continued service. In connection with the grant of RSUs, each non-employee director was provided the opportunity to defer the settlement of their RSUs until the earliest to occur of either the date such non-employee director incurs a “separation from service” or the fifth anniversary of the vesting date. Following the vesting date or such later date as elected by the director pursuant to the deferral election, these RSUs will be settled 60% in shares of our common stock and 40% in cash. Vesting of the RSUs will accelerate in full upon (i) a termination of the non-employee director’s service due to death or disability, (ii) a termination of the non-employee director’s service without cause and (iii) a “change in control” (as defined in the LTIP). Our non-employee directors are also subject to our Ownership Policy, as described above under “Compensation Discussion and Analysis—Other Matters—Stock Ownership Policy.”
2021 Director Compensation Table
The table below reflects the cash compensation earned during 2021 and the value of RSUs granted during 2021 by the members of the Board that are compensated by us for their service on the Board.
Name | Fees earned or paid in Cash | Stock Awards (1) | Total | |||||||||
Paula R. Glover | $ | 55,990 | $ | 132,008 | $ | 187,998 | ||||||
Neal P. Goldman | $ | 150,000 | $ | 228,088 | $ | 378,088 | ||||||
John “Brad” Juneau | $ | 100,000 | $ | 158,670 | $ | 258,670 | ||||||
Donald R. Kendall, Jr. | $ | 111,250 | $ | 158,670 | $ | 269,920 | ||||||
Rajen Mahagaokar (2) | $ | 61,875 | $ | 0 | $ | 61,875 | ||||||
Charles M. Sledge | $ | 110,000 | $ | 158,670 | $ | 268,670 | ||||||
James M. Trimble (3) | $ | 52,500 | $ | 0 | $ | 52,500 | ||||||
| (1) | Amounts in this column represent the aggregate grant date fair value of the RSUs granted to the directors during the 2021 Fiscal Year, calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“FASB ASC Topic 718”). The FASB ASC Topic 718 value for the RSUs was calculated using the average of the high and low price per share of our common stock on the date of grant, $13.11 for the awards to Messrs. Goldman, Juneau, Kendall and Sledge and $12.86 for the award to Ms. Glover, applied to the total number of RSUs granted. Additional information regarding the assumptions underlying these calculations is available in Note 8 to our consolidated financial statements filed with our Form 10-K for the fiscal year ended December 31, 2021. As of December 31, 2021, the following unvested RSU awards were held by each non-employee directors: (i) for Mr. Goldman, 17,398 RSUs, (ii) for Messrs. Juneau, Kendall, and Sledge, 12,103 RSUs, and (iii) for Ms. Glover, 10,265, each of which became fully vested on March 8, 2022, except for Ms. Glover’s award, which will vest on May 12, 2022. Additionally, as of December 31, 2021, Messrs. Goldman and Sledge held 34,064 RSUs and 11,048 RSUs, respectively, which are fully vested but subject to deferred settlement on the earliest to occur of (a) the fifth anniversary of the vesting date, (b) death, (c) disability, (e) separation from service, or (f) change in control, unless a different election is made by the director in the year prior to grant. |
| (2) | Mr. Mahagaokar ceased providing services to Riverstone Holdings in September of 2021 but continued to serve on the Board until December 9, 2021. As a result, he was eligible to receive payment for his time on the board following his cessation of employment with Riverstone Holdings, which included a pro-rated payment of each of the annual base retainer and a supplemental retainer for his service on the Compensation Committee, as well as an additional cash payment equal to the value of the pro-rated equity award to which he was entitled but did not receive. |
| (3) | Mr. Trimble did not run for re-election to the Board at the 2021 Annual Meeting. As a result, his service on the Board terminated on May 11, 2021. |
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The information contained in this Compensation Committee Report shall not be deemed to be “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Securities Exchange Act of 1934, as amended (the “Exchange Act”), except to the extent that the Company specifically incorporates such information by reference in such filing.
The Compensation Committee reviewed and discussed the Compensation Discussion and Analysis required by Item 402 ofRegulation S-K promulgated by the U.S. Securities and Exchange Commission (the “SEC”) with management of the Company and, based on such review and discussions, the Compensation Committee recommended to the Board that such Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference into the Company’s Annual Report.
Compensation Committee of the Board of Directors:
Donald R. Kendall, Jr., Chairman
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Compensation Discussion and Analysis
Overview
This Compensation Discussion and Analysis identifies the elements of compensation and explains the compensation objectives and practices for the individuals identified in the following table, who are referred to herein as our “Named Executive Officers,” for the fiscal year ended December 31, 20192021 (the “2019“2021 Fiscal Year”).
Name | Principal Position | |
Timothy S. Duncan | President and Chief Executive Officer | |
Shannon E. Young III | Executive Vice President and Chief Financial Officer | |
| Executive Vice President and Chief Operating Officer | |
John A. Parker | Executive Vice President of Exploration | |
William S. Moss III | Executive Vice President and General Counsel | |
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Compensation Objectives and Practices
Our executive compensation program is designed to attract, retain and motivate talented executives who possess the knowledge and expertise to create long-term value for our stockholders. We structure our executive compensation program with a view towards promoting accountability to ensure that the interests of our management align with those of our stockholders. We believe that these goals are accomplished by tying components of our executive compensation program to measures of the Company’s short-term and long-term performance.
The chart below highlights several features of our executive compensation program.
What We Do | What We Don’t Do | |
✓ Pay for performance, including for sustained performance over multi-year performance periods
✓ Make a significant portion of compensation performance-based andat-risk
✓ Retain an independent compensation consultant
✓ Utilize an appropriate peer group in determining compensation elements and levels of pay
✓ Base acceleration of performance share unit awards on actual performance
✓ Maintain stock ownership guidelines
✓ Maintain a clawback policy | × No excessive perquisites
× No taxgross-ups
× No current dividend payments on unvested equity awards
× No single-trigger change in control payments or vesting of equity awards under our Long Term Incentive Plan
× No hedging or pledging of Company securities
× No individualized employment or severance agreements |
Process for Setting Executive Compensation
Our Board determines and approves our executive compensation program based, in part, on the recommendations of the Compensation Committee and input from our independent compensation consultant and the executive officers.
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Role of the Compensation Committee
Although the ultimate responsibility for executive compensation decisions lies with the Board, the Compensation Committee generally oversees our executive compensation program, and the Board’s decisions are typically made following a recommendation by the Compensation Committee.
The Compensation Committee is comprised of Donald R. Kendall, Jr. (who acts as the chair), Rajen Mahagaokar and Olivia C. Wassenaar. Each member of the Compensation Committee meets the independence standards established by the NYSE. The Compensation Committee Charter generally provides the Compensation Committee with authority to (i) exercise oversight of our executive compensation policy, (ii) review, approve and recommend to the Board compensatory payments to our officers, (iii) review and modify decisions on individualnon-officer employee compensation, (iv) review, modify and approve our peer companies, and (v) review and recommend to the Board the compensation for ournon-employee directors. For more detailed information regarding the Compensation Committee, the current Compensation Committee Charter is posted under the “Corporate Governance & Board Committees” subsection of the “About Us” section of our website at www.talosenergy.com.www.talosenergy.com.
Role of the Compensation Consultant
During 2019,2021, the Compensation Committee engaged Meridian Compensation Partners, LLC (“Meridian”) as its independent compensation consultant. Meridian provided advice to and worked alongside the Compensation Committee and the Board in structuring our executive compensation program for the 20192021 Fiscal Year. Meridian provided the Compensation Committee with relevant market and peer group compensation data and information on current trends and developments regarding executive and director compensation. The information provided by Meridian was utilized by the Board and the Compensation Committee in making decisions regarding executive and director compensation. The Compensation Committee also engaged independent legal counsel.
Meridian reported directly and exclusively to the Compensation Committee and did not provide any other services to us, management or our affiliates. Meridian did not make compensation-related decisions for the Compensation Committee, for the Board or otherwise with respect to us, and while the Compensation Committee and the Board generally reviewed and considered information and recommendations provided by Meridian, the Compensation Committee and the Board always retain the authority to make all compensation-related decisions. The Compensation Committee has the discretion to allow compensation consultants, including Meridian in 2019,2021, to work directly with management in preparing or reviewing materials for the Compensation Committee’s consideration. During 2019,2021, and after taking into consideration the factors listed in Section 303A.05(c)(iv) of the NYSE Listed Company Manual, the Compensation Committee concluded that neither it nor the Company has any conflicts of interest with Meridian and that Meridian is independent from management.
Role of the Executive Officers
Our Chief Executive Officer reviews compensation for all of our Named Executive Officers other than himself and makes compensation recommendations to the Compensation Committee and the Board; however, the Board makes the final determinations with respect to each Named Executive Officer’s compensation. Other members of management, particularly our human resources and legal personnel, provide relevant data and guidance to the Compensation Committee and the Board, as requested, to assist them in making compensation determinations and implementing those decisions. Our Chief Executive Officer and our General Counsel attend
select meetings of the Compensation Committee and the Board to provide relevant information and input, as appropriate. During executive sessions of the Compensation Committee or the Board, our Chief Executive Officer and our General Counsel are excused.
Peer Group
The companies that comprise the peer group reflect direct competitorscompanies in the oil and gas exploration and production industry against which we compete for business opportunities, investor capital andand/or executive talent. SelectionAdditional selection criteria utilized to evaluate the companies that comprise the peer group include: scope of operations; geographic location; financial and operational metrics;metrics (including value of assets, enterprise value, market capitalization, and revenue); and the availability of market compensation data. The Compensation Committee
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reviews the composition of the peer group annually and may consider modifications resulting from changes in business strategy, mergers and acquisitions, bankruptcies or other factors that may cause peer companies to no longer exist or to no longer be comparable.
Based on the application of the foregoing criteria, in 2019,2021, the Compensation Committee and the Board, with input from Meridian, determined that the companies below reflect an appropriate peer group to inform decisions regarding 20192021 compensation levels (the “2019“2021 Peer Group”), which is different than the peer group utilized in determining relative total stockholder return for purposes of the performance share unit awards granted to the Named Executive Officers, as described below under “Elements of Compensation for the 20192021 Fiscal Year—Long Term Incentive Awards”:
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| Oasis Petroleum Inc. | |||
Callon Petroleum Company | Laredo Petroleum, Inc. | PDC Energy, Inc. | ||
| Centennial Resource Development, Inc. | Magnolia Oil & Gas Corporation | QEP Resources, Inc. | ||
| Denbury Resources Inc. | Matador Resources Company | Southwestern Energy Company | ||
| Gulfport Energy Corporation | Murphy Oil Corporation | W&T Offshore, Inc. | ||
| HighPoint Resources Corporation |
The 2021 Peer Group reflects the changes from the peer group used for 2020 reflected below. Companies were added based on the factors noted above and were removed either as a result of an acquisition or bankruptcy, except for EnVen Energy Corporation, which was removed because it ceased including compensation data in its filings.
Removed | Added | |||
Carrizo Oil & Gas, Inc. | Murphy Oil Corporation | |||
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Extraction Oil & Gas, Inc. |
The 2019 Peer Group reflects the following changes from the peer group used for 2018, based on the factors noted above:
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Peer Group Compensation Review
To inform decisions regarding the compensation of our Named Executive Officers for 2019,2021, the Compensation Committee considered a competitive review of the 20192021 Peer Group prepared by Meridian. The 2019 Peer Group2021 review provided market data for each element of compensation, as well as information regarding the incentive plan designs and pay practices among the Peer Group. Compensation review data provided for each of our Named Executive Officers reflect the compensation paid to executives in similar positions at the companies in the 20192021 Peer Group, based on Meridian’s proprietary oil and gas exploration and production industry survey database, supplemented by information in peer company public disclosures. The Compensation Committee used the compensation review as a reference point for assessing the overall competitiveness of our executive compensation program.
Setting Target Compensation
When setting 20192021 target compensation levels for our Named Executive Officers, the Compensation Committee and the Board did not target any element of compensation, or overall compensation, to a particular benchmark level (e.g., median) of the 20192021 Peer Group. Rather, the Compensation Committee used 20192021 Peer Group data as one of several factors it takes into account when evaluating and setting each element of our executive compensation program. This helps to ensure that our compensation program is competitive with the market, which allows us to attract and retain executive officers with the requisite talent and experience to help us achieve our short- and long-term goals. The Compensation Committee and the Board will periodically review and adjust the peer group to ensure that the companies within the peer group are appropriate for use in making compensation decisions.
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20192021 Say-on-Pay andSay-on-Frequency ResultsVote
Last year, our stockholders overwhelmingly approved, on anon-binding advisory basis, the compensation of our Named Executive Officers for the fiscal year ended December 31, 2018.2021. Advisory votes in favor of such compensation were cast by over 98%99% of the votes cast affirmatively or negatively by the holders entitled to vote on such proposal. Additionally, our stockholders approved, on anon-binding advisory basis, every year as the frequency of future advisory votes on our Named Executive Officer compensation, with over 97% of the votes cast in favor of annual advisory votes. As a result, the Board determined that we will conduct future advisory votes on an annual basis. We believe that annual“Say-on-Pay” votes are the most appropriate for the Company because such votes allow our stockholders the opportunity to provide more frequent feedback on the compensation of our Named Executive Officers and to provide the Board and the Compensation Committee with more timely information regarding our stockholders’ response to our executive compensation programs and policies.
The Board and the Compensation Committee took the results of the“Say-on-Pay” vote into account when evaluating the compensation of our Named Executive Officers for the 20192021 Fiscal Year. Based in part on the level of support from our stockholders, the Board and the Compensation Committee elected to generally maintain the overall structure of the compensation program for our Named Executive Officers during the 20192021 Fiscal Year with only a few adjustments to the various components, which isare described in this “Compensation Discussion and Analysis.” As discussed in more detail in Proposal THREE below, the Board has recommended that stockholders vote, on anon-binding advisory basis, to approve the compensation paid to our Named Executive Officers during the 20192021 Fiscal Year, as described more fully below.
Elements of Compensation for the 20192021 Fiscal Year
To maintain an appropriate balance between fixed and variable compensation and to ensure that a significant portion of each Named Executive Officer’s compensation is tied to the achievement of short-term and long-term goals, the Board, following the recommendation of the Compensation Committee, determined that the following compensatory elements were appropriate for our Named Executive Officers in the 20192021 Fiscal Year:
Base salary;
Short-term cashAwards under our annual incentive awards;program (“AIP”);
Long-term equity awards in the form of restricted stock units and performance share units;
Health and welfare and qualified retirement benefits; and
Limited perquisites.
Base Salary
The base salaries provided to our Named Executive Officers are a fixed portion of their total compensation that reflects their responsibilities, expertise, experience and tenure.
In March of 2020, the Compensation Committee and the Board approved increases in base salaries for each of the Named Executive Officers before the severity of the COVID-19 pandemic and the likely economic repercussions thereof became clear. Once more was known about the COVID-19 pandemic, the Compensation Committee and the Named Executive Officers agreed not to implement the base salary increases approved in March of 2020. As a result, the Named Executive Officers forewent any increase in base salary during 2020. After reviewing the base salaries of executive officers in the Peer Group and upon recommendation by the Compensation Committee, on March 5, 2019,8, 2021, the Board approved adjustments to the annualizedan increase in base salarysalaries for each Named Executive Officer other than Messrs. Young and Harding, to better align their compensation with Peer Group practices. Mr. Young’s annualized base salary was determined by the Compensation Committee and the Board in connection with his engagement as our Chief Financial Officer at a level in line with the compensation paid to similarly situated executives of the companies in our Peer Group. Mr. Harding’s annualized base salary was not adjusted during the 2019 Fiscal Year. The table below reflects these increases.the base salaries for the Named Executive Officers in 2020 and 2021.
Name | Base Salary as of 12/31/2018 | Base Salary as of 12/31/2019 | Percent of Increase | 2019 and 2020 Base Salary | 2021 Base Salary | |||||||||||||||
Timothy S. Duncan | $ | 650,000 | $ | 700,000 | 7.69 | % | $ | 700,000 | $ | 800,000 | ||||||||||
Shannon E. Young III | N/A | $ | 460,000 | N/A | $ | 460,000 | $ | 500,000 | ||||||||||||
Stephen E. Heitzman | $ | 400,000 | $ | 415,000 | 3.75 | % | ||||||||||||||
Robert D. Abendschein | $ | 475,000 | $ | 500,000 | ||||||||||||||||
John A. Parker | $ | 400,000 | $ | 420,000 | 5.00 | % | $ | 420,000 | $ | 435,000 | ||||||||||
William S. Moss III | $ | 380,000 | $ | 400,000 | 5.26 | % | $ | 400,000 | $ | 415,000 | ||||||||||
Michael L. Harding II | $ | 380,000 | $ | 380,000 | (1) | N/A | ||||||||||||||
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Short-Term CashAnnual Incentive AwardsProgram
We provide short-term cashannual incentive program (“AIP”) awards to motivate our Named Executive Officers to achieve specific financial, operational and strategic goals over aone-year period by providingpre-established performance criteria. The short-term cash incentive awards were developed to emphasizepay-for-performance and promote achievement of key financial, operating and strategic goals that are aligned with creation of shareholderstockholder value. Performance is measured on an annual basis relative to pre-established performance criteria.
Establishing 20192021 Target Short-Term CashAnnual Incentive Program Awards
The target short-term cash incentiveAIP award for each of our Named Executive Officers was set by the Board following discussions between and with the Compensation Committee and Meridian, and a review of the target short-term cash incentiveAIP award opportunities for similarly-situatedsimilarly situated executives at companies in our 20192021 Peer Group. The individual targets for the 2021 Fiscal Year, expressed as a percentage of base salary, for the 2019 Fiscal Year are set forth in the following table for each of our Named Executive Officers, whichOfficers. The individual targets were unchanged from the individual targets established for the 20182019 and 2020 fiscal year (other than for Mr. Young, who was not appointed until 2019).years. The threshold amount and maximum amount that could become payable under the short-term incentive programAIP for the 20192021 Fiscal Year were 50% and 200%150% of each Named Executive Officer’s target, respectively.
Name | (% of Base Salary) | |||
Timothy S. Duncan | 125 | % | ||
Shannon E. Young III | 80 | % | ||
| 80 | % | ||
John A. Parker | 80 | % | ||
William S. Moss III | 80 | % | ||
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2019 Short-Term2021 Annual Incentive Program Measures and Goals
For the 20192021 Fiscal Year, we awarded short-term cash incentiveAIP awards based on our achievement of the following performance measures:
Performance Measure: | Rationale for Selecting Performance Measure: | |
| Financial Performance Measures (including free cash flow generation, | Provides an incentive | |
| Health, Safety and Environment (“HSE”) Measures | ||
| Environmental, Social and Governance (“ESG”) Measures (evaluates whether the Company has executed key initiatives that aid in making progress towards the Company’s 2025 Greenhouse Gas Intensity Reduction goal) | Ensures we continue to make progress over the short-term towards the achievement of our longer-term ESG goals | |
| Key Strategic Initiatives(analysis regarding achievement of broad strategic financial and operational goals and initiatives and may include individual performance) | Provides | |
While the focus on free cash flow and returns as opposed to growth differs from many peers, the Compensation Committee and the Board believe the overall short-term cash incentive structure best aligns our Named Executive Officers and our stockholders. The Compensation Committee made certain changes to the composition and weighting of the Board retainperformance measures from those used in the 2020 AIP award design. These modifications reflect an effort to streamline the program and put additional emphasis on goals our stockholders increasingly value (e.g., the establishment and achievement of ESG goals) while de-emphasizing goals that have become less important to our stockholders in recent years (e.g., production). In 2021, we eliminated (i) production and (ii) INC/Comp Ratio (the number of
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incidents of non-compliance compared to the number of safety devices tested during offshore inspections and facility visits where rig or wellwork is being performed by the Bureau of Safety and Environmental Enforcement) as performance metrics and added progress on ESG initiatives as performance metrics. We also increased the weighting of the Adjusted EBITDA metric from 15% to 20% (so that a total of 60% of the AIP metrics remain devoted to the achievement of financial performance goals), and Total TRIR from 5% to 10% (so that a total of 10% of our AIP remains dedicated to HSE measures). The Compensation Committee retains the authority to adjust the performance measures.
20192021 Achieved Performance and Payout
The weighting of these performance measures, the 20192021 Fiscal Year threshold, target and maximum levels of performance for the 20192021 Fiscal Year, the actual results for the 20192021 Fiscal Year and the payout percentage for the 20192021 Fiscal Year are set forth in the table below.
Performance Measure | Individual Weighting | 2019 Fiscal Year Threshold | 2019 Fiscal Year Target | 2019 Fiscal Year Maximum | Actual Results for 2019 Fiscal Year | 2019 Fiscal Year Weighted Payout Percentage | ||||||||||||||||||
Financial Performance | ||||||||||||||||||||||||
Free Cash Flow Generation (1) | 20% | $ | 15.0 MM | $ | 35.0 MM | $ | 70.0 MM | $ | (10.3) MM | 0% | ||||||||||||||
G&A Expense (2) | 10% | $ | 65.0 MM | $ | 62.3 MM | $ | 58.0 MM | $ | 62.4 MM | 9.9% | ||||||||||||||
EBITDA | 15% | $ | 585 MM | $ | 620 MM | $ | 670 MM | $ | 614.5 MM | 13.35% | ||||||||||||||
Discounted Cash on Cash Multiple (3) | 15% | 1.80x | 2.15x | 2.75x | 1.84x | 8.4% | ||||||||||||||||||
Operational Performance | ||||||||||||||||||||||||
Production | 10% | 53.0 mboe/d | 55.8 mboe/d | 58.0 mboe/d | 51.9 mboe/d | 0% | ||||||||||||||||||
Direct LOE | 10% | $210.0 MM | $202.2 MM | $190.0 MM | $179.9 MM | 20% | ||||||||||||||||||
HSE Performance | ||||||||||||||||||||||||
INC/Comp Ratio | 5% | 0.030 | 0.020 | 0.015 | 0.015 | 10% | ||||||||||||||||||
Total TRIR | 5% | 0.750 | 0.700 | 0.550 | 0.450 | 10% | ||||||||||||||||||
Strategic Initiatives (4) | 10% | 20% | ||||||||||||||||||||||
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PAYOUT PERCENTAGE | 50% | 100% | 200% | 92%(5) | ||||||||||||||||||||
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Performance Measure | Weighting for Each Measure | 2021 Fiscal Year Threshold (50%) | 2021 Fiscal Year Target (100%) | 2021 Fiscal Year Maximum (150%) | Actual Results for 2021 Fiscal Year | 2021 Fiscal Year Weighted Payout Percentage | ||||||||||||||||||
Financial Performance | ||||||||||||||||||||||||
Free Cash Flow Generation (1) | 20 | % | $ | 58 MM | $ | 77 MM | $ | 96 MM | $ | 135 MM | 30 | % | ||||||||||||
Adjusted EBITDA (2) | 20 | % | $ | 500 MM | $ | 546 MM | $ | 580 MM | $ | 606 MM | 30 | % | ||||||||||||
Capital Efficiency (PVI) (3) | 20 | % | 2.00 | 2.49 | 3.00 | 3.03 | 30 | % | ||||||||||||||||
HSE Performance | ||||||||||||||||||||||||
Total TRIR | 10 | % | 0.55 | 0.50 | 0.45 | 0.48 | 12 | % | ||||||||||||||||
ESG | ||||||||||||||||||||||||
Progress on ESG Initiatives (4) | 10 | % | | Near Expectations | | | Met Expectations | | | Exceeded Expectations | | | Exceeded Expectations | | 15 | % | ||||||||
Strategic Initiatives | ||||||||||||||||||||||||
Strategic Initiatives (5) | 20 | % | | Near Expectations | | | Met Expectations | | | Exceeded Expectations | | | Met Expectations | | 20 | % | ||||||||
PAYOUT PERCENTAGE | 137 | % | ||||||||||||||||||||||
| (1) | Free Cash Flow Generation represents Adjusted EBITDA less capital |
| (2) |
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| (3) |
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| G&A |
| (4) |
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| (5) |
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Following the completion of 2021, the Compensation Committee reviewed and certified the Company’s actual performance results relative to the quantitative goals established at the beginning of the year. The Compensation Committee also evaluated achievements relative to our two qualitative performance measures: Progress on ESG Initiatives and Strategic Initiatives.
Short-term cash incentivereduction of methane emissions by converting cold vents to non-routine flaring if necessary;
reduction of overall venting volumes and shutting in facilities that are no longer economical;
implementation of gas detection and forward-looking infrared radar programs at each of our Gulf of Mexico facilities to identify, resolve or reduce methane leaks and electrical hot spots; and
reduction of methane emissions by converting gas driven pumps and controllers from pneumatic gas to compressed air through the use of solar and wind powered air compressors.
The development of our carbon capture and sequestration business was a substantial consideration for the Compensation Committee when evaluating performance with respect to both Progress on ESG Initiatives as well as Strategic Initiatives. Other factors considered when evaluating our performance with respect to Strategic Initiatives for 2021 included:
Exceeded Free Cashflow generation expectation despite major hurricane-related downtime;
Substantially reduced leverage;
Materially improved liquidity;
Favorably reconstituted our revolving bank loan in a challenging market;
Launched sustainability and carbon capture initiatives that can potentially create differentiated long-term value for our stockholders; and
Announced the Puma West discovery with bp/CVX, leading to additional leasing to exploit this discovery.
AIP awards for our Named Executive Officers are calculated by multiplying the payout percentage by each Named Executive Officer’s target award. Notwithstanding the foregoing, theThe Compensation Committee retains the discretion to increase (including above 200%150%) or reduce the payout percentage of each Named Executive Officer’s short-term cash incentiveAIP award. The Compensation Committee utilized the prescribed formula and did not exercise this discretion with respect to the Named Executive Officers’ 2019 short-term cash incentive awards. The table below sets forth each Named Executive Officer’sincludes the target AIP awards, payout percentages, and actual short-term cash incentiveAIP award payments for the 2019 Fiscal Year.2021.
Name | 2019 Target Short-Term Cash Incentive ($) | Pro-Ration Percentage (if applicable) | Payout Percentage | Actual Short-Term Cash Incentive Award Payment | 2021 Target AIP Award ($) | Payout Percentage | Actual AIP Award Payment | |||||||||||||||||||||
Timothy S. Duncan | $ | 875,000 | — | 92 | % | $ | 805,000 | $ | 1,000,000 | 137 | % | $ | 1,370,000 | |||||||||||||||
Shannon E. Young III | $ | 368,000 | 62.74 | %(1) | 92 | % | $ | 212,412 | $ | 400,000 | 137 | % | $ | 548,000 | ||||||||||||||
Stephen E. Heitzman | $ | 332,000 | — | 92 | % | $ | 305,440 | |||||||||||||||||||||
Robert D. Abendschein | $ | 400,000 | 137 | % | $ | 548,000 | ||||||||||||||||||||||
John A. Parker | $ | 336,000 | — | 92 | % | $ | 309,120 | $ | 348,000 | 137 | % | $ | 476,760 | |||||||||||||||
William S. Moss III | $ | 320,000 | — | 92 | % | $ | 294,400 | $ | 332,000 | 137 | % | $ | 454,840 | |||||||||||||||
Michael L. Harding II | $ | 304,000 | 61.37 | %(2) | 92 | % | $ | 171,639 | ||||||||||||||||||||
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Long-Term Incentive Awards
We maintainAt the 2021 Annual Meeting of Stockholders of the Company, the Company’s stockholders approved the Talos Energy Inc. 2021 Long Term Incentive Plan (the “LTIP”“2021 LTIP”), which had previously been approved by the Board. The 2021 LTIP provides the Company with the flexibility to providegrant a means through which we may attract, retainwide range of equity and motivate qualified individuals as employees, directors and consultants, thereby enhancing our profitable growth and that of our affiliates. Subject to adjustment as provided therein, the LTIP originally reserved 5,415,576 shares of common stock for potential grants of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, stock awards, dividend equivalents, other stock- or cash-basedequity-based awards and substitute awards. is also used as the umbrella under which the Company’s AIP is administered.
Long-term incentive (“LTI”) awards under the LTIP seekare intended to balance retention of our executive team and alignment of our Named Executive Officers’ interests with those of our stockholders.
Each year, the Compensation Committee sets the total targeted long-term incentiveLTI value appropriate for each Named Executive Officer, taking into account Peer Group data and each Named Executive Officer’s contribution to our success, level of responsibility and experience. For the 20192021 Fiscal Year, each Named Executive Officer’s total targeted long-term incentiveLTI value was allocated equally between1/3 to grants of time-based restricted stock units (“RSUs”) and 2/3 to grants of performance share units (“PSUs”). Historically, LTI awards to our Named Executive Officers have been equally allocated between these two award types. The Compensation Committee recommended, and the Board approved, an increase in the proportion of the awards composed of PSUs for 2021 in order to increase the proportion of LTI awards that is based on stockholder return. Please see “Summary Compensation Table” and “Grants of Plan-Based Awards Table” below for more information on the RSU awards and PSU awards granted during the 20192021 Fiscal Year.
20192021 Restricted Stock Unit Awards
On March 5, 2019,8, 2021, the Board, upon recommendation by the Compensation Committee, approved the grant of RSUs to each Named Executive Officer, other than for Mr. Young.Officer. These RSU awards vest ratably overon each of the three-year period beginning on March 5, 2019,first three anniversaries of the date of grant, subject to each Named Executive Officer’s continued employment through each vesting date. In connection with his appointment, Mr. Young received a grant of RSUs on May 16, 2019, which cliff vest on March 5, 2022, subject to his continued employment through such vesting date. Following vesting, each RSU that vests is settled in aone share of our common stock.
20192021 Performance Share Unit Awards
On March 5, 2019,8, 2021, the Board, upon recommendation by the Compensation Committee, approved the grant of PSUs to each Named Executive Officer. In connection with his appointment, Mr. Young received a grant of PSUs on May 16, 2019. The PSU awards vest based on our relative total stockholder return (“Relative TSR”) over the three-year performance period commencing on January 1, 20192021 and ending on December 31, 2021,2023, subject to the Named Executive Officer’s continued employment through December 31, 2021.the end of the performance period. Our Relative TSR is determined by ranking our total stockholder return against the total stockholder return of each of the following companies, our “PSU Peer Group,” over the three-year performance period.
| Kosmos Energy Ltd. |
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| Laredo Petroleum, Inc. |
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| Centennial Resource Development, Inc. | Magnolia Oil & Gas Corporation | SM Energy Company | ||||
Cimarex Energy Co. | Matador Resources Company | W&T Offshore, Inc. | ||||
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| SPDR S&P Oil & Gas Exploration and Production ETF |
Historically, the PSU Peer Group has consisted solely of companies that our Compensation Committee and Board feel are most similar to us in terms of operation, size and geographic location. In 2021, the SPDR S&P Oil & Gas Exploration and Production ETF was added as a member of the PSU Peer Group to emphasize the importance of our share price performance against the full range of companies in the broader oil and gas industry.
At the conclusion of the performance period, the percentage of the target PSUs that becomes earned and vested is determined in accordance with the following payout schedule utilizing linear interpolation between threshold, target, stretch and maximum achievement levels; however, (i) if achievement of Relative TSR is greater than the target achievement level (50th percentile for 2021) and our actual total stockholdershareholder return (“TSR”) performance is between 0% and negative 10%, the payoutpercentage of target PSUs that vest will be reduced by one-half the difference between (a) the percentage
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determined in accordance with the table below and (b) 100%, and (ii) if achievement of Relative TSR is capped atgreater than the target achievement level and our TSR is less than negative 10% then the percentage of target PSUs that vest will not exceed 100% of target, regardless of our Relative TSR ranking.ranking (the “Negative TSR Reduction”). The Board believes the Negative TSR Reduction strongly encourages the achievement of positive TSR while ensuring that the PSUs continue to motivate our Named Executive Officers to outperform our competitors even in a negative TSR environment. Following the end of the performance period, each PSU that becomes earned and vested is settled in aone share of our common stock.
Level | Relative TSR Performance (Percentile Rank vs Peers) | Earned PSUs (% of Target) | ||
< Threshold | < 30th Percentile | 0% | ||
Threshold | 30th Percentile | 50% | ||
Target | 50th Percentile | 100% | ||
Stretch | 70th Percentile | 150% | ||
Maximum | 200% |
If certain corporate events occur with respect to an entity in our Peer Group, the PSUs provide for adjustments to be made to the Peer Group depending on the nature of the event. In accordance with such provisions,
Actions Following Fiscal Year End
Certain funds and other alternative investment vehicles managed by the Apollo Funds have historically held significant ownership interests in the Company. During 2021, the Apollo Funds (i) decided to exit their investment in the Company and implemented a 10b5-1 plan to sell our shares and (ii) required that we arrange several secondary offerings. As a result, the Apollo Funds sold over 16 million shares of our stock (which represented approximately 20% of all outstanding shares) (the “Apollo Sales”). Sales of this magnitude over a short period of time can create technical pressure on the stock price of a company, as was the case in this instance. The performance period for the PSUs granted in 2019 ended on December 31, 2021. Primarily as a result of the acquisition of Carrizo Oil & Gas, Inc.Apollo Sales, we did not achieve threshold performance with respect to the 2019 PSUs, as certified by Callon Petroleum Company, the Compensation Committee replaced Carrizo Oil & Gas, Inc.in early 2022. As a result, these awards are no longer outstanding and the Named Executive Officers did not receive any shares or other consideration with Murphy Oil Corporationrespect to these awards. By early 2022 it was clear that the PSUs outstanding at that time (those initially granted in 2020 and 2021) would also likely fail to reach threshold performance. The Board believed that the Apollo Sales created a technical issue that may have restrained the price of our stock irrespective of financial performance and materially altered our ability to achieve the threshold performance required for purposesthe outstanding PSUs to vest. As a result, the Board determined that this portion of our incentive program no longer provided appropriate incentives or retention for our management. Because the PSUs have historically represented such a large portion of the annual compensation for the Named Executive Officers, the Board felt we faced a high risk of losing key executive talent if action was not taken to address this loss of value that occurred largely for reasons outside the control of our Named Executive Officers.
On March 5, 2022, the Board made a one-time decision to cancel the outstanding PSUs granted in each of 2020 and 2021 currently held by our Named Executive Officers. In connection with this cancellation, the Board granted a number of restricted share units equal to the target number of PSUs granted to the Named Executive Officers in each of 2019, 2020, and 2021 (the “Retention RSUs”), since each of these awards was materially impacted by the Apollo Sales.
The Retention RSUs will vest ratably each year over two years, generally contingent upon continued employment through each such date. Each of the Named Executive Officers entered into a Performance Share Unit Cancellation and Release Agreement (the “Cancellation Agreement”) with the Company on March 8, 2022, whereby the Named Executive Officers consented to the cancellation of the PSUs granted to them in each of 2020 and 2021 (the PSUs still outstanding as of such date) in exchange for the grant of the Retention RSUs. The
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Cancellation Agreement includes a release of claims with respect to the cancelled PSUs. The table below specifies the number of PSUs cancelled and Retention RSUs granted with respect to each of the Named Executive Officers on March 5, 2022.
| PSU Awards that Failed to be Earned or were Cancelled | Retention RSU Awards Granted | |||||||||||||||||||
| 2019 | 2020 | 2021 | Total | Total | ||||||||||||||||
Timothy S. Duncan | 73,638 | 152,092 | 201,715 | 427,445 | 427,445 | |||||||||||||||
Shannon E. Young III | 21,755 | 58,936 | 78,165 | 158,856 | 158,856 | |||||||||||||||
Robert D. Abendschein | 45,628 | 60,515 | 106,143 | 106,143 | ||||||||||||||||
John A. Parker | 22,092 | 49,430 | 65,558 | 137,080 | 137,080 | |||||||||||||||
William S. Moss III | 20,865 | 47,529 | 63,036 | 131,430 | 131,430 | |||||||||||||||
The Compensation Committee and the Board felt it was important to replace the intended value of the 2019, 2020, and 2021 PSUs with the Retention RSUs rather than cash retention payments to ensure that the Named Executive Officers continue to be aligned with our stockholders and motivated to increase the value of our shares, irrespective of the unique challenges they may currently face in that respect. The grant of the Retention RSUs will be accounted for as a modification beginning in the first quarter of 2022 and will be reported in the Summary Compensation Table in the proxy filed in 2023. The Compensation Committee and the Board continue to value PSUs as a motivational and compensatory tool and have taken a fresh approach to these awards in 2022 in an effort to ensure that this one-time action does not have to be repeated in the future. The details of the 2022 PSU Peer Group.grants will be disclosed in the proxy statement filed by us in 2023, consistent with the applicable SEC rules.
Other Benefits
Health and Welfare Benefits
We offer participation in health and welfare plans to all of our employees, including our Named Executive Officers.
Retirement Benefits
We have not maintained, and do not currently maintain, a defined benefit pension plan or nonqualified deferred compensation plan in which our Named Executive Officers participate. We currently maintain a retirement plan intended to provide benefits under section 401(k) of the Internal Revenue Code (the “Code”) where employees, including our Named Executive Officers, are allowed to contribute portions of their eligible compensation to atax-qualified retirement account. Currently,Generally, we provide discretionary matching contributions equal to 50% of the first 12% of employees’ eligible compensation contributed to the plan. Employees generally become vested in 25% of the matching contributions made to theirtax-qualified retirement account per year for four years. Employees become 100% vested in the matching contributions made to theirtax-qualified retirement
account upon death, disability or retirement on or after normal retirement age (i.e., age 65). Employees may receive a distribution of the vested portion of theirtax-qualified retirement accounts upon (i) a termination of employment, (ii) normal retirement, (iii) disability or (iv) death.
Life Insurance
We provide group term life insurance to all of our employees, including the Named Executive Officers, equal to 2.5 times base salary up to a maximum of $500,000.
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Limited Perquisites
In 2019,2021, we provided to our Named Executive Officers a limited number of low costlow-cost perquisites, including parking, limited spousal travel andairline club and gym membership reimbursement. We provided these perquisites to ensure that our compensation program as a whole remains commensurate with compensation and benefits provided by companies with which we compete for executive talent.
Amended and Restated Executive Severance Plan
We maintainOn October 21, 2020, the Board adopted the Talos Energy Operating Company LLC Amended and Restated Executive Severance Plan (the “Amended Severance Plan”), which amends and replaces the Talos Energy Operating Company LLC Executive Severance Plan adopted on August 29, 2018 (the “Severance“Original Plan”), pursuant to which. The Amended Severance Plan, like the Original Plan, provides that each of our Named Executive Officers are entitled to receive severance benefits following certain terminations of employment. As a condition to participationEach participant in the Amended Severance Plan each Named Executive Officer has agreedis subject to (i) terminate any existing employment agreement with us, including all rights to severance thereunder and (ii) abide by certain confidentiality,non-solicitation andnon-disparagement covenants. The Board adoptedmaintains the Amended Severance Plan to extend our severance arrangements to other members of our senior management team and align the severance benefits with the severance benefits provided by companies with which we compete for executive talent. Our Compensation Committee and Board believe that a severance policy is preferable to individually negotiated agreements because it ensures continuity of terms between members of our executive team and provides for ease of administration. Please see “Potential Payments Upon Termination of Change in Control—Amended and Restated Executive Severance Plan” for more information.
Other Matters
Tax and Accounting Implications of Executive Compensation Decisions
The Compensation Committee and the Board review and consider the tax, accounting, and securities law implications of our executive compensation program when making determinations.
As a public corporation, we are subject to the deduction limitations under Section 162(m) of the Code (“Section 162(m)”). Section 162(m) prohibits deductions for compensation paid in excess of $1 million during a single fiscal year to certain executive officers. We take the economic effectsThe Compensation Committee is mindful of Section 162(m) into consideration when determining the structure, implementation, and value of compensation paid to our executive officers, including the deductibility of our executive compensation program. In doing so, we reservethese limitations but reserves the right to paynon-deductible compensation to our executive officers if the Compensation Committee determines that such compensation is in the best interests of the Company.
We account for RSU awards and PSU awards in accordance with the Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“FASB ASC Topic 718”),718, which requires us to estimate the expense of an award over the vesting period applicable to such award.
Anti-Hedging and Anti-Pledging Policies
We maintain an insider trading policy that applies to all employees of the Company and its subsidiaries, including the Named Executive Officers, all members of the Board, and all contractors, consultants and outside advisors who have access to material nonpublic information. UnderThe insider trading policy also applies to family members, other members of a person’s household, and entities controlled by a person covered by the insider trading policy.
Hedging or monetization transactions can be accomplished through a number of possible mechanisms, including through the use of financial instruments such as prepaid variable forwards, equity swaps, collars and exchange funds. Such transactions may permit a director, officer or employee to continue to own Company securities obtained through employee benefit plans, but without the full risks and rewards of ownership. When that occurs, the director, officer or employee may no longer have the same objectives as the Company’s other stockholders. Therefore, our insider trading policy hedgingprohibits directors, officers, employees and their designees, from engaging in any such transactions.
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Because a margin sale or monetization transactions and pledgingforeclosure sale may occur at a time when the pledgor is aware of material nonpublic information or otherwise is not permitted to trade in Company securities, directors, officers and other employees are prohibited.also prohibited from holding Company securities in a margin account or otherwise pledging Company securities as collateral for a loan.
Stock Ownership Policy
On March 11,In 2019, we adopted the Talos Energy Inc. Stock Ownership Policy (the “Ownership Policy”) applicable to senior executives identified by the Compensation Committee, including the Named Executive Officers, andnon-employee directors with the goal of aligning the interests of such senior executives andnon-employee directors with those of our stockholders. The ownership requirements were established at the following levels:are as follows:
Title | Required Ownership | |
Chief Executive Officer | 5x base salary | |
All Other Named Executive Officers | 2x base salary | |
Other Senior Executives | 1x base salary | |
Non-Employee Directors | 5x annual cash retainer |
The Chief Executive Officer and the Compensation Committee will reviewreviews on an annual basis the ownership levels of senior executives andnon-employee directors. In determining ownership levels, we include shares of our common stock owned outright by the officer or director, unvested time-based restricted shares and restricted stock units and shares of our common stock owned by the officer or director through our retirement and benefit plans. We do not include unexercised stock options or unearned performance shares or performance share units in determining ownership levels. Senior executives mustare expected to achieve their requisite ownership levels within five years of the later of (i) the implementation of the Ownership Policy or (ii) the applicable date of hire, promotion or salary increase for the executive, andnon-employee directors must achieve their requisite ownership levels within five years of the later of (i)(a) the implementation of the Ownership Policy or (ii)(b) the applicable date of the first election to the Board or increase in annual cash retainer. If a participant is not in compliance with the Ownership Policy, the Compensation Committee may use its discretion to impose a stock holding requirement or take any other action it deems appropriate.
Clawback Policy
On February 4, 2020, we adopted the Talos Energy Inc. Executive Compensation Clawback Policy (the “Clawback Policy”). Under the terms of the Clawback Policy, in the event of a restatement of our financial statements due to materialnon-compliance with any financial reporting requirement under applicable securities laws, the Compensation Committee or the Board may cause the Company to recover the amount of any incentive compensation granted, awarded or paid to a covered employee within the preceding36-month period to the extent the value of such compensation was in excess of the amount of incentive compensation that would have been granted, awarded or paid had the financial statements been in compliance with the financial reporting requirements. Each executive officer, including our Named Executive Officers and former executive officers, are considered “covered employees” for purposes of the Clawback Policy.
Risk Assessment and Mitigation
The Compensation Committee has reviewed our executive andnon-executive compensation programs and believes that they do not encourage excessive or unnecessary risk-taking. We believe that any risk inherent in our compensation programs is unlikely to have a material adverse effect on us. In designing and implementing our award structure, the Compensation Committee worked closely with Meridian to mitigate risks and to minimize the creation of imprudent incentives for our executives. We do not believe that our performance-based compensation encourages unnecessary risks because the executive pay mix is sufficiently diversified over several performance metrics as well as short-term and long-term compensation and fixed and variable compensation.
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Our compensation program structure and policy includes the following features to safeguard against excessive risk-taking:
| ✓ | Payments under our |
| ✓ | Our PSUs have performance periods of three years, which encourages executives to focus on sustaining the performance of the Company and its stock price over a period of years; |
| ✓ | We pay compensation that is competitive with the market and our industry peers, while not being excessive; |
| ✓ | Our compensation mix is balanced among fixed and variable components, annual and long-term compensation, and cash and equity that reward performance in the Company’s and our executives’ long-term best interests; |
| ✓ | Our incentive compensation plans include a cap on the maximum payout, subject to the Compensation Committee’s discretion, and implement design features that do not encourage excessive risk-taking; and |
| ✓ | Our insider trading policy contains a general anti-hedging and anti-pledging policy for all insiders. |
We believe that our executive compensation program provides our executive officers with appropriate rewards for sustained performance, without giving unnecessary weight to any one factor or type of compensation, and avoids excessive risk. Our compensation structure is designed to encourage sustained performance over a long-term period. Based on the foregoing, the Compensation Committee has concluded that the risks arising from our compensation policies and programs are not reasonably likely to have a material adverse effect on us.
Summary Compensation Table
The table below sets forth the annual compensation earned by the Named Executive Officers during the fiscal years ended December 31, 2017,2019, December 31, 20182020 and December 31, 2019. Amounts reported below for periods prior to the Stone Combination, which was consummated on May 10, 2018, were awarded and paid by Talos Energy LLC.2021.
Name and Principal Position | Year | Salary | Bonus | Stock Awards (1) | Option Awards | Non-Equity Incentive Plan Compensation (2) | All Other Compensation (3) | Total | Year | Salary | Bonus | Stock Awards (1) | Option Awards | Non-Equity Incentive Plan Compensation (2) | All Other Compensation (3) | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
Timothy S. Duncan | 2019 | $ | 701,727 | — | $ | 4,101,637 | — | $ | 805,000 | $ | 9,500 | $ | 5,617,864 | 2021 | $ | 800,674 | — | $ | 5,146,764 | — | $ | 1,370,000 | $ | 9,750 | $ | 7,327,188 | ||||||||||||||||||||||||||||||||||||||
President and Chief | 2018 | $ | 579,885 | $ | 400,000 | $ | 1,689,640 | $ | 714,204 | $ | 885,625 | $ | 9,250 | $ | 4,278,604 | 2020 | $ | 705,754 | — | $ | 3,984,811 | — | $ | 632,250 | $ | 9,750 | $ | 5,332,565 | ||||||||||||||||||||||||||||||||||||
Executive Officer | 2017 | $ | 432,308 | $ | 33,000 | — | $ | 86,059 | $ | 473,000 | $ | 9,000 | $ | 1,033,367 | 2019 | $ | 701,727 | — | $ | 4,101,637 | — | $ | 805,000 | $ | 9,500 | $ | 5,617,864 | |||||||||||||||||||||||||||||||||||||
Shannon E. Young III | 2019 | $ | 284,095 | — | $ | 1,590,943 | — | $ | 212,412 | — | $ | 2,087,450 | 2021 | $ | 500,763 | — | $ | 1,994,386 | — | $ | 548,000 | $ | 13,000 | $ | 3,056,149 | |||||||||||||||||||||||||||||||||||||||
Executive Vice President, Chief Financial Officer and Chief Accounting Officer | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stephen E. Heitzman | 2019 | $ | 416,080 | — | $ | 1,134,832 | — | $ | 305,440 | $ | 11,934 | $ | 1,868,286 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Former Executive Vice | 2018 | $ | 394,475 | $ | 75,000 | $ | 675,933 | $ | 612,000 | $ | 348,800 | $ | 12,250 | $ | 2,118,458 | |||||||||||||||||||||||||||||||||||||||||||||||||
President and Chief | 2017 | $ | 373,844 | $ | 21,150 | — | — | $ | 303,150 | $ | 11,942 | $ | 710,086 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Operating Officer | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Executive Vice President, | 2020 | $ | 463,781 | $ | 27,680 | $ | 1,544,123 | — | $ | 272,320 | $ | 1,062 | $ | 2,308,966 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Chief Financial Officer | 2019 | $ | 284,095 | — | $ | 1,590,943 | — | $ | 212,412 | — | $ | 2,087,450 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Robert D. Abendschein | 2021 | $ | 500,991 | — | $ | 1,544,046 | — | $ | 548,000 | $ | 13,000 | $ | 2,606,037 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Executive Vice President | 2020 | $ | 415,487 | $ | 3,800 | $ | 1,195,453 | — | $ | 281,200 | $ | 3,288 | $ | 1,899,228 | ||||||||||||||||||||||||||||||||||||||||||||||||||
and Chief Operating Officer | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
John A. Parker | 2019 | $ | 421,074 | — | $ | 1,230,524 | — | $ | 309,120 | — | $ | 1,960,718 | 2021 | $ | 435,964 | — | $ | 1,672,713 | — | $ | 476,760 | $ | 13,000 | $ | 2,598,437 | |||||||||||||||||||||||||||||||||||||||
Executive Vice President | 2018 | $ | 394,475 | $ | 75,000 | $ | 675,933 | $ | 589,968 | $ | 348,800 | $ | 12,250 | $ | 2,096,426 | 2020 | $ | 423,452 | $ | 3,360 | $ | 1,295,067 | — | $ | 248,640 | $ | 13,000 | $ | 1,983,519 | |||||||||||||||||||||||||||||||||||
of Exploration | 2017 | $ | 373,844 | $ | 21,150 | — | — | $ | 303,150 | $ | 12,000 | $ | 710,144 | 2019 | $ | 421,074 | — | $ | 1,230,524 | — | $ | 309,120 | — | $ | 1,960,718 | |||||||||||||||||||||||||||||||||||||||
William S. Moss III | 2019 | $ | 401,019 | — | $ | 1,162,181 | — | $ | 294,400 | $ | 12,500 | $ | 1,870,100 | 2021 | $ | 415,909 | — | $ | 1,608,364 | — | $ | 454,840 | $ | 13,000 | $ | 2,492,113 | ||||||||||||||||||||||||||||||||||||||
Executive Vice President | 2018 | $ | 381,475 | $ | 225,000 | $ | 675,933 | $ | 489,600 | $ | 331,360 | $ | 9,250 | $ | 2,112,618 | 2020 | $ | 403,288 | $ | 3,200 | $ | 1,245,259 | — | $ | 236,800 | $ | 13,000 | $ | 1,901,547 | |||||||||||||||||||||||||||||||||||
and General Counsel | 2017 | $ | 373,844 | $ | 21,150 | — | — | $ | 303,150 | $ | 9,000 | $ | 707,144 | 2019 | $ | 401,019 | — | $ | 1,162,181 | — | $ | 294,400 | $ | 12,500 | $ | 1,870,100 | ||||||||||||||||||||||||||||||||||||||
Michael L. Harding II | 2019 | $ | 239,893 | — | $ | 738,303 | — | — | $ | 760,852 | $ | 1,739,048 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Former Executive Vice | 2018 | $ | 362,356 | $ | 225,000 | $ | 675,933 | $ | 315,180 | $ | 331,360 | $ | 12,250 | $ | 1,922,079 | |||||||||||||||||||||||||||||||||||||||||||||||||
President, Chief Financial Officer and Chief Accounting Officer | 2017 | $ | 318,173 | $ | 18,143 | — | — | �� | $ | 260,057 | $ | 9,000 | $ | 605,373 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (1) | Amounts in this column for each Named Executive Officer represent the aggregate grant date fair value of the RSUs and PSUs granted to each of the Named Executive Officers |
33
| applied to the total number of RSUs granted. The FASB ASC Topic 718 grant date fair value of the PSUs was determined using a Monte Carlo simulation. Additional information regarding the assumptions underlying these calculations is available in Note 8 to our consolidated financial statements filed with ourForm 10-K for the fiscal year ended December 31, |
| (2) | Amounts in this column represent the |
| (3) | Amounts in this column only include our match of 401(k) plan contributions in the |
Name | 401(k) Plan Company Matching Contributions | |||
Timothy S. Duncan | $ | 9,500 | ||
Shannon E. Young III | — | |||
Stephen E. Heitzman | $ | 11.934 | ||
John A. Parker | — | |||
William S. Moss III | $ | 12,500 | ||
Michael L. Harding II | $ | 12,500 | ||
For Mr. Harding, the amount in this column also includes (i) a $570,000 lump sum cash severance payment, (ii) apro-rated short-term cash incentive award for the 2019 Fiscal Year equal to $171,639 and (iii) $6,713 for partially subsidized continuation coverage for Mr. Harding, his spouse and his eligible dependents in 2019, in each case, in accordance with the terms of his Transition, Separation and Release Agreement, as described below under “Potential Payments Upon Termination or a Change in Control—Harding Separation Agreement.”
Grants of Plan-Based Awards Table
The following table includes information regarding the short-term cash incentiveAIP awards, RSU awards and PSU awards granted to the Named Executive Officers during the 20192021 Fiscal Year.
| Grant Date | Estimated Future Payouts UnderNon-Equity Incentive Plan Awards (1) | Estimated Future Payouts Under Equity Incentive Plan Awards (2) | All Other Stock Awards: Number of Shares of Stock or Units (#) (3) | Grant Date Fair Value of Stock and Option Awards (4) | Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1) | Estimated Future Payouts Under Equity Incentive Plan Awards (2) | All Other Stock Awards: Number of Shares of Stock or Units (#) (3) | Grant Date Fair Value of Stock and Option Awards (4) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Name | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Timothy S. Duncan | $ | 437,500 | $ | 875,000 | $ | 1,750,000 | $ | 500,000 | $ | 1,000,000 | $ | 1,500,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3/5/19 | 36,819 | 73,638 | 147,276 | $ | 2,388,817 | 03/08/21 | 100,858 | 201,715 | 403,430 | $ | 3,824,516 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3/5/19 | 73,638 | $ | 1,712,820 | 03/08/21 | 100,858 | $ | 1,322,248 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shannon E. Young III | $ | 115,442 | $ | 230,883 | $ | 461,766 | $ | 200,000 | $ | 400,000 | $ | 600,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 5/16/19 | 10,878 | 21,755 | 43,510 | $ | 972,013 | 03/08/21 | 39,083 | 78,165 | 156,330 | $ | 1,482,008 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 5/16/19 | 21,755 | $ | 618,930 | 03/08/21 | 39,083 | $ | 512,378 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stephen E. Heitzman | $ | 166,000 | $ | 332,000 | $ | 664,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Robert D. Abendschein | $ | 200,000 | $ | 400,000 | $ | 600,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3/5/19 | 10,187 | 20,374 | 40,748 | $ | 660,933 | 03/08/21 | 30,258 | 60,515 | 121,030 | $ | 1,147,364 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3/5/19 | 20,374 | $ | 473,899 | 03/08/21 | 30,258 | $ | 396,682 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
John A. Parker | $ | 168,000 | $ | 336,000 | $ | 672,000 | $ | 174,000 | $ | 348,000 | $ | 522,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3/5/19 | 11,046 | 22,092 | 44,184 | $ | 716,664 | 03/08/21 | 32,779 | 65,558 | 131,116 | $ | 1,242,980 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3/5/19 | 22,092 | $ | 513,860 | 03/08/21 | 32,779 | $ | 429,733 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
William S. Moss III | $ | 160,000 | $ | 320,000 | $ | 640,000 | $ | 166,000 | $ | 332,000 | $ | 498,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3/5/19 | 10,433 | 20,865 | 41,730 | $ | 676,861 | 03/08/21 | 31,518 | 63,036 | 126,072 | $ | 1,195,163 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3/5/19 | 20,865 | $ | 485,320 | 03/08/21 | 31,518 | $ | 413,201 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Michael L. Harding II | $ | 152,000 | $ | 304,000 | $ | 608,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3/5/19 | 6,628 | 13,255 | 26,510 | $ | 429,992 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3/5/19 | 13,255 | $ | 308,311 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (1) | Amounts in these columns represent the estimated payouts for |
| (2) | These amounts represent the threshold, target and maximum number of PSUs that may become earned pursuant to the PSUs granted to the Named Executive Officers during the |
| (3) | Amounts in this column represent RSUs granted to the Named Executive Officers during the |
| (4) | These amounts represent the aggregate grant date fair value of PSUs and RSUs granted during the |
34
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table
Mr. Young Offer Letter
In connection with his appointment, we entered into an offer letter with Mr. Young. Pursuant to the terms of the offer letter, Mr. Young is eligible to receive an initial annualized base salary of $460,000 and to participate in the Company’s annual bonus program with a target bonus equal to 80% of his annualized base salary (which amount was prorated for 2019 based upon his date of hire), subject to the achievement of any applicable performance criteria and the terms and conditions of the program. The offer letter also provides that Mr. Young will be eligible to receive annual awards under the LTIP subject to approval by the Board and the terms and conditions of the LTIP.
Series B Unit Awards
In connection with the Stone Combination in May 2018, the Series B Units in Talos Energy LLC, including those held by our Named Executive Officers, were exchanged for an equivalent number of Series B Units in each of AP Talos Energy LLC (“AP Equityco Units”) and Riverstone Talos Energy Equityco LLC (“RSH Equityco Units” and together with the AP Equityco Units, the “Exchanged Units”). The Exchanged Units received in the exchange remain subject to the same terms and conditions applicable to the Series B Units in Talos Energy LLC prior to such exchange, including with respect to vesting.
In addition to the Exchanged Units, in connection with the Stone Combination in May 2018, each of our Named Executive Officers other than Mr.Messrs. Young and Abendschein received Series B Units in each of AP Talos Energy Debtco LLC (“AP Debtco Units”) and Riverstone Talos Energy Debtco LLC (“RSH Debtco Units,” and together with the AP Debtco Units, the “New Series B Units”), which are intended to constitute “profits interests” for federal tax purposes. Each of Apollo Talos Holdings, L.P., the manager of AP Talos Energy Debtco LLC, and Riverstone V Talos Holdings, L.P., the manager of Riverstone Talos Energy Debtco LLC, determined it was appropriate to grant the New Series B Units, and neither the Board nor the board of Talos Energy LLC were involved in approving the grants.
The New Series B Units mirror the number and vesting schedule of the Exchanged Units so that they will vest in tandem. As a result, a portion of the New Series B Units were fully vested on the date of grant and the unvested New Series B Units granted will vest at the same time and under the same circumstances as the unvested Exchanged Units. The Exchanged Units and thus, the New Series B Units, generally provide for vesting of 80% of the award in equal monthly installments beginning on the last day of the month of the original grant (not the exchange date) and continuing on the last day of each month for a total of 48 months, so long as the Named Executive Officer remains employed through each vesting date. The remaining 20% will only vest upon the occurrence of a Vesting Event (as defined below under “Potential Payments Upon Termination or Change in Control—Series B Unit Award Agreements”). Any portion of the New Series B Units that vest on the basis of time and remain unvested as of a Vesting Event will also become vested upon such Vesting Event.
35
Outstanding Equity Awards at 20192021 FiscalYear-End
The following table reflects information regarding outstanding unvested RSUs, PSUs, AP Equityco Units, RSH Equityco Units, AP Debtco Units and RSH Debtco Units held by our Named Executive Officers as of December 31, 2019.2021.
| Option Awards | Stock Awards | Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) (7) | Option Expiration Date (7) | Number of Shares or Units of Stock That Have Not Vested (#) (8) | Market Value of Shares or Units of Stock That Have Not Vested (#) (9) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) (10) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#) (9) | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) (5) | Option Expiration Date (5) | Number of Shares or Units of Stock That Have Not Vested (#) (6) | Market Value of Shares or Units of Stock That Have Not Vested (#) (7) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) (8) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#) (7) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Timothy S. Duncan | — | — | 22,520 | (3) | n/a | n/a | — | — | 22,520 | (1) | n/a | n/a | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | — | 22,520 | (4) | n/a | n/a | — | — | 22,520 | (2) | n/a | n/a | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | — | 22,520 | (5) | n/a | n/a | — | — | 22,520 | (3) | n/a | n/a | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | — | 22,520 | (6) | n/a | n/a | — | — | 22,520 | (4) | n/a | n/a | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | 1,170 | (1) | 820 | (3) | n/a | n/a | — | — | 820 | (1) | n/a | n/a | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | 1,170 | (1) | 820 | (4) | n/a | n/a | — | — | 820 | (2) | n/a | n/a | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | 1,170 | (1) | 820 | (5) | n/a | n/a | — | — | 820 | (3) | n/a | n/a | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | 1,170 | (1) | 820 | (6) | n/a | n/a | — | — | 820 | (4) | n/a | n/a | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 82,406 | $ | 2,484,541 | 226,799 | $ | 2,222,630 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 199,878 | $ | 6,026,322 | 176,904 | $ | 1,733,659 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shannon E. Young III | 21,755 | $ | 655,913 | 100,129 | $ | 981,264 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 43,510 | $ | 1,311,827 | 68,551 | $ | 671,800 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stephen E. Heitzman | — | — | 20,000 | (3) | n/a | n/a | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | — | 20,000 | (4) | n/a | n/a | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | — | 20,000 | (5) | n/a | n/a | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | — | 20,000 | (6) | n/a | n/a | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 23,882 | $ | 720,042 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Robert D. Abendschein | 60,677 | $ | 795,476 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 61,790 | $ | 1,862,969 | 53,072 | $ | 520,106 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
John A. Parker | — | — | 20,000 | (3) | n/a | n/a | — | — | 20,000 | (1) | n/a | n/a | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | — | 20,000 | (4) | n/a | n/a | — | — | 20,000 | (2) | n/a | n/a | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | — | 19,280 | (5) | n/a | n/a | — | — | 19,280 | (3) | n/a | n/a | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | — | 19,280 | (6) | n/a | n/a | — | — | 19,280 | (4) | n/a | n/a | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 25,600 | $ | 771,840 | 73,097 | $ | 716,351 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 65,226 | $ | 1,966,564 | 57,494 | $ | 563,441 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
William S. Moss III | — | — | 16,000 | (3) | n/a | n/a | — | — | 16,000 | (1) | n/a | n/a | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | — | 16,000 | (4) | n/a | n/a | — | — | 16,000 | (2) | n/a | n/a | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | — | 16,000 | (5) | n/a | n/a | — | — | 16,000 | (3) | n/a | n/a | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | — | 16,000 | (6) | n/a | n/a | — | — | 16,000 | (4) | n/a | n/a | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 24,373 | $ | 734,846 | 70,159 | $ | 687,558 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 62,774 | $ | 1,892,636 | 55,283 | $ | 541,773 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Michael L. Harding II | — | — | 4,800 | (3) | n/a | n/a | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | — | 4,800 | (4) | n/a | n/a | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | — | 4,800 | (5) | n/a | n/a | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | — | 4,800 | (6) | n/a | n/a | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | 918 | (2) | 5,500 | (3) | n/a | n/a | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | 918 | (2) | 5,500 | (4) | n/a | n/a | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | 918 | (2) | 5,500 | (5) | n/a | n/a | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| — | 918 | (2) | 5,500 | (6) | n/a | n/a | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 14,186 | $ | 427,708 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (1) |
|
|
These amounts represent AP Equityco Units held by each Named Executive Officer which only become vested upon the occurrence of a Vesting Event. |
These amounts represent RSH Equityco Units held by each Named Executive Officer which only become vested upon the occurrence of a Vesting Event. |
These amounts represent AP Debtco Units held by each Named Executive Officer which only become vested upon the occurrence of a Vesting Event. |
These amounts represent RSH Debtco Units held by each Named Executive Officer which only become vested upon the occurrence of a Vesting Event. |
These equity awards are not traditional options, and therefore, there is no exercise price or expiration date associated with them. |
36
The amounts in this column represent RSUs held by each Named Executive Officer which vestpro-rata over the applicable remaining vesting dates as follows, subject to the Named Executive Officer’s continued employment: |
Name | Number of Unvested RSUs | Remaining Vesting Dates | ||||
Timothy S. Duncan | March 8, 2022, March 8, 2023 and March 8, 2024 | |||||
| 101,395 | March 5, | |||||
Shannon E. Young III | 39,083 | March 8, 2022, March 8, 2023 and March 8, 2024 | ||||
| 39,291 | March 5, 2022 and March 5, 2023 | |||||
| 21,755 | March 5, 2022 | |||||
| March 8, 2022, March 8, 2023 and March 8, 2024 | |||||
| 30,419 | March 5, | |||||
John A. Parker | March 8, 2022, March 8, 2023 and March 8, 2024 | |||||
| 32,954 | March 5, | |||||
William S. Moss III | March 8, 2022, March 8, 2023 and March 8, 2024 | |||||
| 31,686 | March 5, | |||||
Any unvested RSUs previously held by Mr. Harding which were not accelerated in connection with his separation in accordance with the terms of the RSU award agreements governing such awards were forfeited and cancelled in accordance with the terms of such award agreements and his Transition, Separation and Release Agreement, as described below under “Potential Payments Upon Termination or a Change in Control—Harding Separation Agreement.”
The amounts in these columns were calculated by multiplying |
The amounts in this column represent the |
Name | Number of Unvested PSUs | Applicable
| ||||
Timothy S. Duncan | ||||||
| December 31, | ||||||
Shannon E. Young III | December 31, | |||||
| ||||||
| December 31, | ||||||
Robert D. Abendschein | 30,258 | December 31, 2023 | ||||
| 22,814 | December 31, 2022 | |||||
John A. Parker | ||||||
| December 31, | ||||||
William S. Moss III | ||||||
| December 31, | ||||||
| ||||||
Any other unearned PSUs previously held by Mr. Harding which do not remain outstanding and, subject to the satisfaction of the applicable performance goals, eligible for settlement in accordance with the terms of the PSU award agreements governing such awards were forfeited and cancelled in accordance with the terms of such award agreements and his Transition, Separation and Release Agreement, as described below under “Potential Payments Upon Termination or a Change in Control—Harding Separation Agreement.”
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Option Exercises and Stock Vested
| Option Awards | Stock Awards | Option Awards | Stock Awards | |||||||||||||||||||||||||||||
Name | Number of Units Acquired on Exercise (#) (1) | Value Realized on Exercise ($) (2) | Number of Shares Acquired on Vesting (#) (3) | Value Realized on Vesting ($) (4) | Number of Units Acquired on Exercise (#) (1) | Value Realized on Exercise ($) (2) | Number of Shares Acquired on Vesting (#) (3) | Value Realized on Vesting ($) (4) | ||||||||||||||||||||||||
Timothy S. Duncan | ||||||||||||||||||||||||||||||||
AP Equityco Units | 816 | $ | 2,957 | 345 | $ | 0.00 | ||||||||||||||||||||||||||
RSH Equityco Units | 816 | $ | 2,299 | 345 | $ | 0.00 | ||||||||||||||||||||||||||
AP Debtco Units | 816 | $ | 0.00 | 345 | $ | 0.00 | ||||||||||||||||||||||||||
RSH Debtco Units | 816 | $ | 0.00 | 345 | $ | 0.00 | ||||||||||||||||||||||||||
RSUs | 4,383 | $ | 122,549 | 79,627 | $ | 1,071,589 | ||||||||||||||||||||||||||
PSUs | 26,301 | $ | 324,817 | |||||||||||||||||||||||||||||
Shannon E. Young III | — | — | — | — | ||||||||||||||||||||||||||||
Stephen E. Heitzman | ||||||||||||||||||||||||||||||||
RSUs | 19,645 | $ | 265,208 | |||||||||||||||||||||||||||||
Robert D. Abendschein | ||||||||||||||||||||||||||||||||
RSUs | 1,753 | $ | 49,014 | 15,209 | $ | 205,322 | ||||||||||||||||||||||||||
John A. Parker | ||||||||||||||||||||||||||||||||
RSUs | 1,753 | $ | 49,014 | 25,594 | $ | 344,168 | ||||||||||||||||||||||||||
PSUs | 10,521 | $ | 129,934 | |||||||||||||||||||||||||||||
William S. Moss III | ||||||||||||||||||||||||||||||||
RSUs | 1,753 | $ | 49,014 | 24,552 | $ | 330,101 | ||||||||||||||||||||||||||
Michael L. Harding II | ||||||||||||||||||||||||||||||||
AP Equityco Units | 5,503 | $ | 19,930 | |||||||||||||||||||||||||||||
RSH Equityco Units | 5,503 | $ | 15,497 | |||||||||||||||||||||||||||||
AP Debtco Units | 5,503 | $ | 0.00 | |||||||||||||||||||||||||||||
RSH Debtco Units | 5,503 | $ | 0.00 | |||||||||||||||||||||||||||||
RSUs | 7,925 | $ | 173,195 | |||||||||||||||||||||||||||||
PSUs | 10,521 | $ | 129,934 | |||||||||||||||||||||||||||||
| (1) | This column reflects the AP Equityco Units, RSH Equityco Units, AP Debtco Units and RSH Debtco Units held by each Named Executive Officer that vested during the |
| (2) | The value of the AP Equityco Units, RSH Equityco Units, AP Debtco Units and RSH Debtco Units was estimated using the closing price of our common stock as of each vesting date and the terms of the applicable distribution provisions governing such awards. |
| (3) | This column reflects the RSUs and PSUs held by each Named Executive Officer that vested during the |
| (4) | This column reflects the aggregate market value realized by each Named Executive Officer upon vesting, calculated by multiplying the number of RSUs and PSUs that vested (including shares withheld for tax withholding purposes) by the closing price of our common stock on the applicable vesting date. |
Pension Benefits
We have not maintained, and do not currently maintain, a defined benefit pension plan.
Nonqualified Deferred Compensation
We have not maintained, and do not currently maintain, a nonqualified deferred compensation plan.
Potential Payments Upon Termination or a Change in Control
Amended and Restated Executive Severance Plan
The Board approved the Amended Severance Plan on October 21, 2020. Each of the currently employed Named Executive Officers is a participant in the Amended Severance Plan. Pursuant to the terms of the Amended Severance Plan, upon a termination without “Cause” or a resignation for “Good Reason,” each Named Executive
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Officer will be eligible to receive: (i) a lump sum cash payment equal to 1.5 (or 2.0 in the case of Mr. Duncan) times the sum of (a) the Named Executive Officer’s annualized base salary then in effect;effect and (b) the target amount of such Named Executive Officer’s annual cash bonus immediately prior to such termination; (ii) any earned but unpaid bonus for the year preceding the year of termination based on the our actual performance, paid at the time such bonuses are paid to executives; (iii) apro-rated bonus for the year of termination based on our actual performance, paid at the time such bonuses are paid to executives and (iv) partially subsidized continuation coverage for the Named Executive Officer and his spouse and eligible dependents under our group health plans pursuant to COBRA for 18 months (or 24 months in the case of Mr. Duncan), unless such coverage is earlier terminated in accordance with the terms of the Amended Severance Plan.
Upon a Named Executive Officer’s termination without “Cause” or a resignation for “Good Reason” within 24 months following a “Change in Control,” such Named Executive Officer will be eligible to receive: (i) a lump sum cash payment equal to 2.0 (or 2.5 in the case of Mr. Duncan) times the sum of (a) the Named Executive Officer’s annualized base salary then in effect and (b) the greater of (x) the target amount of such Named Executive Officer’s annual cash bonus immediately prior to such termination and (y) the target amount of such Named Executive Officer’s annual cash bonus immediately prior to the Change in Control; (ii) any earned but unpaid bonus for the year preceding the year of termination based on the our actual performance, paid at the time such bonuses are paid to executives; (iii) a pro-rated bonus for the year of termination based on our actual performance, paid at the time such bonuses are paid to executives; and (iv) partially subsidized continuation coverage for the Named Executive Officer and his spouse and eligible dependents under our group health plans pursuant to COBRA for 18 months (or 24 months in the case of Mr. Duncan), unless such coverage is earlier terminated in accordance with the terms of the Amended Severance Plan.
IfAdditionally, if a Named Executive Officer’s employment with us terminates as a result of his death or “Disability,” then pursuant to the terms of the Amended Severance Plan, such Named Executive Officer will be eligible to receive the following benefits: (i) any earned but unpaid bonus for the year preceding the year of termination based on our actual performance, paid at the time such bonuses are paid to executives; and (ii) apro-rated bonus for the year of termination based on our actual performance, paid at the time such bonuses are paid to executives.
In order to receive any of the foregoing severance benefits under the Amended Severance Plan, a Named Executive Officer (or his estate or legal guardian, if applicable) must timely execute (and not revoke) a release of claims in favor of us and our affiliates. Further, the Amended Severance Plan requires continued compliance with certain confidentiality,non-solicitation andnon-disparagement covenants. If the severance benefits under the Amended Severance Plan would trigger an excise tax for a participant under Section 4999 of the Code, the Amended Severance Plan provides that the Named Executive Officer’s severance benefits will be reduced to a level at which the excise tax is not triggered, unless the Named Executive Officer would receive a greater amount without such reduction after taking into account the excise tax and other applicable taxes.
For purposes of the Amended Severance Plan:
“Cause” generally means a Named Executive Officer’s (i) material breach of the Amended Severance Plan or other written agreement with us, (ii) material breach of any law applicable to the workplace or employment relationship or any of our material policies or codes of conduct, (iii) gross negligence, willful misconduct, breach of fiduciary duty, fraud, theft or embezzlement, (iv) commission, conviction, indictment or plea of nolo contendre of or for any felony or crime involving moral turpitude, or (v) willful failure or refusal to perform his obligations pursuant to the Amended Severance Plan or follow any lawful directive from us.
“Disability” generally means an inability by a Named Executive Officer to perform the essential functions of his position due to physical or mental impairment or other incapacity that continues, or can reasonably be expected to continue, for a period in excess of 120 consecutive days or 180 days, whether or not consecutive, in any12-month period.
“Good Reason” generally means (i) a material diminution in a Named Executive Officer’s base salary, authority, duties or responsibilities, (ii) material breach by us of our obligations under the Severance Plan, or (ii) a geographic relocation of the Named Executive Officer’s principal place of employment by more than 50 miles.
Long Term Incentive Plan Awards
Restricted Stock Unit Awards
Pursuant to the terms of each Named Executive Officer’s RSU award agreement, if a Named Executive Officer’s employment with us is terminated (i) as a result of his death or “Disability” or (ii) within one year following a “Change in Control,” by us without “Cause” or by the Named Executive Officer for “Good Reason,”
then, in each case, such Named Executive Officer’s unvested RSUs will become fully vested. If a Named Executive Officer’s employment with us is terminated by us without Cause or by the Named Executive Officer for Good Reason, in each case, prior to a Change in Control or more than one year following a Change in Control, then the portion of such Named Executive Officer’s unvested RSUs that would have vested within the12-month period following such termination will become vested.
Performance Share Unit Awards
Pursuant to the terms of each Named Executive Officer’s PSU award agreement, if a Named Executive Officer’s employment with us is terminated as a result of his death or Disability, then apro-rata portion of such Named Executive Officer’s PSUs will become earned based on actual performance calculated through the date of such termination. If a Named Executive Officer’s employment with us is terminated by us without Cause or by the Named Executive Officer for Good Reason, in each case, prior to a Change in Control or more than one year following a Change in Control, then the Named Executive Officer will be deemed to have met the service requirement with respect to apro-rata portion of his PSUs, and such PSUs will remain outstanding subject to satisfaction of the performance metrics through the end of the performance period. If a Named Executive Officer’s employment with us is terminated within one year following a Change in Control by us without Cause or by the Named Executive Officer for Good Reason, then, in each case, such Named Executive Officer’s PSUs will become earned based on actual performance calculated through the date of such Change in Control.
For purposes of the RSU and PSU award agreements, “Cause,” “Disability,” and “Good Reason” have the meanings given to such terms in the Severance Plan. “Change in Control” generally means the occurrence of any of the following events: (i) acquisition by a person or group of beneficial ownership of 50% or more of our outstanding shares or the combined voting power of our outstanding voting securities; (ii) during any consecutive12-month period, individuals who constitute the Board cease for any reason to constitute at least a majority of the Board,
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excluding any director whose election or nomination was approved by a vote of at least a majority of the then current directors unless such approval occurs as a result of an actual or threatened election contest; (iii) consummation of a business combination in which our outstanding voting securities immediately prior to such business combination do not, immediately following such business combination, continue to represent more than 50% of the then outstanding voting securities; (iv) sale of all or substantially all of our assets; or (v) approval by our stockholders of a complete liquidation or dissolution. |
“Disability” generally means an inability by a Named Executive Officer to perform the essential functions of his position due to physical or mental impairment or other incapacity that continues, or can reasonably be expected to continue, for a period in excess of 120 consecutive days or 180 days, whether or not consecutive, in any 12-month period.
“Good Reason” generally means (i) a material diminution in a Named Executive Officer’s base salary, authority, duties or responsibilities, (ii) material breach by us of our obligations under the Amended Severance Plan, or (ii) a geographic relocation of the Named Executive Officer’s principal place of employment by more than 50 miles.
Long Term Incentive Plan Awards
Restricted Stock Unit Awards
Pursuant to the terms of each Named Executive Officer’s 2019, 2020 and 2021 RSU award agreements, if a Named Executive Officer’s employment with us is terminated (i) as a result of his death or “Disability” or (ii) within one year following a “Change in Control,” by us without “Cause” or by the Named Executive Officer for “Good Reason,” then, in each case, such Named Executive Officer’s unvested 2019, 2020 and 2021 RSUs will become fully vested. If a Named Executive Officer’s employment with us is terminated by us without Cause or by the Named Executive Officer for Good Reason, in each case, prior to a Change in Control or more than one year following a Change in Control, then the portion of such Named Executive Officer’s unvested 2019, 2020 and 2021 RSUs that would have vested within the 12-month period following such termination will become vested.
Performance Share Unit Awards
Pursuant to the terms of each Named Executive Officer’s 2020 and 2021 PSU award agreements, if a Named Executive Officer’s employment with us is terminated as a result of his death or Disability, then a pro-rata portion of such Named Executive Officer’s 2020 and 2021 PSUs will become earned based on actual performance calculated through the date of such termination. If a Named Executive Officer’s employment with us is terminated by us without Cause or by the Named Executive Officer for Good Reason, in each case, prior to a Change in Control or more than one year following a Change in Control, then the Named Executive Officer will be deemed to have met the service requirement with respect to a pro-rata portion of his 2020 and 2021 PSUs, and such PSUs will remain outstanding subject to satisfaction of the performance metrics through the end of the performance period. If a Named Executive Officer’s employment with us is terminated within one year following a Change in Control by us without Cause or by the Named Executive Officer for Good Reason, then, in each case, such Named Executive Officer’s 2020 PSUs will become earned based on actual performance calculated through the date of such Change in Control and such Named Executive Officer’s 2021 PSUs will become earned based on the greater of target and actual performance calculated through the date of such Change in Control.
For purposes of the RSU and PSU award agreements, “Cause,” “Change in Control,” “Disability” and “Good Reason” have the meanings given to such terms in the Amended Severance Plan.
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Series B Unit Award Agreements
If a Named Executive Officer’s employment is terminated for any reason other than by us for “Cause,” he will forfeit all unvested AP Equityco Units, RSH Equityco Units, AP Debtco Units and RSH Debtco Units, and each applicable entity will have a right to repurchase any vested units at Fair Market Value (as defined in the applicable company agreement). If the Named Executive Officer’s employment is terminated by us for Cause, then he will forfeit all AP Equityco Units, RSH Equityco Units, AP Debtco Units and RSH Debtco Units, whether vested or unvested. For the AP Equityco Units, RSH Equityco Units, AP Debtco Units and RSH Debtco Units granted to Messrs. Duncan, Parker and Heitzman’sMoss that vest based on the terms of the Series B Units in Talos Energy, LLC originally granted on February 3, 2012 (October 1, 2013 for Mr. Moss), “Cause” has the meaning given to such term in the Named Executive Officer’s prior employment agreement. For all other awards, “Cause” means (i) engaging in material mismanagement in providing services to us or our affiliates, (ii) engaging in conduct that could reasonably be expected to be materially injurious to us or our affiliates, (iii) materially breaching the Series B Unit award agreement or the applicable limited liability company agreement, (iv) being convicted of, or entering a plea bargain or settlement admitting guilt for, any felony, crime involving moral turpitude, or where, as a result of such crime, the continued employment of the Named Executive Officer would be expected to have a material adverse impact on us or our affiliates, or (v) being the subject of any order obtained or issued by the SEC for any securities violation involving fraud.
In general, any unvested AP Equityco Units, RSH Equityco Units, AP Debtco Units and RSH Debtco Units granted to our Named Executive Officers will fully vest upon the occurrence of either of the following events with respect to the applicable feeder entity (each, a “Vesting Event”): (i) “Liquidation Event” or “Approved Sale” which results in a “Series A Payout” with respect to each holder of Series A Units in the applicable feeder entity; or (ii) the occurrence of a “Public Offering” where the applicable sponsor (a) receives cash proceeds from the sale of securities received in a reorganization sufficient to result in a Series A Payout (after taking into consideration any prior cash distributions), or (b) as of the 5th anniversary of the Public Offering, holds securities with a fair market value sufficient to result in a Series A Payout (after taking into consideration any prior cash distributions). The Vesting Event with respect to each feeder entity may occur on different dates. Additionally, upon the “Trigger Date” with respect to the applicable feeder entity, such entity will distribute to its members all remaining shares of our common stock held by such entity as of such date.
For purposes of the AP Equityco Units, RSH Equityco Units, AP Debtco Units and RSH Debtco Units:
“Approved Sale” generally includes (i) mergers, business combinations, or consolidations following which thepre-transaction members do not hold a majority of the equity securities of the surviving or resulting entity, (ii) sale of all or substantially all of the assets of the applicable feeder entity to one or more third parties, and (iii) sale of all or substantially all of the equity interests in the applicable feeder entity to one or more third parties, in each case initiated by the sponsor.
“Liquidation Event” generally includes (i) mergers, business combinations, consolidations, sales of all or substantially all of the assets of the applicable feeder entity following which thepre-transaction members do not hold a majority of the equity securities of the surviving or resulting entity, (ii) sale of more than 75% of the Series A Units in the applicable feeder entity, (iii) a voluntary or involuntary reorganization or entry into bankruptcy or insolvency proceedings, and (iv) the winding up, dissolution or liquidation of the applicable feeder entity.
“Series A Payout” occurs when holders of the Series A Units receive cash distributions which cause the unreturned Series A Unit capital contributions and unpaid Series A Unit preference amount to equal $0.
“Public Offering” means the sale in a public offering registered under the Securities Act of the equity securities of the applicable feeder entity (or any successor thereto) or a director or indirect subsidiary of the applicable feeder entity (or any successor thereto).
“Trigger Date” means the first date following the first anniversary of the consummation of the Stone Combination on which the applicable feeder entity sells any shares of our common stock held by such feeder entity as of such date.41
The following table sets forth the payments and benefits that would be received by our Named Executive Officers pursuant to the terms of the Amended Severance Plan, RSUs, PSUs, AP Equityco Units, RSH Equityco Units, AP Debtco Units and RSH Debtco Units in the event of certain terminations of employment with us or a Vesting Event, had such termination or Vesting Event occurred on December 31, 2019. For the avoidance of doubt, the table below does not reflect the actual payments and benefits received by Mr. Heitzman following the termination of his employment that was effective on February 17, 2020. Such payments and benefits are described in the section below titled “—Heitzman Separation Agreement.”2021.
Name | Termination without Cause or resignation for Good Reason | Termination as a result of death or Disability | Vesting Event | Termination without Cause or resignation for Good Reason on or within one year following a Change in Control | Termination without Cause or resignation for Good Reason | Termination as a result of death or Disability | Vesting Event | Termination without Cause or resignation for Good Reason in connection with a Change in Control | ||||||||||||||||||||||||
Timothy S. Duncan | ||||||||||||||||||||||||||||||||
Cash Severance | $ | 1,400,000 | — | — | $ | 1,400,000 | $ | 3,600,000 | — | — | $ | 3,937,500 | ||||||||||||||||||||
Pro-Rata Annual Bonus (1) | $ | 805,000 | $ | 805,000 | — | $ | 805,000 | $ | 1,370,000 | $ | 1,370,000 | — | $ | 1,370,000 | ||||||||||||||||||
COBRA Subsidy (2) | $ | 42,960 | — | — | $ | 42,960 | $ | 42,322 | — | — | $ | 42,322 | ||||||||||||||||||||
RSU & PSU Acceleration (3) | $ | 2,767,026 | $ | 7,682,080 | — | $ | 7,682,080 | |||||||||||||||||||||||||
Series B Unit Acceleration (4) | — | — | $ | 687,015 | — | |||||||||||||||||||||||||||
RSU Acceleration (3) | $ | 1,066,848 | $ | 2,222,630 | — | $ | 2,222,630 | |||||||||||||||||||||||||
PSU Acceleration (4) | $ | 0 | $ | 0 | — | $ | 3,467,309 | |||||||||||||||||||||||||
Series B Unit Acceleration (5) | — | — | $ | 0 | — | |||||||||||||||||||||||||||
Total | $ | 5,014,986 | $ | 8,487,080 | $ | 687,015 | $ | 9,930,040 | $ | 6,079,170 | $ | 3,592,630 | $ | 0 | $ | 11,039,761 | ||||||||||||||||
Shannon E. Young, III | ||||||||||||||||||||||||||||||||
Cash Severance | $ | 690,000 | — | — | $ | 690,000 | $ | 1,350,000 | — | — | $ | 1,656,000 | ||||||||||||||||||||
Pro-Rata Annual Bonus (1) | $ | 212,412 | $ | 212,412 | — | $ | 212,412 | $ | 548,000 | $ | 548,000 | — | $ | 548,000 | ||||||||||||||||||
COBRA Subsidy (2) | $ | 29,592 | — | — | $ | 29,592 | $ | 31,741 | — | — | $ | 31,741 | ||||||||||||||||||||
RSU & PSU Acceleration (3) | $ | 434,053 | $ | 1,958,603 | — | $ | 1,958,603 | |||||||||||||||||||||||||
RSU Acceleration (3) | $ | 533,396 | $ | 981,264 | — | $ | 981,264 | |||||||||||||||||||||||||
PSU Acceleration (4) | $ | 0 | $ | 0 | — | $ | 1,343,590 | |||||||||||||||||||||||||
Total | $ | 1,366,057 | $ | 2,171,015 | — | $ | 2,890,607 | $ | 2,463,137 | $ | 1,529,264 | — | $ | 4,560,595 | ||||||||||||||||||
Stephen E. Heitzman | ||||||||||||||||||||||||||||||||
Robert D. Abendschein | ||||||||||||||||||||||||||||||||
Cash Severance | $ | 622,500 | — | — | $ | 622,500 | $ | 1,350,000 | — | — | $ | 1,710,000 | ||||||||||||||||||||
Pro-Rata Annual Bonus (1) | $ | 305,440 | $ | 305,440 | — | $ | 305,440 | $ | 548,000 | $ | 548,000 | — | $ | 548,000 | ||||||||||||||||||
COBRA Subsidy (2) | $ | 23,508 | — | — | $ | 23,508 | $ | 23,104 | — | — | $ | 23,104 | ||||||||||||||||||||
RSU & PSU Acceleration (3) | $ | 834,803 | $ | 2,255,312 | �� | — | $ | 2,255,312 | ||||||||||||||||||||||||
Series B Unit Acceleration (4) | — | — | $ | 560,600 | — | |||||||||||||||||||||||||||
RSU Acceleration (3) | $ | 247,891 | $ | 594,635 | — | $ | 594,635 | |||||||||||||||||||||||||
PSU Acceleration (4) | $ | 0 | $ | 0 | — | $ | 1,040,201 | |||||||||||||||||||||||||
Total | $ | 1,786,251 | $ | 2,560,752 | $ | 560,600 | $ | 3,206,760 | $ | 2,168,995 | $ | 1,142,635 | — | $ | 3,915,940 | |||||||||||||||||
John A. Parker | ||||||||||||||||||||||||||||||||
Cash Severance | $ | 630,000 | — | — | $ | 630,000 | $ | 1,174,500 | — | — | $ | 1,512,000 | ||||||||||||||||||||
Pro-Rata Annual Bonus (1) | $ | 309,120 | $ | 309,120 | — | $ | 309,120 | $ | 476,760 | $ | 476,760 | — | $ | 476,760 | ||||||||||||||||||
COBRA Subsidy (2) | $ | 23,472 | — | — | $ | 23,472 | $ | 23,005 | — | — | $ | 23,005 | ||||||||||||||||||||
RSU & PSU Acceleration (3) | $ | 886,276 | $ | 2,409,983 | — | $ | 2,409,983 | |||||||||||||||||||||||||
Series B Unit Acceleration (4) | — | — | $ | 560,600 | — | |||||||||||||||||||||||||||
RSU Acceleration (3) | $ | 340,717 | $ | 716,351 | — | $ | 716,351 | |||||||||||||||||||||||||
PSU Acceleration (4) | $ | 0 | $ | 0 | — | $ | 1,126,882 | |||||||||||||||||||||||||
Series B Unit Acceleration (5) | — | — | $ | 0 | — | |||||||||||||||||||||||||||
Total | $ | 1,848,868 | $ | 2,719,103 | $ | 560,600 | $ | 3,372,575 | $ | 2,014,982 | $ | 1,193,111 | $ | 0 | $ | 3,854,998 | ||||||||||||||||
William S. Moss III | ||||||||||||||||||||||||||||||||
Cash Severance | $ | 600,000 | — | — | $ | 600,000 | $ | 1,120,500 | — | — | $ | 1,440,000 | ||||||||||||||||||||
Pro-Rata Annual Bonus (1) | $ | 294,400 | $ | 294,400 | — | $ | 294,400 | $ | 454,840 | $ | 454,840 | — | $ | 454,840 | ||||||||||||||||||
COBRA Subsidy (2) | $ | 29,556 | — | — | $ | 29,556 | $ | 28,954 | — | — | $ | 28,954 | ||||||||||||||||||||
RSU & PSU Acceleration (3) | $ | 849,521 | $ | 2,299,516 | — | $ | 2,299,516 | |||||||||||||||||||||||||
Series B Unit Acceleration (4) | — | — | $ | 448,480 | — | |||||||||||||||||||||||||||
RSU Acceleration (3) | $ | 326,379 | $ | 687,558 | — | $ | 687,558 | |||||||||||||||||||||||||
PSU Acceleration (4) | $ | 0 | $ | 0 | — | $ | 1,083,537 | |||||||||||||||||||||||||
Series B Unit Acceleration (5) | — | — | $ | 0 | — | |||||||||||||||||||||||||||
Total | $ | 1,773,477 | $ | 2,593,916 | $ | 448,480 | $ | 3,223,472 | $ | 1,930,673 | $ | 1,142,398 | $ | 0 | $ | 3,694,889 | ||||||||||||||||
| (1) | These amounts reflect thepro-rata portion of each Named Executive Officer’s annual bonus, which would have been the full amount of such annual bonus had the termination of employment occurred on December 31, |
42
| (2) | The COBRA Subsidy amount is based on the premiums in effect as of December |
| (3) | These amounts are calculated by |
| (4) | These amounts are calculated by multiplying the number of PSUs that would become earned or for which the service vesting component of the award will be deemed satisfied upon the applicable event by |
These amounts are calculated by multiplying the number of AP Equityco Units, RSH Equityco Units, AP Debtco Units, and RSH Debtco Units that would become vested upon the applicable event by the fair market value of each such unit as of December 31, |
Harding Separation Agreement
On June 14, 2019, Mr. Harding and Talos Energy Operating Company LLC (the “Employer”) entered into a Transition, Separation and Release Agreement (the “Harding Separation Agreement”) pursuant to which Mr. Harding’s employment with us terminated on August 13, 2019. Under the Harding Separation Agreement, Mr. Harding was eligible to receive the following benefits, subject to his execution andnon-revocation of a release of claims and continued compliance with certain restrictive covenants:
Lump sum cash payment equal to $570,000, in accordance with the Severance Plan;
Pro-rated short-term cash incentive award for the 2019 Fiscal Year based on actual achievement of the applicable performance metrics equal to $171,639, payable at the time such awards are paid to other executives of the Company, in accordance with the Severance Plan;
Partially subsidized continuation coverage for Mr. Harding, his spouse, and his eligible dependents under our group health plans pursuant to COBRA for 18 months, unless such coverage is earlier terminated, in accordance with the terms of the Severance Plan;
Accelerated vesting of 6,172 RSUs, in accordance with the terms of the applicable RSU award agreements; and
Deemed satisfaction of the applicable service requirement with respect to 7,093 PSUs, in accordance with the terms of the PSU award agreements, which remain outstanding and eligible to vest subject to satisfaction of the applicable performance metrics through the end of the applicable performance period.
In addition, in connection with Mr. Harding’s separation, each of AP Talos Energy LLC, AP Talos Energy Debtco LLC, Riverstone Talos Energy Equityco LLC and Riverstone Talos Energy Debtco LLC took action to waive the forfeiture of Mr. Harding’s AP Equityco Units, AP Debtco Units, RSH Equityco Units, and RSH Debtco Units, respectively. As a result, Mr. Harding’s AP Equityco Units, AP Debtco Units, RSH Equityco Units, and RSH Debtco Units will remain outstanding and eligible to vest in accordance with the vesting terms applicable to such AP Equityco Units, AP Debtco Units, RSH Equityco Units, and RSH Debtco Units. Neither the Board nor the Compensation Committee were involved in approving the foregoing treatment with respect to the AP Equityco Units, AP Debtco Units, RSH Equityco Units, and RSH Debtco Units.43
Heitzman Separation Agreement
On January 22, 2020, Mr. Heitzman and the Employer entered into a Separation and Release Agreement (the “Heitzman Separation Agreement”) pursuant to which Mr. Heitzman’s employment with us terminated on February 17, 2020. Under the Heitzman Separation Agreement, Mr. Heitzman was eligible to receive the following benefits, subject to his execution andnon-revocation of a release of claims and continued compliance with certain restrictive covenants:
Lump sum cash payment equal to $622,500, in accordance with the Severance Plan;
Payment of his short-term cash incentive award for the 2019 Fiscal Year based on actual achievement of the applicable performance metrics equal to $305,440, payable at the time such awards are paid to other executives of the Company, in accordance with the Severance Plan;
Payment of apro-rated portion of his target short-term cash incentive award for the 2020 calendar year equal to $42,634;
Partially subsidized continuation coverage for Mr. Heitzman, his spouse, and his eligible dependents under our group health plans pursuant to COBRA for 18 months, unless such coverage is earlier terminated, in accordance with the terms of the Severance Plan;
Accelerated vesting of all 3,508 unvested RSUs originally granted in 2018 and, in accordance with the terms of the applicable RSU award agreement, accelerated vesting of 6,791 RSUs granted in 2019; and
Deemed satisfaction of the applicable service requirement with respect to all 10,522 PSUs granted in 2018 and, in accordance with the terms of the applicable PSU award agreement, 7,666 PSUs granted in 2019, all of which remain outstanding and eligible to vest subject to satisfaction of the applicable performance metrics through the end of the applicable performance period.
In addition, in connection with Mr. Heitzman’s separation, each of AP Talos Energy LLC, AP Talos Energy Debtco LLC, Riverstone Talos Energy Equityco LLC and Riverstone Talos Energy Debtco LLC took action to waive the forfeiture of Mr. Harding’s AP Equityco Units, AP Debtco Units, RSH Equityco Units, and RSH Debtco Units, respectively. As a result, Mr. Heitzman’s AP Equityco Units, AP Debtco Units, RSH Equityco Units, and RSH Debtco Units will remain outstanding and eligible to vest in accordance with the vesting terms applicable to such AP Equityco Units, AP Debtco Units, RSH Equityco Units, and RSH Debtco Units. Neither the Board nor the Compensation Committee were involved in approving the foregoing treatment with respect to the AP Equityco Units, AP Debtco Units, RSH Equityco Units, and RSH Debtco Units.
The table below quantifies the benefits received by Mr. Harding and Mr. Heitzman pursuant to the Harding Separation Agreement and the Heitzman Separation Agreement, respectively, and as a result of the actions of each feeder entity in connection with their respective separations.
Name | Received at Separation | |||
Michael L. Harding II | ||||
Cash Severance | $ | 570,000 | ||
Pro-Rata 2019 Annual Bonus | $ | 171,639 | ||
COBRA Subsidy (1) | $ | 30,210 | ||
RSU & PSU Acceleration (2) | $ | 266,892 | ||
Series B Units Waiver of Forfeiture (3) | $ | — | ||
Total | $ | 1,038,741 | ||
Stephen E. Heitzman | ||||
Cash Severance | $ | 622,500 | ||
Prior Year 2019 Annual Bonus | $ | 305,440 | ||
Pro-Rata 2020 Annual Bonus | $ | 42,634 | ||
COBRA Subsidy (4) | $ | 21,623 | ||
RSU & PSU Acceleration (2) | $ | 665,215 | ||
Series B Unit Waiver of Forfeiture (3) | $ | — | ||
Total | $ | 1,657,412 | ||
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Director Compensation
We maintain anon-employee director compensation program pursuant to which members of the Board who are not employees of us or our subsidiaries or investment funds affiliated with or managed by Riverstone Holdings or Apollo are eligible for the following compensation:
Annual base retainer of $80,000 ($150,000 for theNon-Executive Chairman);
Supplemental retainer of (i) $25,000 for the chair of the Audit Committee, (ii) $15,000 for the chairs of the Compensation Committee and the Safety Committee, and (iii) $10,000 for the chair of the Governance & Nominating Committee;
Supplemental retainer of (i) $12,500 for members of the Audit Committee, (ii) $7,500 for members of the Compensation Committee and the Safety Committee, and (iii) $5,000 for members of the Governance & Nominating Committee;
$1,500 for each meeting (bothin-person and telephonic) of the Board or a committee beyond 10 meetings of the Board or such committee; and
An annual equity award with a value equal to $140,000 ($210,000 for theNon-Executive Chairman).
TheNon-Executive Chairman, who currently also serves as the Chairman of the Governance & Nominating Committee, is not eligible to receive the supplemental retainers provided to chairs and members of the committees. Each director is also reimbursed for reasonable travel and miscellaneous expenses incurred to attend meetings and activities of the Board and the committees.
In accordance with ournon-employee director compensation program, we granted RSUs to eachnon-employee director on March 5, 2019, which vest in full on March 5, 2020, subject to thenon-employee director’s continued service. In connection with the grant of RSUs, eachnon-employee director was provided the opportunity to defer the settlement of his RSUs until the earliest to occur of either the date suchnon-employee director incurs a “separation from service” or the fifth anniversary of the vesting date. Following the vesting date or such later date as elected by the director pursuant to the deferral election, these RSUs will be settled 60% in shares of our common stock and 40% in cash. The RSUs will vest in full upon (i) a termination of thenon-employee director’s service due to death or disability, (ii) a termination of thenon-employee director’s service without cause and (iii) a “change in control” (as defined in the LTIP). Ournon-employee directors are also subject to our Ownership Policy, as described above under “Compensation Discussion and Analysis—Other Matters—Stock Ownership Policy.”
2019 Director Compensation Table
Name | Fees Earned or Paid in Cash | Stock Awards (1) | Total | |||||||||
Neal P. Goldman | $ | 150,000 | $ | 237,852 | $ | 387,852 | ||||||
John “Brad” Juneau | $ | 100,000 | $ | 158,560 | $ | 258,560 | ||||||
Donald R. Kendall, Jr. | $ | 107,500 | $ | 158,560 | $ | 266,060 | ||||||
Charles M. Sledge | $ | 110,000 | $ | 158,560 | $ | 268,560 | ||||||
James M. Trimble | $ | 95,000 | $ | 158,560 | $ | 253,560 | ||||||
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As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) ofRegulation S-K, we are providing the following information about the relationship of the annual total compensation of our employees and the annual total compensation of Timothy S. Duncan, our President and Chief Executive Officer (our “CEO”).
For the 20192021 Fiscal Year, our last completed fiscal year:
The median of the annual total compensation of all employees of our company (other than the CEO) was $126,767; and$175,392.
The annual total compensation of our CEO, as reported in the Summary Compensation Table included elsewhere within this Proxy Statement, was $5,617,864.$7,327,189.
Based on this information, for 20192021 the ratio of the annual total compensation of our CEO to the median of the annual total compensation of all employees was reasonably estimated to be 44approximately 42 to 1.
We identified a new median employee for the pay ratio calculation above for 2021. To identify the median of the annual total compensation of all our employees, as well as to determine the annual total compensation of our median employee and our CEO, we took the following steps:
We determined that, as of December 31, 2019,2021, our employee population consisted of approximately 412434 individuals with all of these individuals located in the United States. This population consisted of our United States full-time, part-time, and temporary employees, as we did not have seasonal workers as of December 31, 2019.2021. We do have employees located in jurisdictions outside of the United States, but they comprise less than 5% of our total employees and arewere excluded from this calculation pursuant to Item 402(u)(4)(ii) ofRegulation S-K. Specifically, we excluded 9 employees located in Mexico. We hire independent contractors and “leased” workers, but such independent contractors and “leased” workers arewere excluded from this calculation pursuant to Item 402(u)(3) ofRegulation S-K.
We used a consistently applied compensation measure to identify our median employee comparing the amount of salary or wages, bonuses and other compensation as reported to the Internal Revenue Service in Box 1 on FormW-2 for 2019.2021.
We identified our median employee by consistently applying this compensation measure to all of our employees included in our analysis. Since all of our employees included in this calculation and our CEO are located in the United States, we did not make any cost of livingcost-of-living adjustments in identifying the median employee.
After we identified our median employee, we combined all of the elements of such employee’s compensation for the 20192021 year in accordance with the requirements of Item 402(c)(2)(x) ofRegulation S-K, resulting in annual total compensation of $126,767.$175,392.
With respect to the annual total compensation of our CEO, we used the amount reported in the “Total” column for 20192021 of our Summary Compensation Table included in this Proxy Statement and incorporated by reference under Item 11 of Part III of our Annual Report.
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EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information about sharesour issuance of our common stock that may be issuedawards under equity compensation plansthe 2018 LTIP and 2021 LTIP, as a group, in each case as of December 31, 2019.2021.
| (a) | (b) | (c) | ||||||||||||||||||||||
| Number of securities to be issued upon exercise of outstanding options, warrants and rights (1) | Weighted-average exercise price of outstanding options, warrants and rights (2) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (3) | ||||||||||||||||||||||
Equity compensation plans approved by security holders | 1,658,178 | — | 3,721,147 | |||||||||||||||||||||
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b)(3) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | |||||||||||||||||||||
Equity compensation plans approved by security holders(1) | 2,998,658 | (2) | — | 7,712,633 | (4) | |||||||||||||||||||
Equity compensation plans not approved by security holders | — | — | — | — | — | — | ||||||||||||||||||
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| ||||||||||||||||||||
Total | 1,658,178 | — | 3,721,147 | 2,998,658 | — | 7,712,633 | ||||||||||||||||||
|
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| ||||||||||||||||||||
| (1) |
|
| (2) | Represents the target number of shares of our common stock subject to PSU awards and the number of shares of our common stock subject to RSU awards granted under the 2018 LTIP and 2021 LTIP outstanding and unvested as of December 31, |
No options or warrants have been granted under the 2018 LTIP or 2021 LTIP, and the RSU and PSU awards reflected in column (a) are not reflected in this column, as they do not have an exercise price. |
|
45
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2019,Previously, the Compensation Committee consisted of Jim Trimble, Donald R. Kendall, Jr., Olivia C. Wassenaar and Rajen Mahagaokar, none of whom is, or has ever been, an officer or employee of the Company. Effective as of December 8, 2021 and December 9, 2021, Olivia Wassenaar and Rajen Mahagaokar, respectively, resigned from the Board of Directors and from their positions on the Compensation Committee. As of January 13, 2022, the Compensation Committee consisted of Donald R. Kendall, Jr., Charles M. Sledge and Robert M. Tichio, none of whom is, or has ever been, an officer or employee of the Company. Further, none of our Named Executive Officers serves, or in the past has served, as a member of the board of directors or compensation committee, or other committee serving an equivalent function, of any entity that has one or more executive officers who serve as members of our Board of Directors or Compensation Committee. Mr. Trimble served as the Compensation Committee chair until May 7, 2019.
46
Corporate Governance Guidelines
The Board of Directors believes that sound governance practices and policies provide an important framework to assist it in fulfilling its duty to stockholders. The Company’s “Corporate Governance Guidelines” cover the following subjects, among others:
the size of the Board of Directors;
qualifications and independence standards for the Board of Directors;
director responsibilities;
Board leadership;
meetings of the Board and ofnon-management directors;
committee requirements and functions and independence of committee members;
director compensation;
annual performance evaluations and succession planning;
review of governance policies, copies of which are posted on the Company’s website at www.talosenergy.com;
| • | review of governance policies, copies of which are posted on the Company’s website at www.talosenergy.com; |
stockholder communications with directors; and
access to independent advisors, senior management and other employees.
The Corporate Governance Guidelines are posted on the Company’s website at www.talosenergy.com.www.talosenergy.com. The Corporate Governance Guidelines are reviewed periodically and as necessary by the Company’s GovernanceNominating & NominatingGovernance Committee, and any proposed additions to or amendments of the Corporate Governance Guidelines will be presented to the Board of Directors for its approval.
The NYSE has adopted rules that require listed companies to adopt governance guidelines covering certain matters. The Company believes that the Corporate Governance Guidelines comply with the NYSE rules.
Board Leadership
The Board recognizes that one of its key responsibilities is to evaluate and determine its optimal leadership structure so as to provide independent oversight of management. The Board understands that the optimal Board leadership structure may vary as circumstances warrant. Consistent with this understanding, the GovernanceNominating & NominatingGovernance Committee considers the Board’s leadership structure periodically.
Prior to the 2020 Annual Meeting of Stockholders, the Chairman of the Board is required to be a “Company Independent Director” pursuant to the Stockholders’ Agreement. Any person serving as our Chief Executive Officer does not satisfy the independence standards of the NYSE rules by virtue of being one of our employees and, as a result, any such person cannot be a “Company Independent Director” under the Stockholders’ Agreement. Consequently, our Chief Executive Officer cannot simultaneously serve in such office and as the Chairman of the Board until after the 2020 Annual Meeting of Stockholders. After the 2020 Annual Meeting, our Amended and RestatedOur Bylaws provide that the Chairman of the Board may be any director elected by a majority of the Board. On July 21, 2020, Neal P. Goldman was re-elected as Chairman of the Board. See “—Director Independence” for additional information regarding the definition of “Company Independent Director.”
Despite the foregoing, the The Board believes that separating of the roles of Chairman of the Board and the Chief Executive Officer provides the optimal Board leadership structure for us. Under this structure, the Chief
Executive Officer has responsibility for setting the strategic direction of the Company and for theday-to-day leadership and performance of the Company, and the Chairman of the Board is tasked with setting the agenda for and presiding at Board meetings and coordinating the Board’s communications with the Chief Executive Officer and other senior management. The Board determined that this leadership structure was optimal for us because it balances the needs for the President and Chief Executive Officer to run the Company on aday-to-day basis with the benefit provided to the Company by the Chairman’s perspective as an independent member of the Board.
47
The Corporate Governance Guidelines require that the Chairman of the Board, if he or she is anon-management director, will be the “lead director” responsible for preparing an agenda for the meetings of the independent directorsIndependent Directors in executive session. In the event the Chairman of the Board is a member of management, the Corporate Governance Guidelines provide that the lead director will be chosen by thenon-management members of the Board. Mr. Goldman, the current Chairman of the Board, is anon-management director and therefore serves as lead director of the Board.
Classified Board Structure
In consultation with the Board, the GovernanceNominating & NominatingGovernance Committee has determined that a classified board structure is appropriate for the Company. A classified board provides for stability, continuity and experience within the Board of Directors. In our industry in particular, long-term focus is critical. The time horizon required for successful exploration, development and production of oil and natural gas resources makes it vital that we have a Board that understands the implications of this process and has the ability to develop and implement long-term strategies while benefiting from anin-depth knowledge of the Company’s business and operations. A classified board structure helps to ensure that there will be the continuity and stability of leadership required to navigate a challenging economic environment while resisting the pressure to focus on short-term results at the expense of the Company’s long-term value and success. The future success of the Company depends in significant part on the ability to attract and retain capable and experienced directors. In this regard, we believe that longer terms for our directors will enhance director independence from both management and stockholder special interest groups.
Communications with the Board of Directors
Stockholders or other interested parties wishing to communicate directly with the Board, a committee of the Board or with an individual director may do so by sending the communication, as appropriate, to:
Talos Energy Inc.
Three Allen Center
333 Clay Street, Suite 3300
Houston, Texas 77002
Comments or complaints relating to the Company’s accounting, internal accounting controls or auditing matters will also be referred to members of the Audit Committee. All such communications will be forwarded to the appropriate member(s) of the Board.
Director Independence
Under NYSE rules, a “controlled company” is defined as a listed company of which more than 50% of the voting power for the election of directors is held by an individual, a group, or another company. The Company is a controlled company within the meaning of NYSE rules.
As a result of the Stockholders’ Agreement (as defined and described in “Certain Relationships and Related Party Transactions—Historical Transactions with Affiliates—Stockholders’ Agreement”) and the voting power of the Apollo Funds and the Riverstone Funds, the Company is exempt from complying with NYSE’s
requirements that (i) a majority of the Board of Directors consist of independent directors, (ii) the Governance & Nominating Committee consist entirely of independent directors, and (iii) the Compensation Committee be composed entirely of independent directors. We have elected not to use these exemptions available to controlled companies, but could do so in the future.
The Stockholders’ Agreement provides that successors to directors not designated by Talos will be nominated by the Governance & Nominating Committee, which must have a majority of “Company Independent Directors.” A “Company Independent Director” is any director of the Board who (i) meets the independence standards under NYSE rules, (ii) is not a director designated by the Apollo Funds or the Riverstone Funds, (iii) is not a current director, officer or employee of the Apollo Funds or the Riverstone Funds or their respective affiliates, (iv) has been determined by the Governance & Nominating Committee not to have any relationship with the Apollo Funds or the Riverstone Funds or their respective affiliates that would be material to the director’s ability to be independent, and (v) is designated by the Governance & Nominating Committee as a “Company Independent Director.” Messrs. Goldman, Sledge, Juneau, Trimble and Kendall are the “Company Independent Directors” serving on the Board.
The Board of Directors has determined that for the year ended December 31, 2021, each of Christine Hommes, Robert M. Tichio, Olivia C. Wassenaar, Neal P. Goldman, John “Brad” Juneau, James M. Trimble, Charles M. Sledge, Donald R. Kendall, Jr. and Rajen Mahagaokar iswere “independent” pursuant to NYSE rules. Assuming the stockholders elect to the Board of Directors the director nominees set forth in “Proposal ONE: Election of Directors,” the Board of Directors has determined that each of Robert M. Tichio, Neal P. Goldman, John “Brad” Juneau, Charles M. Sledge, Donald R. Kendall, Jr. and Paula R. Glover are “independent” pursuant to NYSE rules.
In connection with its assessment of the independence of eachnon-employee director, the Board of Directors also determined that for the year ended December 31, 2021, (i) Messrs. Sledge, Kendall and Juneau were independent as defined in Section 10A of the Exchange Act and under the standards set forth by the NYSE applicable to members of the Audit Committee and (ii) Messrs. Kendall and Mahagaokar and Ms. Wassenaar were independent under the standards set forth by the NYSE applicable to members of the Compensation Committee. Assuming the stockholders elect to the Board of Directors the director nominees set forth in “Proposal ONE: Election of Directors,” the Board of Directors has determined that each of (i) Messrs. Sledge, Kendall and Juneau are independent as defined in Section 10A of the Exchange Act and under the standards set forth by the NYSE applicable to members of the Audit Committee and (ii) Messrs. Kendall, Sledge and Mahagaokar and Ms. WassenaarTichio are independent under the standards set forth by the NYSE applicable to members of the Compensation Committee.
48
Financial Literacy of Audit Committee and Designation of Financial Experts
The Board of Directors evaluated each of the members of the Audit Committee for financial literacy and the attributes of a financial expert. On May 7,6, 2019, the Board of Directors determined that each of the Audit Committee members, Messrs. Juneau, Kendall and Sledge, is financially literate and is an audit committee financial expert as defined by the SEC.
Oversight of Risk Management
The Board of Directors as a whole oversees the Company’s assessment of major risks and the measures taken to manage such risks. For example, the Board of Directors:
oversees the long-term strategic plans of the Company and assesses risks and efforts to mitigate such risks that would cause the Company to fail to achieve its strategic goals;
reviews management’s capital spending plans, approves the Company’s capital budget and requires that management present, for Board review, significant departures from those plans;
oversees management of the Company’s commodity price risk through regular review with executive management of the Company’s derivatives strategy;
monitors the Company’s liquidity profile and its compliance with the financial covenants contained in its borrowing arrangements; and
has established specific dollar limits on the commitment authority of members of senior management for certain transactions and requires Board approval of expenditures exceeding that authority and of other material contracts and transactions.
The Audit Committee is responsible for overseeing the Company’senterprise risk management framework and policies and procedures for risk assessment and management of financial reporting and internal control risks, as well as other financial risks, such as the credit risks associated with counterparty exposure.risk management. The Audit Committee is responsible for discussing with management the Company’s significant financial risk exposures and the actions management has taken to monitor and control such exposures. Management and the Company’s independent registered public accountants report regularly to the Audit Committee on those subjects. The Audit Committee is also responsible for oversight of the Company’s cyber-securitycyber- security program and management’s plans, programs and policies designed to mitigate cyber-security risks, and as part of its annual calendar, the Audit Committee receives regular reports on cyber-security matters and the information technology control environment from the Company’s Deputy Director of Information Technology.
Attendance at Annual Meetings
The Board of Directors encourages all directors to attend the Annual Meetings, if practicable. All ten of our then-serving directors attended the 20192021 Annual Meeting of Stockholders. We anticipate that nearly all of our directors will attend the 20202022 Annual Meeting in person or by teleconference.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires our executive officers, directors and persons who beneficially own more than ten percent of our common stock to file reports of their beneficial ownership and changes in ownership (Forms 3, 4 and 5, and any amendment thereto) with the SEC.
Based solely on our review of the copies of such forms furnished to us and written representations from the directors and executive officers, we believe that all Section 16(a) filing requirements were timely met in fiscal year 2021, except that: a late Form 4 was filed on June 4, 2021 for each of Messrs. Duncan, Parker, Moss and Babcock with respect to a transaction that took place on May 14, 2021, for shares of common stock withheld to satisfy taxes payable in connection with the settlement of previously granted restricted stock units.
49
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to us, based on filings made under Section 13(d) and 13(g) of the Exchange Act, regarding the beneficial ownership of our common stock as of March 20, 202022, 2022 by:
each person, or group of affiliated persons, know to us to beneficially own more than 5% of our common stock;
each member of the Board of Directors;
each of our Named Executive Officers; and
all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to such securities. Except as otherwise indicated, all persons listed below have sole voting and investment power with respect to the shares beneficially owned by them, subject to applicable community property laws. Unless otherwise indicated, the address of each person or entity named in the table below is c/o Talos Energy Inc., Three Allen Center, 333 Clay Street, Suite 3300, Houston, Texas 77002.
As of March 20, 2020,22, 2022, there were 54,342,27382,519,003 shares of our common stock outstanding.
| Shares Beneficially Owned | ||||||||
| Number | Percent | |||||||
5% Stockholders | ||||||||
Riverstone Funds(1) | 25,926,683 | 47.7 | % | |||||
Apollo Funds(2) | 19,191,451 | 35.3 | % | |||||
MacKay Shields LLC(3) | 3,543,714 | 6.5 | % | |||||
BlackRock, Inc.(4) | 3,195,989 | 5.9 | % | |||||
Directors and Named Executive Officers: | ||||||||
Neal P. Goldman | 23,186 | * | ||||||
Timothy S. Duncan(5) | 26,188 | * | ||||||
Charles M. Sledge | 12,810 | * | ||||||
Robert M. Tichio | — | — | ||||||
Olivia C. Wassenaar | — | — | ||||||
John “Brad” Juneau | 38,109 | * | ||||||
Donald R. Kendall, Jr. | 6,629 | * | ||||||
James M. Trimble | 12,810 | * | ||||||
Christine Hommes | — | — | ||||||
Rajen Mahagaokar | — | — | ||||||
Stephen E. Heitzman(6) | 8,591 | * | ||||||
John A. Parker(7) | 8,376 | * | ||||||
Shannon E. Young(8) | — | — | ||||||
Michael L. Harding II(9) | 7,498 | * | ||||||
William S. Moss III(10) | 8,045 | * | ||||||
Directors and executive officers as a group (14 persons) | 136,153 | * | ||||||
| Shares Beneficially Owned | ||||||||
| Number | Percent | |||||||
5% Stockholders | ||||||||
Riverstone Funds(1) | 16,270,024 | 19.7 | % | |||||
BlackRock, Inc.(2) | 7,628,395 | 9.2 | % | |||||
Directors and Named Executive Officers: | ||||||||
Neal P. Goldman(3) | 29,867 | * | ||||||
Timothy S. Duncan(4) | 201,465 | * | ||||||
Charles M. Sledge(5) | 20,743 | * | ||||||
Robert M. Tichio | — | — | ||||||
John “Brad” Juneau(6) | 52,671 | * | ||||||
Donald R. Kendall, Jr.(7) | 21,191 | * | ||||||
Paula R. Glover(7) | 6,159 | * | ||||||
Robert Abendschein(8) | 105,354 | * | ||||||
John A. Parker(9) | 78,409 | * | ||||||
Shannon E. Young(10) | 66,277 | * | ||||||
William S. Moss III(11) | 58,576 | * | ||||||
All directors and executive officers as a group (12 persons) | 651,779 | * | ||||||
| * | Represents beneficial ownership of less than one percent of shares outstanding. |
| (1) | Represents |
50
| which is the sole shareholder of Riverstone Energy GP V |
| (2) |
|
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BlackRock, Inc. has sole dispositive power over |
For Mr. Goldman, does not include (i) 15,668 unvested RSUs that will vest on March 5, 2023, (ii) 6,263 deferred RSUs that will settle on May 14, 2024 or (iii) 17,491 deferred RSUs that will settle on March 5, 2025, with each of the foregoing RSUs to be settled 60% in shares of our common stock and 40% in cash. |
| (4) | For Mr. Duncan, does not include (i) |
For Mr. |
| (6) | For Mr. Juneau, does not include 10,900 unvested RSUs that will vest on March 5, 2023 and will be settled 60% in shares of our common stock and 40% in cash. |
| (7) | For each of Mr. Kendall and Ms. Glover, does not include 10,900 unvested RSUs that will vest on March 5, 2023 and will be settled 60% in shares of our common stock and 40% in cash. Mr. Kendall and Ms. Glover each submitted a deferral election with respect to their respective RSUs, and, as a result, such RSUs will settle on the fifth anniversary of the vesting date. |
| (8) | For Mr. Abendschein, does not include (i) 15,210 unvested 2020 RSUs, (ii) 20,172 unvested 2021 RSUs, (iii) 36,331 unvested 2022 RSUs or (iv) 106,143 unvested Retention 2022 RSUs. |
| (9) | For Mr. Parker, does not include (i) |
For Mr. Young, does not include (i) |
|
For Mr. Moss, does not include (i) |
51
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Policies and Procedures for Review of Related Party Transactions
A “Related Party Transaction” is a transaction, arrangement or relationship in which we or any of our subsidiaries was, is or will be a participant, the amount of which involved exceeds $120,000, and in which any Related Person had, has or will have a direct or indirect material interest. A “Related Person” means:
any person who is, or at any time during the applicable period was, one of our executive officers or directors or a director nominee;
any person who is known by us to be the beneficial owner of more than 5% of any class of our voting securities;
any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling,mother-in-law,father-in-law,son-in-law,daughter-in-law,brother-in-law orsister-in-law of an executive officer, director, director nominee or a beneficial owner of more than 5% of any class of our voting securities, and any person (other than a tenant or employee) sharing the household of such executive officer, director, director nominee or beneficial owner of more than 5% of any class of our voting securities; or
any firm, corporation or other entity in which any of the foregoing persons is a partner or principal or in a similar position of control or in which such person has a 10% or greater beneficial ownership interest.
Our Amended and Restated Bylaws and the Stockholders’ AgreementAgreements (as defined and described in “—Historical Transactions with Affiliates—Stockholders’ Agreement)Agreements”) provide that we will not enter into any related party transaction unless such transaction has been approved by a majority of the disinterested directors or a majority of the Audit Committee. Under the Previous Stockholders’ Agreement, a related party transaction iswas any transaction or series of related transactions in which we or any of our affiliates iswas a participant and the Apollo Funds or the Riverstone Funds or any of their respective affiliates or any of our directors hashad a direct or indirect material interest and the transaction or series of transaction involvestransactions involved payments of $120,000 or more or arewere otherwise not de minimis in nature. With respect to any related party transaction involving the Apollo Funds or their affiliates, the Audit Committee mayhad the option to request that the Riverstone Funds’ designees to the Board confirm that the Riverstone Funds and their affiliates dodid not have a material interest in the transaction and, if the Audit Committee makesmade such a request, the Riverstone Funds’ designees willwould not behave been considered disinterested directors until the Riverstone Funds’ designees provideprovided such confirmation. With respect to any related party transaction involving the Riverstone Funds or their affiliates, the Audit Committee mayhad the option to request that the Apollo designees to the Board confirm that the Apollo Funds and their affiliates dodid not have a material interest in the transaction and, if the Audit Committee makesmade such a request, the Apollo designees willwould not behave been considered disinterested directors until the Apollo designees provideprovided such confirmation.
Transactions Entered Into in Connection with the Riverstone Acquisitions
The AcquisitionsOfferings
On February 28, 2020,June 23, 2021, the Company andentered into an Underwriting Agreement with AP Talos Production Inc., a wholly owned subsidiaryEnergy LLC, an affiliate of the Company (“Talos Production”), consummated the transactions contemplated by the separate Purchase and Sale Agreements, dated as of December 10, 2019 (collectively, the “Purchase Agreements”), previously entered with each of the following parties, as seller:Apollo Global Management, LLC, ILX Holdings, LLC, ILXand Riverstone V Castex 2014 Holdings, II, LLC, ILX Holdings III LLC and Castex Energy 2014, LLC, eachL.P., both an affiliate of Riverstone Holdings, (such parties, collectively,LLC (the “Selling Stockholders”) and BMO Capital Markets Corp., pursuant to which BMO Capital Markets Corp., agreed to purchase from the “Riverstone Sellers”Selling Stockholders 5,000,000 shares of common stock of the Company (the “June Offering”), at a purchase price of $17.26 per share. The June Offering closed on June 28, 2021. AP Talos Energy LLC sold 2,013,666 shares, ILX Holdings, LLC sold 2,634,663 shares and Riverstone V Castex 2014 Holdings, L.P. sold 351,671 shares in the June Offering. The Offering was made pursuant to a prospectus supplement, dated June 23, 2021, and filed with the SEC on June 25, 2021.
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On November 8, 2021, the Company entered into an Underwriting Agreement with AP Talos Energy 2016, LP (“Castex 2016,”LLC, an affiliate of Apollo Global Management, LLC and ILX Holdings, LLC, an affiliate of Riverstone Holdings, LLC (the “Selling Stockholders”) and J.P. Morgan Securities LLC, pursuant to which J.P. Morgan Securities LLC agreed to purchase from the Selling Stockholders 6,000,000 shares of common stock of the Company (the “November Offering” and together with the Riverstone Sellers,June Offering, the “Sellers”“Offerings”). Pursuant to the Purchase Agreements, among other things, Talos Production acquired all at a purchase price of the issued and outstanding limited liability company interests in certain wholly owned subsidiaries$12.13 per share. The offering of each of the respective Sellers (collectively, the “Acquisitions”; and the Acquisitions from the Riverstone Sellers, the “Riverstone Acquisitions”) for aggregate consideration consisting of the following: (i) an aggregate amount of cash from
Talos Production equal to $385 million and (ii) an aggregate of 11 million shares of our common stock newly issued to the Riverstone Sellers (suchclosed on November 12, 2021. AP Talos Energy LLC sold 3,674,663 shares the “Acquisition Shares”). At signing, Talos Production deposited in escrow an amount in cash equal to five percent of the Unadjusted Purchase Price (as definedand ILX Holdings, LLC sold 2,325,337 shares in the applicable Purchase Agreement) under each Purchase Agreement thatNovember Offering. The November offering was applied at closing towards the cash component of the purchase price under each Purchase Agreement. The Purchase Agreements have an effective time of 12:00 a.m., Central Time, on July 1, 2019.
Related Agreements
Amendmentmade pursuant to Registration Rights Agreement
On May 10, 2018, we entered into a Registration Rights Agreement (the “Original Registration Rights Agreement”) with certain of the Apollo Fundsprospectus supplement, dated November 8, 2021, and the Riverstone Funds, Franklin and MacKay Shields, relating to the registered resale of our common stock owned by such parties as of the Stone Closing (defined below) (the “Original Registrable Securities”).
The Company and the Riverstone Sellers agreed under the Purchase Agreements to enter into an amendment to the Original Registration Rights Agreement (such amendment, the “Registration Rights Agreement Amendment,” and the Original Registration Rights Agreement, as amended by the Registration Rights Agreement Amendment, the “Registration Rights Agreement”). The Registration Rights Agreement Amendment added each of the Riverstone Sellers (or one or more of its designated affiliates) as parties to the Registration Rights Agreement and provided such parties with customary registration rights with respect to the Acquisitions Shares that were received by the Riverstone Sellers at the closing of the Riverstone Acquisitions (the “New Registrable Securities” and togetherfiled with the Original Registrable Securities, the “Registrable Securities”). Under the Registration Rights Agreement, we are required to file a shelf registration statement within 30 days of our receipt of written request by a holder of Registrable Securities (a “Holder”). Each Holder will be limited to two demand registrations in any twelve-month period.
The Holders have the right to request that we initiate underwritten offerings of our common stock; provided, that the Apollo Funds and the Riverstone Funds will have the right to demand three underwritten offerings in any twelve-month period, and Franklin and MacKay Shields will only have the collective right to demand one underwritten offering. The Holders have customary piggyback rights with respect to any underwritten offering that we conduct for as long as the Holders and their respective affiliates own 5% of the Registrable Securities. Each Holder will agree to a lock up with underwriters in the event of an underwritten offering, provided that the lock up will not apply to any Holder who does not have a right to participate in such underwritten offering. The Registration Rights Agreement will terminate with respect to Franklin and MacKay Shields in the event that either Franklin or MacKay Shields ceases to beneficially own 5% or more of the then outstanding shares of our common stock. The Registration Rights Agreement will otherwise terminate at such time as there are no Registrable Securities outstanding.
We will bear all of the expenses incurred in connection with the offer and sale, while each of the Holders will be responsible for paying underwriting fees, discounts and selling commissions. Fees incurred by us in conjunction with the Original Registration Rights Agreement were $0.7 million for the fiscal year ended December 31, 2019.
Joinder and Amendment to Credit Agreement
On December 10, 2019, in connection with the entry into the Purchase Agreements, the Company, Talos Production and certain other direct and indirect subsidiaries of the Company and Talos Production entered into a Joinder, Commitment Increase Agreement, Second Amendment to Credit Agreement, Borrowing Base Redetermination Agreement and Amendment to Other Credit Documents (the “Joinder and Amendment”), which amended the Credit Agreement, dated as of May 10, 2018 (as amended, restated, amended and restated, or
otherwise modified from time to time, the “Credit Agreement”), by and among the Company, Talos Production, JPMorgan Chase Bank, N.A., as administrative agent, the issuing banks, the lenders party thereto and the other persons from time to time party thereto, in order to (i) effective as of December 11, 2019, (a) increase the commitments of certain lenders party thereto prior to such date and join certain financial institutions as additional lenders (such lenders and additional lenders, collectively, the “Current Lenders”) such that, after giving effect to such joinders and new or increased commitments, the aggregate commitments thereunder increased from $850.0 million to $950.0 million and (b) increase the borrowing base from $850.0 million to $950.0 million, (ii) effective upon consummation of the Acquisitions, (a) increase the commitments of each of the Current Lenders such that, after giving effect to increased commitments, the aggregate commitments thereunder increased from $950.0 million to $1.15 billion and (b) increase the borrowing base from $950.0 million to $1.15 billion and (iii) amend certain other provisions of the Credit Agreement as more specifically set forth in the Joinder and Amendment.
SEC on November 9, 2021. Interests of the Company’s Directors and Executive Officers in the AcquisitionsOfferings.
Certain of the Company’s directors and executive officers may have interests in the AcquisitionsOfferings that may be different from, or in addition to, the interests of the Company’s stockholders generally. For example, pursuant to the Previous Stockholders’ Agreement, the Riverstone Funds havehad appointed Mr. Rajen Mahagaokar and Mr. Robert Tichio to the Board of Directors. Mr. Tichio is a partner and employee of affiliates of Riverstone Holdings, and serves on the Board of Directors of each of the Riverstone Seller, and Mr. Mahagoakar is also an employee of affiliates of Riverstone Holdings.Sellers. In these capacities, Messrs.Mr. Tichio and Mahagoakar havehad ongoing professional and financial interests in the Riverstone Sellers. In addition, Ms. Olivia Wassenaar, currently a partner at Apollo and a member of our Board appointed by Apollo pursuant to the Stockholders’ Agreement, was formerly associated with Riverstone. In connection with her former association with Riverstone Holdings, Ms. Wassenaar continues to have a small, indirect financial interest in the Riverstone Sellers through passive minority equity interests in certain funds affiliated with Riverstone Holdings that own interests in the Riverstone Sellers.
Legal Fees
We have engaged the law firm Vinson & Elkins L.L.P. (“V&E”) to provide legal services to us. An immediate family member of William S. Moss III, our Executive Vice President, General Counsel and Secretary and one of our executive officers, is a partner at V&E. For the fiscal year ended December 31, 2019,2021, we incurred fees of approximately $4.2$3.1 million for legal services performed by V&E.
Historical Transactions with Affiliates
Stone CombinationStockholders’ Agreements
On May 10, 2018, pursuant to a Transaction Agreement, dated as of November 21, 2017 (the “Stone Transaction Agreement”), by and among us, Stone, Talos Energy LLC, Sailfish Merger Sub Corporation (“Merger Sub”) and the other parties thereto, a series of transactions, among others, occurred: (i) Stone consummated a merger pursuant to which Merger Sub merged with and into Stone, with Stone continuing as the surviving corporation and our direct wholly owned subsidiary (the “Stone Merger”), and each share of Stone’s common stock outstanding immediately prior to the Stone Merger (other than treasury shares held by Stone, which were cancelled for no consideration) was converted into the right to receive one share of our common stock in the Stone Merger and (ii) in a series of contributions, the Apollo Funds and the Riverstone Funds contributed all of the equity interests in Talos Production (which at that time owned 100% of the equity interests in Talos Energy LLC) to us in exchange for an aggregate of 31,244,085 shares of our common stock.
Concurrently with the consummation of the transactions contemplated by the Stone Transaction Agreement, we consummated the transactions contemplated by the Exchange Agreement, dated as of November 21, 2017 (the “Exchange Agreement”), pursuant to which (i) the Apollo Funds and the Riverstone Funds contributed to us
$102 million in aggregate principal amount of 9.75% Senior Notes due 2022 issued by Talos Production LLC and Talos Production Finance Inc. (collectively, the “Talos Issuers”) in exchange for an aggregate of 2,874,049 shares of our common stock; (ii) the holders of the second lien bridge loans due 2022 issued by the Talos Issuers (the “11.00% Bridge Loans”), including certain of the Apollo Funds and the Riverstone Funds, exchanged those 11.00% Bridge Loans for $172 million aggregate principal amount of 11.00% Second-Priority Senior Secured Notes due 2022 issued by the Talos Issuers (“New Second Lien Notes”); and (iii) certain funds controlled by Franklin Advisers, Inc. (“Franklin,” and such funds, the “Franklin Noteholders”) and certain clients of MacKay Shields LLC (“MacKay Shields,” and such clients, the “MacKay Noteholders”) exchanged their 7.50% Senior Secured Notes due 2022 issued by Stone (“7.50% Stone Senior Notes”) for $137,441,992 aggregate principal amount of New Second Lien Notes. In addition to the Franklin Noteholders and the MacKay Noteholders, certain other funds and accounts controlled by Franklin and certain other clients of MacKay Shields were securityholders of Stone prior to the Stone Combination.
As of May 20, 2018, and as a result of the Stone Combination, the Apollo Funds and the Riverstone Funds, collectively held approximately 63% of our then outstanding common stock, and the former stockholders of Stone, including certain funds and accounts controlled by Franklin and certain clients of MacKay Shields, held approximately 37% of our then outstanding common stock.
Previous Stockholders’ Agreement
On May 10, 2018, in connection with the closing of the Stone Combination (the “Stone Closing”), we entered into the Previous Stockholders’ Agreement with certain of the Apollo Funds and the Riverstone Funds. The Previous Stockholders’ Agreement provides,provided, among other things, the following:
| • | Initial Board Composition. Immediately following the Stone Closing, the Board of Directors consisted of ten directors, with (i) two directors designated by the Apollo |
| • | Board Nomination Rights. Each of the Apollo Funds and the Riverstone Funds initially |
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Closing, the Riverstone Funds |
common stock that was issued to the Riverstone Funds at the Stone Closing, the Riverstone Funds |
The successor nominees to the Company Directors shall bewere selected by the Nominating & Governance & Nominating Committee, of the Board of Directors, and shall also qualifyqualified as Company Directors. The Apollo Funds and the Riverstone Funds arewere required to vote all of their respective shares of our common stock (i) in favor of each nominee nominated by the Apollo Funds and the Riverstone Funds pursuant to the Previous Stockholders’ Agreement and (ii) with respect to all other director nominees, in the Apollo Funds’ and the Riverstone Funds’ sole discretion either (a) in a manner that is proportionate to the manner in which all shares of our common stock arewere voted by our stockholders other than the Apollo Funds and the Riverstone Funds with respect to director elections or (b) for the Company Directors recommended by the Nominating & Governance & Nominating Committee of the Board of Directors.Committee.
| • | Committee Composition. The Audit Committee |
| • | Standstill Provisions. Until May 10, 2020, the Apollo Funds and Riverstone Funds and their respective affiliates |
| • | Related Party Transactions. Any transaction in excess of $120,000 in which we or any of our affiliates |
Debt Modification Work Fees
We paid $9.3 million in work feesOn February 24, 2020, the Company and the other parties thereto entered into Amendment No. 1 to holdersthe Previous Stockholders’ Agreement to, among other things, add each of the 11.00% Bridge LoansRiverstone Sellers (or one or more of its designated affiliates) as parties to the Previous Stockholders’ Agreement and 7.50% Stone Senior Notesprovide that for purposes of determining whether the Riverstone Sellers and their affiliates continue to exchange into New Second Lien Notes. Certain funds affiliated with, and controlledsatisfy certain stock ownership requirements necessary to retain their rights to nominate directors to the Board, the Series A Convertible Preferred Stock owned by Apollo andthe Riverstone Holdings, which were the sponsors of Talos Energy LLCSellers was, prior to the Stone Closing, collectively received $4.1conversion thereof, counted towards such ownership requirements on an as converted basis at the closing of the ILX and Castex Acquisition. On March 30, 2020, all 110,000 shares of Series A Convertible Preferred Stock were converted into an aggregate 11.0 million shares of our common stock.
Stockholders’ Agreement
On March 29, 2022, the Company and the Franklin Noteholdersother parties thereto amended and restated the MacKay Noteholders collectively received $3.3 million asPrevious Stockholders’ Agreement and entered into the Stockholders’ Agreement to, among other things, (i) terminate the rights of the Apollo Funds under the Previous Stockholders’ Agreement and (ii) eliminate the requirement that the Board consist of ten members. As a result of the work fees paid, in each case, duringApollo Funds’ reduced ownership after recent share sales from long-dated funds holding their Company shares, the fiscal year endeddirectors associated with the Apollo Funds resigned from the Board, effective December 31, 2018.8, 2021. Thereafter, the Board determined, pursuant to the Bylaws, that the size of the Board shall consist of seven members.
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PROPOSAL TWO: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board of Directors has appointed Ernst & Young LLP (“EY”) as the independent registered public accounting firm of the Company for the fiscal year ending December 31, 2020.2022. The audit of the Company’s consolidated financial statements for the fiscal year ended December 31, 20192021 was completed by EY on March 12, 2020.February 24, 2022. EY has served as the Company’s independent registered public accounting firm since the closing of the Stone Combination. Prior to such date, EY served as Talos Energy LLC’s accounting firm since 2012.2010.
The Board of Directors is submitting the appointment of EY for ratification at the Annual Meeting. The submission of this matter for approval by stockholders is not legally required, but the Board of Directors and the Audit Committee believe the submission provides an opportunity for stockholders, through their vote, to communicate with the Board of Directors and the Audit Committee about an important aspect of corporate governance. If the stockholders do not ratify the appointment of EY, the Audit Committee will reconsider the appointment of that firm as the Company’s auditors.
The Audit Committee has the sole authority and responsibility to retain, evaluate and replace the Company’s auditors. The stockholders’ ratification of the appointment of EY does not limit the authority of the Audit Committee to change auditors at any time.
Audit and Other Fees
The table below sets forth the aggregate fees billed or expected to be billed by EY, the Company’s independent registered public accounting firm, for services provided sincefor the closing of the Stone Combination:last two fiscal years:
| 2018 | 2019 | 2021 | 2020 | |||||||||||||
Audit Fees (1) | $ | 2,439,232 | $ | 1,820,899 | $ | 1,664,629 | $ | 1,767,316 | ||||||||
Audit-Related Fees | — | — | ||||||||||||||
Tax Fees (2) | 55,617 | 464,016 | 90,000 | 142,724 | ||||||||||||
All Other Fees (3) | — | 7,278 | 1,575 | |||||||||||||
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|
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Total | $ | 2,494,849 | $ | 2,292,193 | $ | 1,756,204 | $ | 1,910,040 | ||||||||
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| (1) | Audit fees consist of the aggregate fees billed or expected to be billed for professional services rendered for (i) the audit of our annual financial statements included in our Annual Reports onForm 10-K for the fiscal |
| (2) | Tax fees consist of the aggregate fees incurred related to tax compliance services and consultations on various tax issues. |
| (3) | Other fees consist of fees for accounting research software licenses. |
The charter of the Audit Committee and itspre-approval policy require that the Audit Committee review andpre-approve the plan and scope of EY’s audit, audit-related, tax and other services. For the fiscal year ended December 31, 2019,2021, the Audit Committeepre-approved all services described above.
The Company expects that representatives of EY will be present at the Annual Meeting to respond to appropriate questions and to make a statement if they desire to do so.
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Vote Required
Approval of Proposal TWO requires the affirmative vote of a majority of the votes cast affirmatively or negatively at the Annual Meeting by the holders entitled to vote on Proposal TWO. Votes cast FOR or AGAINST this Proposal TWO will be counted as votes cast on the Proposal. For these purposes, abstentions and brokernon-votes are not treated as votes cast and will have no impact on the outcome of this vote.
Recommendation
The Board unanimously recommends that stockholders vote FOR the
ratification of the appointment of Ernst & Young LLP as the independent
registered public accounting firm of the Company for the
fiscal year ending December 31, 2020.2022.
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PROPOSAL THREE:NON-BINDING ADVISORY VOTE ON THE COMPANY’S NAMED EXECUTIVE OFFICER COMPENSATION
The Dodd-Frank Act enables our stockholders to vote to approve, on anon-binding advisory basis, the Company’s Named Executive Officer compensation for the fiscal year ended December 31, 2019,2021, as disclosed in this Proxy Statement pursuant to the SEC’s compensation disclosure rules (commonly referred to as a“Say-on-Pay” vote).
As described in detail under the heading “Executive Compensation,” we structure our executive compensation program with a view towards promoting accountability to ensure that the interests of our management and stockholders remain aligned. We accomplish this by tying several components of our executive compensation program to the Company’s short and long-term performance. Further, the majority of the Company’s Named Executive Officers’ compensation isat-risk. In an effort to achieve these goals, we have implemented the best practices described in the chart below.
What We Do | What We Don’t Do | |
✓ Pay for performance, including for sustained performance over multi-year performance periods
✓ Make a significant portion of compensation performance-based andat-risk
✓ Retain an independent compensation consultant
✓ Utilize an appropriate peer group in determining compensation elements and levels of pay
✓ Base acceleration of performance share unit awards on actual performance
✓ Maintain stock ownership guidelines
✓ Maintain a clawback policy | × No excessive perquisites
× No taxgross-ups
× No current dividend payments on unvested equity awards
× No single-trigger change in control payments or vesting of equity awards under our Long Term Incentive Plan
× No hedging or pledging of Company securities
× No individualized employment or severance agreements |
Please read the “Executive Compensation” section beginning on page 1921 for additional details about our executive compensation program, including information about the compensation of our Named Executive Officers during 2019.2021.
The Compensation Committee and the Board have determined that the Company’s Named Executive Officer compensation program focuses on long-term value creation for our stockholders and delivers pay relative to our performance, all of which help us to attract, retain and motivate talented executives to ensure the Company’s success. Therefore, the Board recommends that you vote FOR the approval, on anon-binding advisory basis, of the Company’s Named Executive Officer compensation as disclosed pursuant to the SEC’s compensation disclosure rules (which disclosure shall include the Compensation Discussion and Analysis, the Summary Compensation Table, and the related tables and disclosure in this Proxy Statement).
Text of the Resolution to be Adopted
We are asking stockholders to vote FOR the following resolution:
“RESOLVED, that the stockholders approve, on an advisory basis, the compensation of the Named Executive Officers as disclosed in this Proxy Statement pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the compensation tables and any related material disclosed in this Proxy Statement.”
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Vote Required
Approval of Proposal THREE requires the affirmative vote of a majority of the votes cast affirmatively or negatively at the Annual Meeting by the holders entitled to vote Proposal THREE. Votes cast FOR or AGAINST this Proposal THREE will be counted as votes cast on the Proposal. For these purposes, abstentions and brokernon-votes are not treated as votes cast and will have no impact on the outcome of this vote. This advisory vote on executive compensation is not binding on the company, the Compensation Committee or the Board. However, the Compensation Committee and the Board value our stockholders’ opinions with respect to our Named Executive Officer compensation program and will take into account the result of this vote when evaluating the compensation programs for our Named Executive Officers in the future.
Recommendation
The Board unanimously recommends that stockholders vote FOR the
approval, on anon-binding advisory basis, of the Company’s Named
Executive Officer compensation for the fiscal year ended
December 31, 20192021 as disclosed in this Proxy Statement
pursuant to the compensation disclosure rules
of the SEC.
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The information contained in this Audit Committee Report shall not be deemed to be “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates such information by reference in such filing.
The Board of Directors has determined that all current Audit Committee members are (i) independent, as defined in Section 10A of the Exchange Act, (ii) independent under the standards set forth by the NYSE and (iii) financially literate. In addition, Charles M. Sledge, qualifiesJohn Bradley Juneau and Donald R. Kendall, Jr. qualify as an audit committee financial expertexperts under the applicable rules promulgated pursuant to the Exchange Act. The Audit Committee is a separately designated standing committee of the Board established in accordance with Section 3(a)(58)(A) of the Exchange Act and operates under a written charter adopted as of May 10, 2018, which is reviewed annually.
Management is responsible for our system of internal controls and the financial reporting process. The independent accountants are responsible for performing an independent audit of our consolidated financial statements in accordance with auditing standards generally accepted in the United States of America and issuing a report thereon. The Audit Committee is responsible for monitoring (i) the integrity of our financial statements, (ii) our compliance with legal and regulatory requirements, and (iii) the independence and performance of our auditors.
The Audit Committee has reviewed and discussed with our management and the independent accountants the audited consolidated financial statements in our Annual Report, including a discussion of the quality, not just the acceptability, of the accounting principles applied, the reasonableness of significant judgments and the clarity of disclosures in the consolidated financial statements. Management represented to the Audit Committee that our consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America. The Audit Committee discussed with the independent accountants matters required to be discussed by standards of the Public Company Accounting Oversight Board (“PCAOB”).
Our independent accountants also provided to the Audit Committee the written disclosure required by applicable requirements of the PCAOB and the Commission regarding independent accountant’s communications with the Audit Committee concerning independence. The Audit Committee discussed with the independent accountants that firm’s independence.
Based on the Audit Committee’s discussions with management and the independent accountants, and the Audit Committee’s review of the representations of management and the report of the independent accountants to the Audit Committee, the Audit Committee recommended that the Board include the audited consolidated financial statements in our Annual Report, filed with the SEC.
Audit Committee of the Board of Directors |
Charles M. Sledge, Chairman |
Donald R. Kendall, Jr., Member |
John “Brad” Juneau, Member |
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STOCKHOLDER PROPOSALS; IDENTIFICATION OF DIRECTOR CANDIDATES
Any stockholder of the Company who desires to submit a proposal for inclusion in the Company’s 20212023 proxy materials must submit such proposal to the Company at its principal executive offices (Talos Energy Inc., Three Allen Center, 333 Clay Street, Suite 3300, Houston, Texas 77002, Attn: Secretary), and the proposal must be received at the Company’s principal executive offices not less than 120 calendar days before the first anniversary of the date the Company sends its 20202022 proxy materials, which will be December 10, 20207, 2022 (based the mailing date of April 8, 20206, 2022 for the 20202022 proxy materials). Any such stockholder proposal must meet the requirements set forth inRule 14a-8.
Any stockholder of the Company who desires to submit a proposal for action at the 20212023 Annual Meeting of Stockholders, but does not wish to have such proposal included in the Company’s proxy materials, must submit such proposal to the Company at its principal executive offices (Talos Energy Inc., Three Allen Center, 333 Clay Street, Suite 3300, Houston, Texas 77002, Attn: Secretary) not earlier than the close of business on the 120th day (January 13, 2021)11, 2023) and not later than the close of business on the 90th day (February 12, 2021)10, 2023) prior to the first anniversary of the preceding year’s annual meeting (May 12, 2021)11, 2023). However, in the event that the date of the 2023 Annual Meeting of Stockholders is more than 30 days before (prior to April 11, 2023) or more than 60 days after (after July 10, 2023) the first anniversary of the preceding year’s annual meeting (May 11, 2023), notice by the stockholder to be timely must be delivered not earlier than the close of business on the 120th day prior to the date of the 2023 Annual Meeting of Stockholders and not later than the close of business on the later of the 100th day prior to the date of the 2023 Annual Meeting of Stockholders or, if the first public announcement of the date of the 2023 Annual Meeting of Stockholders is less than 100 days prior to the date of such meeting, the 10th day following the day on which public announcement of the date of such meeting is first made by the Company. In no event shall any adjournment or postponement of an annual meeting or the announcement thereof commence a new time period for the giving of a stockholder’s notice. We will only consider proposals that meet the requirements of the applicable rules of the SEC and our Bylaws.
It is the responsibility of the GovernanceNominating & NominatingGovernance Committee to, subject to the terms of the Stockholders’ Agreement, identify, evaluate, and recommend to the Board of Directors nominees for election at the annual meeting of stockholders, as well as to fill vacancies or additions on the Board of Directors that may occur between annual meetings. The GovernanceNominating & NominatingGovernance Committee endeavors to recommend only director candidates who possess the highest personal values and integrity; who have experience and have exhibited achievements in one or more of the key professional, business, financial, legal and other challenges that face a U.S. independent oil and gas company; who exhibit sound judgment, intelligence, personal character, and the ability to make independent analytical inquiries; who demonstrate a willingness to devote adequate time to Board of Director duties; and who are likely to be able to serve on the Board of Directors for a sustained period.
While the Board of Directors does not have a formal policy on diversity, the GovernanceNominating & NominatingGovernance Committee endeavors to achieve an overall balance of diversity of experiences, skills, attributes and viewpoints among our directors. The GovernanceNominating & NominatingGovernance Committee believes it has achieved that balance through the representation on the Board of Directors of members having experience in the oil and gas industry, accounting and investment analysis, and legal and corporate governance, among other areas. The GovernanceNominating & NominatingGovernance Committee does not discriminate based upon race, religion, sex, national origin, age, disability, citizenship or any other legally protected status.
In identifying potential director candidates, the GovernanceNominating & NominatingGovernance Committee solicits recommendations from existing directors and senior management to be considered by the GovernanceNominating & NominatingGovernance Committee along with any recommendations that have been received from stockholders as discussed in more detail below. The GovernanceNominating & NominatingGovernance Committee may also, in its discretion, retain, and pay fees to, a search firm to provide additional candidates.
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The Company will evaluate director nominees proposed by stockholders on the same basis as recommendations received from any other source. With respect to each such nominee, the following information must be provided to the Company with the written nomination:
the name and address of the nominating stockholder, as they appear on the Company’s books;
the nominee’s name and address and other personal information;
a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among the nominating stockholder or beneficial owner and each proposed nominee;
a completed and signed questionnaire, representation and agreement and written director agreement, pursuant to the Company’s Bylaws, with respect to each nominee for election orre-election to the Board; and
all other information required to be disclosed pursuant to the Company’s Bylaws and Regulation 14A of the Exchange Act.
Further, the Company may require any proposed director nominee to furnish such other information as may reasonably be required by the Company to determine the eligibility of such proposed nominee to serve as an independent director of the Board or that could be material to a reasonable stockholder’s understanding of the independence, or lack thereof, of such nominee.
The Company suggests that any such proposal be sent by certified mail, return receipt requested.
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Solicitation of proxies may be made via the internet, by mail, personal interview or telephone by directors, officers and other regular employees of the Company. The Company may also request banking institutions, brokerage firms, custodians, nominees and fiduciaries to forward solicitation material to the beneficial owners of our common stock that those companies or persons hold of record, and the Company will reimburse the forwarding expenses. We have not retained a professional proxy solicitor or other firm to assist with the solicitation of proxies, although we may do so if deemed appropriate. The Company will bear all costs of solicitation.
AVAILABILITY OF CERTAIN DOCUMENTS
Copies of this Proxy Statement, the proxy card and our Annual Report have been posted on the Internet and can be accessed by all stockholders entitled to notice of and to vote at the Annual Meeting. Our Annual Report is not incorporated into this Proxy Statement and is not considered proxy-soliciting material. We will mail without charge, upon written request, a copy of our Annual Report, including the exhibits, the financial statements and any schedules thereto. Please send a written request to:
Talos Energy Inc.
Three Allen Center
333 Clay Street, Suite 3300
Houston, Texas 77002
713-328-3000
Attention: Investor Relations
The charters for each of the Audit, the Compensation, the Nominating & Governance & Nominating and the Safety, Sustainability and Corporate Responsibility Committees, as well as our Corporate Governance Guidelines and our Code of Business Conduct and Ethics have been posted to our corporate website (www.talosenergy.com)(www.talosenergy.com) and can be accessed through the website’s “Corporate Governance & Board Committees”Responsibility” section. Our Code of Business Conduct and Ethics applies to our directors, officers and other employees, and we intend to satisfy the disclosure requirement under Item 5.05 ofForm 8-K regarding amendment to, or waiver from, a provision of our Code of Business Conduct and Ethics by posting such information on our website at the address specified above. The committee charters and our Corporate Governance Guidelines and Code of Business Conduct and Ethics are also available in print without charge upon written request to William S. Moss III, our General Counsel, at the address above.
Stockholders residing in the same household who hold their stock through a bank or broker may receive only one set of proxy materials in accordance with a notice sent earlier by their bank or broker. This practice will continue unless instructions to the contrary are received by your bank or broker from one or more of the stockholders within the household. We will promptly deliver a separate copy of the proxy materials to such stockholders upon receipt of a written or oral request to William S. Moss III, our General Counsel, at the address or phone number above.
If you hold your shares in street name and reside in a household that received only one copy of the proxy materials, you can request to receive a separate copy in the future by following the instructions sent by your bank or broker. If your household is receiving multiple copies of the proxy materials, you may request that only a single set of materials be sent by following the instructions sent by your bank or broker.
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As of the date of this Proxy Statement, the Board does not intend to present any matters other than those described herein at the Annual Meeting and is unaware of any matters to be presented by other parties. If other matters are properly brought before the Annual Meeting for action by the stockholders, proxies will be voted in accordance with the recommendation of the Board or, in the absence of such a recommendation, in accordance with the judgment of the proxy holder.
The 20202022 Annual Meeting of Stockholders will be held at Three Allen Center, 333 Clay Street, Suite 3300, Houston, Texas 77002. Three Allen Center is located in downtown Houston, Texas.
We intend to hold the Annual Meeting in person. However, we are actively monitoring the coronavirusongoing (COVID-19)COVID-19 outbreak and the increasingly severe protocols that federal, state and local governments have imposed,pandemic, and we are sensitive to the public health and travel concerns our stockholders may have. In the event it is not possible or advisable to hold the Annual Meeting in person, we will announce alternative arrangements for the meeting as promptly as practicable, which may include holding the meeting partially or solely by means of remote communication. Please monitor our Annual Meeting website at WWW.EDOCUMENTVIEW.COM/WWW.PROXYDOCS.COM/TALO for updated information. If you are planning to attend the Annual Meeting, please check the website ten days prior to the meeting date. If we do hold the Annual Meeting partially or solely by means of remote communication, we currently intend to resume holdingin-person meetings for our 20212023 Annual Meeting of Stockholders and thereafter, assuming normal circumstances. As always, we encourage you to vote your shares prior to the Annual Meeting.
CORPORATE OFFICE333 Clay St., Suite 3300 Houston, TX 77002 Phone: 713-328-300063
Your vote matters – here’s how to vote! You may vote online or by phone instead of mailing this card. Votes submitted electronically must be received by 11:59 p.m. CT May 11, 2020 Online Go to www.envisionreports.com/TALO or scan the QR code — login details are located in the shaded bar below. Phone Call toll free 1-800-652-VOTE (8683) within the USA, US territories and Canada Save paper, time and money! Sign up for electronic delivery at www.envisionreports.com/TALO Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas. 2020 Annual Meeting Proxy Card 1234 5678 9012 345 IF VOTING BY MAIL, SIGN, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. A Proposals — The Board of Directors recommend a vote FOR all the nominees listed in Proposal 1, FOR Proposal 2 and FOR Proposal 3. 1. Election of Directors: To elect to the Company’s Board of Directors the three Class II directors set forth in the accompanying Proxy Statement, each of whom will hold office until the 2023 Annual Meeting of Stockholders and until his or her successor is elected and qualified or until his or her earlier death, resignation, or removal. For Against Abstain 01 - Timothy S. Duncan 02 - John “Brad” Juneau 03 - Donald R. Kendall, Jr. 2.Proposal to ratify the appointment of Ernst & Young LLP as independent registered public accounting firm for fiscal year ending December 31, 2020 4. To transact such other business as may properly come before the Annual Meeting or any adjournments or postponements thereof.3.Proposal to approve, on a non-binding advisory basis, the Company’s Named Executive Officer compensation for the fiscal year ended December 31, 2019. B Authorized Signatures — This section must be completed for your vote to count. Please date and sign below. Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title. Date (mm/dd/yyyy) — Please print date below. Signature 1 — Please keep signature within the box. Signature 2 — Please keep signature within the box. 036IZC J N T MR A SAMPLE (THIS AREA IS SET UP TO ACCOMMODATE 140 CHARACTERS) MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND 4 4 8 4 4 6
P. O. BOX 8016, CARY, NC 27512-9903 INTERNET Go To: www.proxyptish.corn/TALO ☐ Cast your vote online ☐ Have your Proxy Card ready ☐ Follow the simple instructions to record your vote PHONE Call 1-866-291-4999 ☐ Use any touch tone telephone ☐ Have your Proxy Card ready ☐ Follow the simple recorded instructions MAIL ☐ Mark, sign and date your Proxy Card ☐ Fold and return your Proxy Card in the postage-paid envelope provided Go Green! To receive documents via e-mail, simply go to: www.proxydocs.com/TALO This proxy is being solicited on behalf of The undersigned hereby appoints Timothy S. Duncan and William S. Moss THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, SHARES WILL BE VOTED IDENTICAL TO THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS. This proxy, when properly executed, will be voted in the manner directed You are encouraged to specify your choice by marking the appropriate box (SEE REVERSE SIDE) but you need not mark any box if you wish to vote in accordance with the recommendation of the Board of Directors. The named proxies cannot vote your shares unless you sign (on the reverse side) and return this card. PLEASE BE SURE TO SIGN AND DATE THIS PROXY CARD AND MARK ON THE REVERSE SIDEProxy materials forYOUR VOTE IS IMPORTANT! PLEASE VOTE BY: 
Talos Energy Inc. Annual Meeting of Stockholders For Stockholders as of record on March 22, 2022 TIME: Wednesday. May 11, 2022 10:00 AM. Local Time PLACE: Three Allen Center. 333 Clay Street, Suite 3300, Houston. Texas 77002 Stockholders is available at: www.envisionreports.com/TALO Small steps make an impact. Help the environment by consenting to receive electronic delivery, sign up at www.envisionreports.com/TALO IF VOTING BY MAIL, SIGN, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. Proxy — Talos Energy Inc. Notice of 2020 Annual Meeting of Stockholders of Talos Energy Inc. Proxy Solicited by Board of Directors for Annual Meeting — May 12, 2020, 10:30 a.m. CT, Talos Energy Inc., Three Allen Center, 333 Clay Street, Suite 3300, Houston, TX 77002 Neal P. Goldman,IIIIII. and each or anyeither of them, each withas the power of substitution, are hereby authorized to representtrue and vote the shareslawful agents and proxies of the undersigned, with full power of substitution and revocation, and authorizes them collectively, and each of them individually, to vote all the powers which the undersigned would possess if personally present, at the Annual Meetingshares of Stockholderscapital stock of Talos Energy Inc. which the undersigned is entitled to vote at said meeting and any adjournment or postponement thereof upon the matters specified and upon such other matters as may be heldproperly brought before the meeting and any adjournment or postponement thereof, conferring authority upon such true and lawful agents and proxies to vote in their discretion on May 12, 2020 AT 10:30 a.m. CT or atsuch other matters as may properly come before the meeting and revoking any postponement or adjournment thereof. Shares represented by this proxy heretofore given.by the undersigned stockholder(s). If no such directions are indicated, the shares will be voted FOR all of the nominees listed in Proposal 1, FOR Proposal 2 and FOR Proposal 3.herein. In their discretion, the Proxiesnamed proxies are authorized to vote upon such other business asmatters that may properly come before the meeting. (Itemsmeeting and any adjournment or postponement thereof.
Talos Energy Inc.
Annual Meeting of Stockholders
Please make your marks like this: ☒ Use dark black pencil or pen only
THE BOARD OF DIRECTORS RECOMMENDS A VOTE:
FOR ON PROPOSALS 1.2. AND 3
| PROPOSAL | YOUR VOTE | |||||||
| FOR | AGAINST | ABSTAIN | ||||||
| 1. | Election of Directors: To elect to the Company’s Board of Directors the two Class I directors as set forth in the accompanying Proxy Statement, each of whom will hold office until the 2025 Annual Meeting and until his or her successor is elected and qualified or until his or her earlier death, resignation, or removal. | |||||||
| 1.01 Charles M. Sledge | ☐ | ☐ | ☐ | |||||
| 1.02 Robert M. Tichio | ☐ | ☐ | ☐ | |||||
| FOR | AGAINST | ABSTAIN | ||||||
| 2. | Proposal to ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2022. | ☐ | ☐ | ☐ | ||||
| 3. | Proposal to approve on a non-binding advisory basis, the Company’s Named Executive Officer compensation, as disclosed in the accompanying Proxy Statement, for the fiscal year ended December 31, 2021. | ☐ | ☐ | ☐ | ||||
| 4. | To transact such other business as may properly come before the Annual Meeting or any adjournments or postponements thereof. | |||||||
| ☐ | Check here if you would like to attend the meeting in person. |
Authorized Signatures - Must be completed for your instructions to be voted appearexecuted.
Please sign exactly as your name(s) appears on reverse side) C Non-Voting Items Changeyour account. If held in joint tenancy, all persons should sign. Trustees, administrators, etc. should include title and authority. Corporations should provide full name of Address — Please print new address below. Comments — Please print your comments below.corporation and title of authorized officer signing the Proxy/Vote Form.
| Signature (and Title if applicable) | Date | Signature (if held jointly) | Date |
