Exchange Act of 1934
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1717 Doolittle Drive
San Leandro, CA 94577
Date: | Place: | Record Date: | ||||||
Thursday, June 9, 2022 | www.virtualshareholdermeeting.com/ERII2022 | April 11, 2022 | ||||||
at 10:00 a.m. Pacific Time |
We
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It is important that your shares are represented at the Annual Meeting, and regardless of whether you plan to attend, we respectfully request that you vote in advance on the matters to be presented at the Annual Meeting as described in these proxy materials.
William W. Yeung | ||||||
Chief Legal Officer and Corporate Secretary |
May 28, 2020
Whether or not you expect to participate in the Annual Meeting, please vote via the Internet, by phone, or complete, date, sign and promptly return the accompanying proxy card or voting instruction card in the enclosed postage-paid envelope so that your shares may be represented at the Annual Meeting.
Important Notice Regarding the Availability of Proxy Materials for the Annual Stockholder Meeting | ||
To Be Held on
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PROXY STATEMENT SUMMARY
This summary contains highlights about our Company and the upcoming 2020 Annual Meeting of Stockholders (the “Annual Meeting”). This summary does not contain all of the information that you should consider in advance of the meeting and we encourage you to read the entire proxy statement and the Annual Report on Form 10-K for the year ended December 31, 2019 that accompanies this Proxy Statement before voting.
2020 Annual Meeting of Stockholders
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Voting Matters and Board Recommendations
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2022 Director Nominees | ||||||||
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2020 Director Nominees (Proposal 1)
The Nominating and Corporate Governance Committee and the Board of Directors (the “Board”) have nominated Robert Yu Lang Mao and Alexander Buehler for election as Class III directors. Each of our director nominees have demonstrated their commitment to diligently executing their fiduciary duties on behalf of our stockholders, and we recommend that our stockholders elect each of the nominees at the Annual Meeting.
Name | Age | Director Since | Principal Occupation | Independent | Committee Membership | |||||
Alexander J. Buehler | 45 | 2015 | Executive Vice President for Global Resources, Intertek | Y | Audit Committee (Chair) Compensation Committee (Member) | |||||
Robert Yu Lang Mao | 76 | 2010 | Executive Chairman of the Board, President and Chief Executive Officer | N | Nominating and Corporate Governance Committee (Member) |
Approval of 2020 Incentive Plan (Proposal 2)
The Board is asking our stockholders to approve the Energy Recovery, Inc. 2020 Incentive Plan (the “2020 Plan”). The 2020 Plan was approved by the Board on May 5, 2020 and will become effective upon receipt of stockholder approval at the Annual Meeting. The 2020 Plan will replace our 2016 Equity Incentive Plan (the “2016 Plan”), which was approved by stockholders in 2016. The Board believes that equity awards under the 2016 Plan have contributed to strengthening the incentive of participating employees to achieve the objectives of the Company and its stockholders by encouraging employees to acquire a greater proprietary interest in the Company. The Board believes that the number of shares of common stock currently available under the 2016 Plan is insufficient to meet our current and future equity compensation needs. Stockholder approval of the 2020 Plan is intended to ensure that we have sufficient shares available to attract and retain employees and to further our growth and development. For these reasons, we recommend that our stockholders approve the 2020 Plan at the Annual Meeting.
Ratification of Appointment of Deloitte & Touche LLP (Proposal 3)
The Board has directed that Deloitte & Touche LLP’s (“Deloitte”) appointment for the fiscal year ended December 31, 2020 be submitted to our stockholders for ratification at the Annual Meeting. Deloitte is well qualified as our independent registered public accounting firm and has a deep understanding of our operations and accounting practices. The Audit Committee considered the qualifications, performance and independence of Deloitte, the quality of its discussions with Deloitte, and the fees charged by Deloitte for the level and quality of services provided during 2019 and determined that the reappointment of Deloitte is in the best interest of the Company and its stockholders. For these reasons, we recommend that our stockholders ratify the appointment of Deloitte as the Company’s independent registered public accounting firm at the Annual Meeting.
Approval of Executive Compensation on an Advisory Basis (Proposal 4)
Our CEO and other executive officers have demonstrated their commitment to fair pay and pay for performance. We are committed to effective compensation governance, as demonstrated by the following compensation policies and practices:
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For these reasons, we recommend that our stockholders approve the advisory vote on the compensation of our executive officers at the Annual Meeting.
Stockholder Engagement and Governance Highlights
We believe that strong corporate governance includes consistent engagement with our shareholders. We engage with shareholders on a variety of topics throughout the year to ensure that we are addressing questions and concerns and to seek input on policies and practices. Our management team, including our CEO, Chief Financial Officer (“CFO”) and VP of Investor Relations, regularly engage in meaningful dialogue with our shareholders through quarterly earnings calls, industry conferences and other channels of communication, which we regularly share with the Board. Stockholders may communicate with our Board as set forth under “Communications between Stockholders and Directors” on page 33.
2019 Financial Highlights
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TABLE OF CONTENTS
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Outstanding Equity Awards as of December 31, 2021 | ||||||||
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Proxy Statement |
ENERGY RECOVERY, INC.
PROXY STATEMENT
2020
June 9, 2022
The
Proxy Summary |
is for your convenience only and is merely aupcoming Annual Meeting. This summary does not contain all of
the information containedthat you should consider in this proxy statement.
You shouldadvance of the meeting and we encourage you to read thisthe entire proxy statement carefully.
ENERGY RECOVERY, INC.
INFORMATION ABOUT THE annual MEETING
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Date and Time: | Virtual Meeting Access: | ||||
Thursday, June 9, 2022, at 10:00 a.m., Pacific Time | www.virtualshareholdermeeting.com/ERII2022 |
Record Date: | Proxy Mail Date: | ||||
April 11, 2022 | On or about April 25, 2022 |
Vote in Advance of the | Vote During the Meeting |
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for details on |
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By telephone at 1-800-690-6903; or | By mail — sign, date and |
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Matter | Board Recommendation | Page | |||||||||||||||
1. | Election of five (5) Directors for a One-Year Term | FOR each Nominee | |||||||||||||||
2. | FOR | ||||||||||||||||
3. | Ratification of public accounting firm | FOR |
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Please note that the Internet and telephone voting facilities will close at 11:59 p.m. Eastern Daylight Time (8:59 p.m. Pacific Daylight Time) on July 15, 2020.
If, as
Name | Age (1) | Director Since | Principal Occupation | Independent | Committee Memberships (1) | |||||||||||||||||||||||||||
Joan K. Chow | 61 | 2021 | Former Executive Vice President and Chief Marketing Officer of Conagra Foods | Yes | Audit Committee | |||||||||||||||||||||||||||
Sherif Foda | 53 | 2016 | Chairman and CEO of National Energy Services Reunited | Yes | Compensation, Nominating and Corporate Governance | |||||||||||||||||||||||||||
Arve Hanstveit | 67 | 1995 | CFO of Foldstar, Inc. | Yes | Nominating and Corporate Governance (Chair), Audit | |||||||||||||||||||||||||||
Lisa A. Pollina | 57 | 2021 | Former Vice Chairman of RBC Capital Markets | Yes | Audit, Compensation | |||||||||||||||||||||||||||
Pamela L. Tondreau | 62 | 2019 | Executive Vice President and Chief Legal Officer of onsemi | Yes | Compensation (Chair), Nominating and Corporate Governance | |||||||||||||||||||||||||||
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•Total product revenue of | Product Revenues | |||||||
•Healthy product gross margin of | $103.9M | |||||||
•One and three year Total Shareholder Return on Investment of | 13% increase from prior year |
•Operating cash flow of $13.5 million. |
| Product Gross Margin | ||||||
•Net income of | 69% | |||||||
•Launched and received our | 77 basis point decrease from prior year | |||||||
•Issued our | Net Income | |||||||
$15.2M | ||||||||
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If you are the stockholder
What We Do | What We Don’t Do | |||||||||||||
✔ | Substantial portion of compensation is at-risk | ✘ | No repricing | |||||||||||
✘ | No gross-ups | |||||||||||||
✔ | Long-term vesting to promote retention | ✘ | No excessive perquisites | |||||||||||
✘ | No executive retirement plan benefits | |||||||||||||
✔ | Stock Ownership Guidelines | ✘ | No guaranteed bonuses or annual equity awards | |||||||||||
✔ | Double trigger change in control severance | |||||||||||||
✘ | No excessive severance | |||||||||||||
✔ | At-will employment of executive officers | |||||||||||||
✔ | Independent Compensation Committee | |||||||||||||
✔ | Independent compensation consultant | |||||||||||||
✔ | Annual executive compensation assessment tied to practices of a reasonable peer group of similar size/value public companies | |||||||||||||
✔ | Risk assessment | |||||||||||||
✔ | Claw-back policy | |||||||||||||
✔ | Annual incentives are based on achievement of rigorous performance goals | |||||||||||||
✔ | Executive compensation program does not encourage excessive risk taking |
Proposal No. 1 – Election of Directors |
For shares you hold beneficially in street name, you generally may change your vote by submitting new voting instructions to your broker, bank, trustee, or nominee following the instructions they provided, or, if you have obtained a legal proxy from your broker, bank, trustee, or nominee giving you the right to vote your shares, by attending the virtual Annual Meeting and voting in person.
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The Company will bear the costs of soliciting proxies, including the costs for the preparation, assembly, printing, and mailing of the Proxy Statement and related proxy materials. In addition, the Company will reimburse brokerage firms and other nominees representing beneficial owners of shares for their expenses in forwarding solicitation materials to beneficial owners of those shares. We have retained Alliance Advisors as our proxy solicitors, and proxies may be solicited by a representative of that firm. For its services, we will pay Alliance Advisors a fee of $9,000, plus reasonable expenses. Proxies may also be solicited by certain of the Company’s directors, officers, and regular employees, without additional compensation, either personally, by telephone, facsimile, or mail.
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Only stockholders of record at the close of business on May 21, 2020, the Record Date, will be entitled to notice of, and to vote at, our Annual Meeting. Each stockholder of record will be entitled to one vote on each matter for each share of common stock held on the Record Date. On the Record Date, the Company had 55,630,374 shares of common stock outstanding, held by 23 holders of record.
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Proposal No. 2 (approval of 2020 Plan), Proposal No. 3 (ratification of Deloitte & Touche LLP as our independent registered public accountants) and Proposal No. 4 (advisory approval of the Company’s executive compensation): An affirmative vote of a majority of the shares of the Company’s common stock present and entitled to vote is required to approve Proposals No. 2, No. 3 and No. 4, provided that a quorum is present. The Board recommends a vote “FOR” each of the Proposals No. 2, No. 3 and No. 4.
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Your shares will be counted towards the quorum only if you submit a valid proxy or if you vote in person at the meeting. Stockholders who submit signed and dated proxies without specifying their votes and broker “non-votes” described below will be counted towards the quorum requirement. If there is no quorum, the chairperson of the meeting or a majority of the votes present at the meeting may adjourn the meeting to another date.
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As a beneficial owner, you have the right to direct your broker, bank, or other nominee on how to vote your shares by using the voting instruction form included in the mailing or by following the instructions on the voting instruction card for voting via the Internet or telephone.
If there are multiple beneficial owners in the same household, your broker or other nominee may send only one set of voting instructions or copy of the proxy materials to your household. If you are receiving multiple copies of these materials and would like to receive a single copy in the future, please contact your broker, bank, or other nominee to request a single copy in the future.
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Brokers, banks, and other nominees may submit a proxy card for shares of common stock that they hold for a beneficial owner but may decline to vote on certain items because they have not received instructions from the beneficial owner. These are called “Broker Non-Votes” and are not included in the tabulation of the voting results for the election of directors or for purposes of determining the number of votes cast with respect to a particular proposal. Consequently, Broker Non-Votes will not count as votes cast for purposes of Proposals No. 1, 2 and 4.
Brokers have the discretion to vote such shares for which they have not received voting instructions from the beneficial owners on routine matters but not on non-routine matters. The only routine matter up for vote this year is the ratification of the independent registered public accounting firm (Proposal No. 3).
A broker is prohibited from voting on a non-routine matter unless the broker receives specific voting instructions from the beneficial owner of the shares. The election of directors (Proposal No. 1), the approval of the 2020 Plan (Proposal No. 2) and the advisory vote on executive compensation (Proposal No. 4) are non-routine matters, and your broker cannot vote your shares on these proposals unless you have timely returned applicable voting instructions to your broker.
Abstentions have no effect on the outcome of voting for Proposal No. 1, election of directors. Abstentions are treated as shares present or represented and voting regarding Proposals No. 2, No. 3 and No. 4, so abstentions have the same effect as negative votes on those proposals.
A summary of the voting provisions, provided a valid quorum is present or represented at the Annual Meeting, for the matters described in “What is the purpose of the Annual Meeting?” is as follows:
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If you have previously chosen to receive the proxy materials via the Internet, you will be receiving an e-mail on or about May 28, 2020 with information on how to access stockholder information and instructions for voting over the Internet. Stockholders of record may vote via the Internet until 11:59 p.m. Eastern Daylight Time (8:59 p.m. Pacific Daylight Time) on July 15, 2020.
If your shares are registered in the name of a brokerage firm and you have not elected to receive proxy materials over the Internet, you may still be eligible to vote shares electronically over the Internet. Many brokerage firms participate in programs that provide eligible stockholders who receive a paper copy of the Proxy Statement and Annual Report the opportunity to vote via the Internet. If your brokerage firm participates in such a program, a form from the broker will provide voting instructions.
Stockholders can elect to view future Proxy Statements and Annual Reports over the Internet instead of receiving paper copies. Stockholders of record wishing to receive future stockholder materials electronically can elect this option by following the instructions provided when voting over the Internet at www.proxyvote.com.
Upon electing to view future Proxy Statements and Annual Reports over the Internet, you will receive an e-mail notification next year with instructions containing the Internet address of those materials. The choice to view future Proxy Statements and Annual Reports over the Internet will remain in effect until you contact your broker or the Company to rescind the instructions. Internet access does not have to be elected each year.
Stockholders who elected to receive this Proxy Statement electronically over the Internet and who would now like to receive a paper copy of this Proxy Statement so that they may submit a paper proxy in lieu of an electronic proxy should contact either their broker or the Company.
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Brokers with account holders who are Energy Recovery stockholders may be house-holding our proxy materials. A single set of proxy materials may be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker that it will be house-holding communications to your address, house-holding will continue until you are notified otherwise or until you notify your broker or The Company that you no longer wish to participate in house-holding.
If, at any time, you no longer wish to participate in house-holding and would prefer to receive a separate Proxy Statement and Annual Report, you may (1) notify your broker, (2) direct your written request to: Investor Relations, Energy Recovery, Inc., 1717 Doolittle Drive, San Leandro, CA 94577 or (3) contact our Investor Relations department by email at IR@energyrecover.com or by telephone at (281) 962-8105. Stockholders who receive multiple copies of the Proxy Statement or Annual Report at their address and would like to request house-holding of their communications should contact their broker. In addition, we will promptly deliver, upon written or oral request to the address or telephone number above, a separate copy of the Annual Report and Proxy Statement to a stockholder at a shared address to which a single copy of the documents was delivered.
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PROPOSALs to be voted on at the meeting
Proposal NO. 1
ELECTION OF DIRECTORS
The Company’s Amended and Restated Certificate of Incorporation, (ouras amended (the “CharterCertificate of Incorporation”) provides that, the Board shall beis divided into three classes - Class I, Class II and Class III. Prior to 2021, directors of each Class served staggered three-year terms. In 2021, the Board and its stockholders approved an amendment to the Company’s Certificate of Incorporation to declassify the Board to allow for the Company’s stockholders to vote on the election of the entire Board on an annual basis rather than on a staggered basis. The amendment provided for the phased declassification over a three-year period, starting with the 2021 Annual Meeting, where:
Theasked to elect two (2) Class I Directors and three (3) Class II Directors. Each of the five (5) nominees identified in this Proxy Statement has been nominated by our Nominating and Corporate Governance Committee of theand Board of Directors has recommended, and the Board of Directors approved Alexander Buehler and Robert Yu Lang Mao as nominees for election as Class III directorsto a one-year term expiring at theour 2023 Annual Meeting. If elected, each newly elected director will serve until the 2023 annual meeting of stockholders, or until each director’s successor is duly elected and qualified, or until the director’s earlier removal or resignation.
Each of the nominees is currently a director of the CompanyAll nominated directors are standing for re-election and each of the nominees named below has consented, if elected as a director of the Company, to serve until histheir term expires.
Director Nominees (New Term Expiring in 2023) | Continuing Directors (Existing Term Expiring in 2023) | Retiring Directors | ||||||||||||
Class I | Class III | Olav Fjell | ||||||||||||
Joan K. Chow | Alexander J. Buehler | |||||||||||||
Lisa A. Pollina | Robert Yu Lang Mao | |||||||||||||
Class II | ||||||||||||||
Sherif Foda | ||||||||||||||
Arve Hanstveit | ||||||||||||||
Pamela L. Tondreau |
Set
Director Since | Name, Principal Occupation, and Other Information | |||||||
December 2021 | Joan K. Chow Age 61 | |||||||
Joan K. Chow has extensive leadership experience in retail and marketing, consumer insights, and human resources matters, and has served as senior leader at some the world’s most recognizable companies. Ms. Chow is the former Executive Vice President and Chief Marketing Officer at ConAgra Foods, one of North America’s leading packaged food companies. Prior to that, Ms. Chow spent extensive time with Sears Holdings Corporation in various marketing roles and ultimately served as Senior Vice President and Chief Marketing Officer for Sears Retail. She has also held executive positions with Information Resources Inc., Johnson & Johnson Consumer Products, Inc. and the Greater Chicago Food Depository. Ms. Chow currently serves as Chair of the Compensation Committee and a member of the Governance Committee at Welbilt, Inc. and is also a director at High Liner Foods and Spectrum Brands. She has previously served as a Director of The Manitowoc Company, RC2 Corporation, and Feeding America. The Board selected Ms. Chow because of her extensive executive and marketing experience as well as her prior public company board experience, which provides her unique insight on key board and company issues. | ||||||||
Education | ||||||||
B.A. Cornell University and an M.B.A. from the Wharton School at the University of Pennsylvania | ||||||||
Current Board Committees | ||||||||
Audit Committee (Member) | ||||||||
Director Since | Name, Principal Occupation, and Other Information | |||||||
September 2021 | Lisa A. Pollina Age 57 | |||||||
Lisa A. Pollina is a business executive and Board member who has negotiated over $50 billion in corporate development deals in financial services, business services and the technology sectors. She currently serves on the Board of Directors for Munich RE for the Americas (FRA: MUV2) and provides private equity advisory for alternative asset manager Ares Management (NYSE: ARES). She is the former Vice Chairman for RBC Capital Markets (NYSE: RY), and the Global Financial Institutions Executive for Bank of America Securities (NYSE: BAC). She has served other Boards as Audit Committee Chair, Risk Committee Chair, and Chair of the Finance & Capital Committee during her Board governance career which began in 2010. These include Independent Board and advisory roles for Northwestern Mutual (private), Two Harbors Investment Corp. (NYSE: TWO), DTCC (private industry group), and Ritchie Brothers Auctioneers (NYSE: RBA), among others. A Board member of The Atlantic Council of the United States, she is involved with its transatlantic programs including those for alternative energy sources in the Global Energy Center and initiatives related to technology in the GeoEconomics Program. Named one of the “Top 25 Most Powerful Women in Finance” by American Banker, Ms. Pollina has taught strategy at Yale and corporate finance at the University of Chicago. The Board selected Ms. Pollina because of her extensive executive and finance experience as well as her prior public company board experience, including on the audit committee, which provides her unique insight on key board and company issues. | ||||||||
Education | ||||||||
Undergraduate degree from Western Michigan University and an MBA from Yale School of Management | ||||||||
Current Board Committees | ||||||||
Audit Committee (Member) | ||||||||
Compensation Committee (Member) |
Director Since | Name, Principal Occupation, and Other Information | |||||||
September 2016 | Sherif Foda Age 53 | |||||||
Sherif Foda is an experienced executive with more than two decades of oil and gas industry experience from around the globe. Mr. Foda currently serves as the Chairman and Chief Executive Officer of National Energy Services Reunited (NASDAQ: NESR), roles that he has held since June 2017. Previously since 2016, Mr. Foda was the Senior Advisor to the Chairman of Schlumberger. Previously from 2013 to 2016, Mr. Foda served as an Executive Officer and the Group President of Schlumberger Production, based in Houston, managing the different business segments of Schlumberger related to oil & gas producing fields, including Fracturing business, cementing, Well Services and Interventions, Completions, Artificial Lifts, and production businesses. From 2011 to 2013, Mr. Foda was the President of Schlumberger Europe and Africa, based in Paris. In this capacity, he managed all the different businesses, activities and operations for Schlumberger from South Africa to Norway. Prior to that, Mr. Foda held several other senior corporate and operations positions with Schlumberger in Houston, Texas, the Middle East and Europe. In addition, Mr. Foda worked in the information technology and computer industries in Egypt. The Board selected Mr. Foda as a director because he brings a unique perspective to the Board and has significant experience with issues, trends and opportunities within the oil & gas industry that enable Mr. Foda to provide valuable expertise when evaluating the Company’s oil & gas business. | ||||||||
Education | ||||||||
BSc in Electronic from Ain Shams University, and a BAC in Science from College de la Salle, both in Cairo | ||||||||
Current Board Committees | ||||||||
Compensation Committee (Member) | ||||||||
Nominating and Corporate Governance Committee (Member) | ||||||||
Director Since | Name, Principal Occupation, and Other Information | |||||||
January 1995 | Arve Hanstveit Age 67 | |||||||
Arve Hanstveit is the Chief Financial Officer at Foldstar, Inc. Previously, he served as Partner and Vice President of ABG Sundal Collier, a Scandinavian investment bank, where he was responsible for advising U.S. institutional investors on equity investments in Nordic companies between August 1997 and November 2010. Prior to joining ABG Sundal Collier, Mr. Hanstveit worked as a securities analyst and as a portfolio manager for TIAA-Cref, a large U.S. institutional investor. From February 2007 to January 2010, Mr. Hanstveit served on the Board of Directors of Kezzler AS, a privately-held Norwegian company, which delivers secure track and trace solutions to the industry. He is also a member of the Norwegian American Chamber of Commerce and the New York Angels, an independent consortium of individual accredited angel investors that provide equity capital for early-stage companies in the New York City area. The Board selected Mr. Hanstveit as a Director because of his early investment in the Company, his years of experience as a portfolio manager and securities analyst, his detailed understanding of global financial markets, and his extensive knowledge of the Company, its products, and markets. | ||||||||
Education | ||||||||
B.A. in Business from the Norwegian School of Management and an M.B.A. from the University of Wisconsin, Madison | ||||||||
Current Board Committees | ||||||||
Audit Committee (Member) | ||||||||
Nominating and Corporate Governance Committee (Chair) |
Director Since | Name, Principal Occupation, and Other Information | |||||||
July 2019 | Pamela L. Tondreau Age 62 | |||||||
Pamela L. Tondreau was elected as Lead Independent Director in May 2020. Ms. Tondreau joined ON Semiconductor Corporation (now onsemi (NASDAQ: ON), as Executive Vice President and Chief Legal Officer in October 2021. Previously, sheserved as a consultant to Infineon Technologies AG, which purchased Cypress Semiconductor Corporation (“CY”) on April 16, 2020 until July 1, 2020. Prior to her consulting role, Ms. Tondreau served as Chief Legal Officer, Corporate Secretary and Executive Vice President of Human Resources of CY from 2014 through 2016. Ms. Tondreau is a member of the Alumni Board of McGeorge School of Law. Prior to her tenure with CY, Ms. Tondreau was an executive with Hewlett-Packard Corporation (“HP”) from 1999-2012 holding various positions including Chief Intellectual Property Counsel, Deputy General Counsel to the Chief Technology Officer, counsel to the Technology Committee of the Board, counsel for the networking business including leading the acquisition of 3Com and integrating the China entity into HP. Ms. Tondreau has extensive experience in the areas of intellectual property strategy, corporate governance and executive compensation, enterprise risk management and domestic and international mergers and acquisitions. The Board selected Ms. Tondreau as a director because of her experience as a technology executive and General Counsel and her knowledge and experience with corporate governance, compliance, intellectual property, policy and M&A. | ||||||||
Education | ||||||||
Undergraduate degree from the University of California at Berkeley and a Juris Doctor degree from McGeorge School of Law | ||||||||
Current Board Committees | ||||||||
Compensation Committee (Chair) | ||||||||
Nominating and Corporate Governance Committee (Member) |
DIRECTOR NOMINEES
Director Since | Name, Principal Occupation, and Other Information | |||||||
February 2015 | Age 46 | |||||||
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Education | ||||||||
B.S. in Civil Engineering from the United States Military Academy at West Point and an M.B.A. in Finance from the Wharton School at the University of Pennsylvania | ||||||||
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Current Board Committees | ||||||||
Audit Committee (Chair) | ||||||||
Compensation Committee | (Member) |
Alexander J. Buehler joined our Board of Directors in February 2015. Mr. Buehler currently serves as Executive Vice President for Global Resources at Intertek, a global, publicly-traded company headquartered in London and leading provider of assurance, testing, inspection, and certification services. He joined Intertek in September 2018. Previously, he served at Energy Maintenance Services (“EMS”) from July 2014 to September 2017, first with a brief stint as Chief Financial Officer and then as President & Chief Executive Officer, during which time he steered the company through the market downturn in oil & gas, repositioned the business as the leading integrity maintenance company and led the marketing and sale of the business to First Reserve, a leading private equity company in the oil & gas space. He served as our Chief Financial Officer from 2011 until he joined EMS in 2014. From 2004 to 2011, Mr. Buehler held executive-level positions at Insituform Technologies, Inc. (now Aegion Corporation; NASDAQ: AEGN), a global leader in water infrastructure technology and services for municipalities and industry, including oil and gas. While at Insituform, Mr. Buehler worked in the U.S. and abroad, most recently as Vice President of Europe, leading all European operations from its regional headquarters in Paris, France. Mr. Buehler received a B.S. in Civil Engineering from the United States Military Academy at West Point and an M.B.A. in Finance from the Wharton School at the University of Pennsylvania. Since 2017, Mr. Buehler has served on the Board of LiqTech International (NASDAQ: LIQT), where he also chairs the Audit Committee. Previously, from 2014 to 2019, Mr. Buehler served on the Board of Viscount Systems and Chair of the Audit Committee before the company was acquired by Identiv. The Board selected Mr. Buehler to serve as a director because he is a highly impactful business executive with years of experience in general management and strategic planning as well as new product development, corporate development, operations management, manufacturing process optimization, sales management, and back-office administration. Mr. Buehler has substantial experience in the global water, oil & gas, and manufacturing industries and was critical in a number of acquisitions.
Director Since | Name, Principal Occupation, and Other Information | |||||||
September 2010 | Age 78 | |||||||
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Education | ||||||||
B.S. in Material Science and a M.S. in Metallurgical Engineering from Cornell University and a M.B.A. in Management from the Massachusetts Institute of Technology (MIT) | ||||||||
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Robert Yu Lang Mao has served as a member
Contents
PROPOSAL NO. 2
APPROVAL OF THE ENERGY RECOVERY, INC.2020 INCENTIVE PLAN
The Board is asking our stockholders to approve the Energy Recovery, Inc. 2020 Incentive Plan (the “2020Plan”). The 2020 Plan was approved by the Board on May 5, 2020 and will become effective upon receipt of stockholder approval at the Annual Meeting. The 2020 Plan will replace our 2016 Equity Incentive Plan (the “2016 Plan”), which was approved by stockholders in 2016.
Background and Reasons for the Proposal
The Board of Directors believes that equity awards under the 2016 Plan have contributed to strengthening the incentive of participating employees to achieve the objectives of the Company and its stockholders by encouraging employees to acquire a greater proprietary interest in the Company. The Board believes that the number of shares of common stock currently available under the 2016 Plan is insufficient to meet our current and future equity compensation needs. Stockholder approval of the 2020 Plan is intended to ensure that we have sufficient shares available to attract and retain employees and to further our growth and development. For a discussion of equity awards as components of our executive compensation program, please refer to the “Compensation Discussion and Analysis” section below.
HIGHLIGHTS OF THE 2020 pLAN AND KEYCORPORATE GOVERNANCE PROVISIONS
The 2020 Plan includes several features that are consistent with the interests of our stockholders and sound corporate governance practices, including the following:
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Director Independence | Best Practices | |||||||||||||
ü | 6 of 7 continuing directors are independent (all except the CEO) | ü | Focus on Diversity | |||||||||||
ü | Active Board oversight of the Company’s strategy, risk management and ESG | |||||||||||||
ü | Lead Independent | |||||||||||||
ü | Rigorous Director and executive stock ownership guidelines | |||||||||||||
ü | 100% independent Board Committees | |||||||||||||
ü | Regular executive sessions of independent directors |
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Background for Requested Share Authorization
The 2020 Plan authorizes the issuance of an additional 4,500,000 shares. If the 2020 Plan is approved, the number of shares of our common stock authorized for grant under the 2020 Plan will be equal to the sum of up to (i) 4,500,000 shares authorized under the 2020 Plan plus (ii)1,394,727 shares remaining available for grant under the 2016 Plan as of the effective date of the 2020 Plan and (iii) 4,954,723 shares subject to awards granted under the 2016 Plan and the 2008 Equity Incentive Plan that were outstanding as of the effective date of the 2020 Plan and subsequently expire, terminate or are otherwise surrendered, cancelled or forfeited. As of May 21, 2020, we had the following awards outstanding under our equity compensation plans:
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| Committees authorized to hire third party advisors | ü | Moving to Declassified Board by 2023 Annual Meeting | ||||||||||||
ü | Significant director refreshment | ||||||||||||||
Accountability | Stockholder Rights | ||||||||||||||
ü | Annual Board and Committee evaluations | ü | Proxy access rights for stockholders | ||||||||||||
ü | Stringent clawback policy | ü | One class of outstanding |
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In setting the number of shares authorized for issuance under the 2020 Plan, the Compensation Committee and the Board of Directors considered a number of factors, including the number of outstanding equity awards, the number of shares available for grant under the 2016 Incentive Plan, our historical granting practices and burn rate, and the level of potential dilution that will result from adoption of the 2020 Plan.
In 2017, 2018 and 2019, we granted equity awards representing a total of approximately 838,711, 1,511,384 and 982,732 shares, respectively, as follows:
2017 | 2018 | 2019 | ||||||||||
Stock options granted | 677,296 | 1,231,861 | 568,029 | |||||||||
Restricted stock unit awards granted | 161,415 | 279,523 | 414,703 | |||||||||
Total equity awards granted | 838,711 | 1,511,384 | 982,732 | |||||||||
Weighted-average (basic) common stock outstanding | 53,700,751 | 53,764,123 | 54,739,732 | |||||||||
Annual equity plan utilization rate (“burn rate”) | 2 | % | 3 | % | 2 | % |
Our three-year average annual burn rate for the period from January 1, 2017 through December 31, 2019 was 2%. We calculated our burn rate by (i) counting the number of shares subject to awards granted during each year and (ii) dividing the resulting number by the average number of shares of our common stock outstanding as reported in our Form 10-K for each respective year. As of May 21, 2020, the number of shares subject to outstanding equity awards under our equity compensation plans plus the number of the shares available for grant under the 2016 Plan and the new shares to be authorized under the 2020 Plan (an aggregate of 10,849,450 shares), represented 20% of our outstanding common stock. We believe our three-year average annual burn rate and level of potential dilution assuming the 2020 Plan is approved by stockholders compare favorably to industry standards. On the effective date of the 2020 Plan, all shares previously available for future awards under the 2016 Plan as of that date will become available for issuance under the 2020 Plan, and no further awards will be made under the 2016 Plan.
Our future burn rate will depend on a number of factors, including the number of participants in the 2020 Plan, the price per share of our common stock, any changes to our compensation strategy, changes in business practices or industry standards, changes in the compensation practices of our competitors or changes in compensation practices in the market generally, and the methodology used to establish the equity award mix. Based on the factors above, the Board believes that the share reserve under the 2020 Plan is reasonable and appropriate at this time.
Our executive officers and directors have a financial interest in this proposal because they would be eligible to receive awards under the 2020 Plan
The closing sale price of a share of our common stock on the Nasdaq Market on May 21, 2020 was $7.77 per share.
Summary of the 2020 Plan
The following description is a summary of some of the key provisions of the 2020 Plan, and it is qualified in its entirety by reference to the full text of the 2020 Plan, which is attached to this proxy statement as AppendixA.
Purposes of the 2020 Plan
The 2020 Plan is intended to promote our long-term success and the creation of stockholder value by encouraging employees, officers, directors, consultants, agents, advisors, and independent contractors to focus on critical long-range objectives; encouraging the attraction and retention of employees, officers, directors, consultants, agents, advisors, and independent contractors with exceptional qualifications; and linking employees, officers, directors, consultants, agents, advisors, and independent contractors directly to stockholder interests through increased stock ownership.
Administration
The 2020 Plan will be administered by the Board of Directors or the Board’s Compensation Committee, which must be composed of directors who meet the independence requirements of Nasdaq and at least two or more of whom are “non-employee directors” within the meaning of Rule 16b-3(b)(3) under the Exchange Act. The Board may delegate concurrent administration of the 2020 Plan to different committees consisting of one or more members of the Board in accordance with the 2020 Plan’s terms. In addition, the Board or the Compensation Committee may delegate granting authority to one or more officers of the Company in accordance with the 2020 Plan’s terms. References to the “Committee” in this summary description are, as applicable, to the Board or the Compensation Committee, or other committees or officers authorized to administer the 2020 Plan.
The Committee is authorized to select the individuals to be granted awards, the types of awards to be granted, the number of shares to be subject to awards, and the other terms, conditions, and provisions of such awards, as well as to interpret and administer the 2020 Plan and any award or agreement entered into under the 2020 Plan.
Eligibility
Awards may be granted under the 2020 Plan to employees, officers, directors, consultants, agents, advisors, and independent contractors of the Company and its related companies selected by the Committee. As of May 21, 2020, approximately 196 employees, 2 consultants and 6 non-employee directors were eligible to receive grants under the 2020 Plan.
Number of Shares Authorized
Subject to adjustment as provided in the 2020 Plan, the number of shares of common stock initially authorized for issuance under the 2020 Plan is:
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The number of shares of common stock that may be issued upon the exercise of incentive stock options, subject to adjustment as provided in the 2020 Plan, is limited to 10,849,450 shares.
Annual Limit on Employee Awards.
Subject to certain adjustment as provided in the 2020 Plan, participants may not be granted awards for more than 750,000 shares of common stock in any calendar year. However, additional one-time grants of such awards may be granted for up to 300,000 additional shares to newly hired or newly promoted individuals. The maximum dollar value payable to any participant with respect to performance units or any other awards denominated in cash cannot exceed $7,500,000 in any calendar year.
Annual Limit on Nonemployee Director Awards
The aggregate amount of compensation granted during any fiscal year of the Company to any director who is not an employee of the Company, including any equity awards and any cash retainers or fees, may not exceed $500,000.
Share Counting
If any award lapses, expires, terminates, or is canceled prior to the issuance of shares or if shares are issued under the 2020 Plan and thereafter are forfeited to the Company, the shares subject to such awards and the forfeited shares shall again be available for issuance under the 2020 Plan. The following shares will not become available for issuance under the 2020 Plan:
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Awards granted in assumption of or in substitution for awards previously granted by an acquired company will not reduce the number of shares authorized for issuance under the 2020 Plan.
Types of Awards
The 2020 Plan permits the granting of any or all of the following types of awards:
Stock Options.Stock options entitle the holder to purchase a specified number of shares of common stock at a specified price, which is called the exercise price, subject to the terms and conditions of the stock option grant. The Committee may grant either incentive stock options, which must comply with Section 422 of the Code, or nonqualified stock options. The Committee sets exercise prices and terms, except that stock options must be granted with an exercise price not less than 100% of the fair market value of our common stock on the date of grant (excluding stock options granted in connection with assuming or substituting stock options in acquisition transactions). Unless the Committee determines otherwise, fair market value means, as of a given date, the closing price of our common stock. At the time of grant, the Committee determines when stock options are exercisable and what the term of the stock options will be, except that the term cannot exceed ten years.
In the event of termination of service with the Company or a related company, a participant will be able to exercise his or her stock option for the period of time and on the terms and conditions determined by the Committee and stated in the stock option agreement.
Stock Appreciation Rights (SARs).The Committee may grant SARs as a right in tandem with the number of shares underlying stock options granted under the 2020 Plan or as a freestanding award. Upon exercise, SARs entitle the holder to receive payment per share in stock or cash, or in a combination of stock and cash, equal to the excess of the share’s fair market value on the date of exercise over the grant price of the SAR. The grant price of a tandem SAR is equal to the exercise price of the related stock option, and the grant price for a freestanding SAR is determined by the Committee in accordance with the procedures described above for stock options. Exercise of an SAR issued in tandem with a stock option will reduce the number of shares underlying the related stock option to the extent of the SAR exercised. The term of a freestanding SAR cannot be more than ten years, and the term of a tandem SAR cannot exceed the term of the related stock option.
No Repricing or Cash Buyouts Without Shareholder Approval. Without stockholder approval, the Committee is not authorized to (a) lower the exercise or grant price of an option or SAR after it is granted, except in connection with certain adjustments to our corporate or capital structure permitted by the 2020 Plan, such as stock splits, (b) cancel a stock option or SAR at a time when its exercise or grant price exceeds the fair market value of the underlying stock, in exchange for cash, another stock option or SAR, restricted stock or other equity award, unless the cancellation and exchange occur in connection with a merger, acquisition, spin-off or similar corporate transaction, or (c) take any other action that is treated as a repricing under generally accepted accounting principles.
Stock Awards, Restricted Stock, and Stock Units.The Committee may grant awards of shares of common stock or awards designated in units of common stock. These awards may be made subject to repurchase or forfeiture restrictions at the Committee’s discretion. The restrictions may be based on continuous service with the Company or the achievement of specified performance criteria, as determined by the Committee. Stock units may be paid in stock or cash or a combination of stock and cash, as determined by the Committee.
Performance Awards.The Committee may grant performance awards in the form of performance shares or performance units. Performance shares are units valued by reference to a designated number of shares of common stock. Performance units are units valued by reference to a designated amount of property other than shares of common stock. Performance shares and performance units may be payable upon the attainment of performance criteria and other terms and conditions as established by the Committee. Performance awards may be payable in stock, cash or other property, or a combination thereof.
Other Stock- or Cash-Based Awards.The Committee may grant other incentives denominated in shares of common stock or in cash, which may be payable in shares of common stock or cash or a combination of both, subject to the terms of the 2020 Plan and any other terms and conditions determined by the Committee.
Performance Measures. The performance measures for any award of performance-based compensation must be set by the Compensation Committee at the start of each performance period and may, without limitation, be based on one or a combination of two or more of the following performance criteria as reported or calculated by the Company: cash flows (including, but not limited to, operating cash flow, free cash flow or cash flow return on capital); working capital; earnings per share; book value per share; operating income (including or excluding depreciation, amortization, items that are unusual in nature or infrequently occurring or both, restructuring charges, or other expenses); revenues; operating margins; return on assets; return on equity; debt; debt plus equity; market or economic value added; stock price appreciation; total stockholder return; cost control; strategic initiatives; market share; net income; return on invested capital; improvements in capital structure; or customer satisfaction, employee satisfaction, services performance, subscriber, cash management, or asset management metrics. The performance goals also may be based on the achievement of specified levels of performance for the Company as a whole (or of any affiliate or business unit) under one or more of the performance criteria described above relative to the performance of other corporations.
The Compensation Committee may provide in any award of performance-based compensation that any evaluation of performance may, without limitation, include or exclude any of the following events that occur during a performance period:asset write-downs; litigation or claim judgments or settlements; the effect of changes in tax law or rate on deferred tax liabilities, accounting principles, or other laws or provisions affecting reported results; any reorganization and restructuring programs; items that are unusual in nature or infrequently occurring or both that the Company identifies in its audited financial statements, including notes to the financial statements, or the Management’s Discussion and Analysis section of our periodic reports; acquisitions or divestitures; foreign exchange gains and losses; gains and losses on asset sales; and impairments.
Change in Control
Effect of Change in Control. Under the 2020 Plan, the Committee may provide for the vesting acceleration of an award upon a change in control of the Company, whether or not the award is assumed by the successor corporation, or upon a termination of a participant’s employment following a change in control. A change in control includes:
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Unless the Committee determines otherwise in the instrument evidencing an award or in a written employment, services or other agreement between a participant and the Company or a related company, in the event that we are a party to a merger or consolidation in which options or awards are not continued or assumed or substituted with comparable awards by the surviving corporation, all outstanding options or awards will be subject to the agreement of merger or consolidation, which shall provide for one or more of the following:
The acceleration of vesting of 100% of the then unvested portion of the common stock subject to any outstanding options and stock appreciation rights.
The cancellation of all outstanding options and stock appreciation rights in exchange for a payment to the holders thereof equal to the excess of (i) the fair market value of the common shares subject to such options and stock appreciation rights over (ii) their exercise price. Such payment shall be made in the form of cash, cash equivalents, or securities of the surviving corporation or its parent.
The cancellation of all outstanding stock units and a payment to the holders thereof equal to the fair market value of the common stock subject to such stock units. Such payment shall be made in the form of cash, cash equivalents, or securities of the surviving corporation or its parent.
Adjustments
If any change is made in the stock subject to the 2020 Plan, or subject to any award, without the receipt of consideration by us (through stock dividend, stock split, spin-off, combination or exchange of shares, recapitalization, merger, consolidation, distribution to stockholders other than a normal cash dividend or other change in our corporate or capital structure not involving the receipt of consideration by us), or in the event of an extraordinary cash dividend, then the Committee shall make proportional adjustments to (a) the maximum number and kind of securities available for issuance under the 2020 Plan, (b) the maximum number and kind of securities issuable as incentive stock options, (c) the maximum number and kind of securities subject to individual annual award limits and (d) the number and kind of securities subject to any outstanding awards and/or the per share price of such securities.
Acceleration of Awards, Lapse of Restrictions
Consistent with the terms of the 2020 Plan, the Compensation Committee may accelerate vesting requirements, performance periods, and the expiration of the applicable term or restrictions, and adjust performance targets and payments, upon such terms and conditions as are set forth in the participant’s award agreement, or otherwise in the Compensation Committee’s discretion, which may include, without limitation, acceleration resulting from the participant’s death, disability, or retirement.
Effective Date, Term, Termination, and Amendment
The 2020 Plan will become effective on the date it is approved by the requisite vote of our stockholders at the Annual Meeting or any adjournment thereof. Unless earlier terminated by the Board of Directors or the Compensation Committee, the 2020 Plan will terminate, and no further awards may be granted, ten years after the date on which it is approved by stockholders. The Board or the Compensation Committee may amend, suspend, or terminate the 2020 Plan at any time, except that, if required by applicable law, regulation, or stock exchange rule, stockholder approval will be required for any amendment, and only the Board may amend the 2020 Plan if stockholder approval of the amendment is required. The amendment, suspension or termination of the 2020 Plan or the amendment of an outstanding award generally may not, without a participant’s consent, materially adversely affect any rights under an outstanding award.
Recoupment of Awards
Awards made under the 2020 Plan are subject to any policy adopted by the Company pursuant to the requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act and any implementing rules and regulations regarding the recoupment or clawback of incentive compensation and similar rules and laws in other jurisdictions, and any compensation recoupment or clawback policies we may have in place from time to time.
U. S. Federal Income Tax Considerations
The following is a general summary of the U.S. federal income tax consequences of awards under the 2020 Plan to us and to participants in the 2020 Plan who are citizens or residents of the United States for U.S. federal tax purposes. The summary is based on the Internal Revenue Code (the “Code”), applicable Treasury Regulations and administrative and judicial interpretations thereof, each as in effect on the date of this proxy statement and is, therefore, subject to future changes in the law, possibly with retroactive effect. The summary is general in nature and does not purport to be legal or tax advice. Furthermore, the summary does not address issues relating to any U.S. gift or estate tax consequences or the consequences of any state, local, or foreign tax laws.
Nonqualified Stock Options. A participant generally will not recognize taxable income upon the grant or vesting of a nonqualified stock option with an exercise price at least equal to the fair market value of our common stock on the date of grant and no additional deferral feature. Upon the exercise of a nonqualified stock option, a participant generally will recognize compensation taxable as ordinary income in an amount equal to the difference between the fair market value of the shares underlying the option on the date of exercise and the option exercise price. When a participant sells the shares acquired upon exercise, the participant will have short-term or long-term capital gain or loss, as the case may be, equal to the difference between the amount the participant received from the sale and the tax basis of the shares sold. The tax basis of the shares generally will be equal to the greater of the fair market value of the shares on the exercise date or the option exercise price.
Incentive Stock Options. A participant generally will not recognize taxable income upon the grant of an incentive stock option. If a participant exercises an incentive stock option during employment as an employee or within three months after his or her employment ends (12 months in the case of permanent and total disability), the participant will not recognize taxable income at the time of exercise for regular U.S. federal income tax purposes (although the participant generally will have taxable income for alternative minimum tax purposes at that time as if the option were a nonqualified stock option). If a participant sells or otherwise disposes of the shares acquired upon exercise of an incentive stock option after the later of (a) one year from the date the participant exercised the option and (b) two years from the grant date of the option, the participant generally will recognize long-term capital gain or loss equal to the difference between the amount the participant received in the disposition and the option exercise price. If a participant sells or otherwise disposes of shares acquired upon exercise of an incentive stock option before these holding period requirements are satisfied, the disposition will constitute a “disqualifying disposition,” and the participant generally will recognize taxable ordinary income in the year of disposition equal to the excess of the fair market value of the shares on the date of exercise over the option exercise price (or, if less, the excess of the amount realized on the disposition of the shares over the option exercise price). The balance of the participant’s gain on a disqualifying disposition, if any, will be taxed as short-term or long-term capital gain, as the case may be.
With respect to both nonqualified stock options and incentive stock options, special rules apply if a participant uses shares of our common stock already held by the participant to pay the exercise price or if the shares received upon exercise of the option are subject to a substantial risk of forfeiture by the participant.
Stock Appreciation Rights. A participant generally will not recognize taxable income upon the grant or vesting of an SAR with a specified grant price at least equal to the fair market value of our common stock on the date of grant and no additional deferral feature. Upon the exercise of an SAR, a participant generally will recognize compensation taxable as ordinary income in an amount equal to the difference between the fair market value of the shares underlying the SAR on the date of exercise and the specified grant price of the SAR. When a participant sells any shares acquired upon exercise, the participant generally will have short-term or long-term capital gain or loss, as the case may be, equal to the difference between the amount the participant received from the sale and the tax basis of the shares sold. The tax basis of the shares generally will be equal to the greater of the fair market value of the shares on the exercise date or the total base value.
Restricted Stock Awards. A recipient of a restricted stock award generally will recognize compensation taxable as ordinary income when the shares cease to be subject to restrictions in an amount equal to the excess of the fair market value of the shares on the date the restrictions lapse over the amount, if any, paid by the participant with respect to the shares.
Instead of postponing the federal income tax consequences of a restricted stock award until the restrictions lapse, the participant may elect to recognize compensation taxable as ordinary income in the year of the award in an amount equal to the fair market value of the shares at the time of receipt. This election is made under Section 83(b) of the Code. A Section 83(b) election is made by filing a written notice with the Internal Revenue Service office with which the participant files his or her federal income tax return. The notice must be filed within 30 days of the date of grant of the restricted stock award for which the election is made and must meet certain technical requirements.
The tax treatment of a subsequent disposition of restricted stock will depend upon whether the participant has made a timely and proper Section 83(b) election. If the participant makes a timely and proper Section 83(b) election, when the participant sells the restricted shares, the participant will have short-term or long-term capital gain or loss, as the case may be, equal to the difference between the amount the participant received from the sale and the tax basis of the shares sold. If no Section 83(b) election is made, any disposition after the restrictions lapse generally will result in short-term or long-term capital gain or loss, as the case may be, equal to the difference between the amount the participant received from the sale and the tax basis of the shares sold. The tax basis of the shares generally will be equal to the amount, if any, paid by the participant with respect to the shares, plus the amount of taxable ordinary income recognized by the participant either at the time the restrictions lapsed or at the time of the Section 83(b) election, as the case may be. If the participant forfeits the shares to the Company (e.g., upon the participant’s termination prior to expiration of the restriction period), the participant may not claim a deduction with respect to the income recognized as a result of making a Section 83(b) election.
Restricted Stock Units. A participant generally will not recognize income at the time a restricted stock unit is granted. When any part of a restricted stock unit is issued or paid, the participant generally will recognize compensation taxable as ordinary income at the time of such issuance or payment in an amount equal to the cash and then fair market value of any shares the participant receives.
Performance Share or Performance Unit Awards. A participant generally will not recognize income at the time a performance share or performance unit award is granted. When any part of a performance share or performance unit award is issued or paid, the participant generally will recognize compensation taxable as ordinary income at the time of such issuance or payment in an amount equal to the cash and then fair market value of any shares the participant receives.
Other Awards. The U.S. federal income tax consequences of other awards under the 2016 Plan will depend upon the specific terms of each award.
Tax Consequences to Us. In the foregoing cases, we generally will be entitled to a deduction at the same time, and in the same amount, as a participant recognizes ordinary income, subject to certain limitations imposed under the Code.
Section 409A of the Code. We intend that awards granted under the 2016 Plan comply with, or otherwise be exempt from, Section 409A of the Code, but make no representation or warranty to that effect.
Tax Withholding.We are authorized to deduct or withhold from any award granted or payment due under the 2020 Plan, or require a participant to remit to us, the amount of any withholding taxes due in respect of the award or payment and to take such other action as may be necessary to satisfy all obligations for the payment of applicable withholding taxes. We are not required to issue any shares of our common stock or otherwise settle an award under the 2020 Plan until all tax withholding obligations are satisfied.
Plan Benefits
All awards to employees, officers, and consultants under the 2020 Plan are made at the discretion of the Compensation Committee. Therefore, the benefits and amounts that will be received or allocated to such individuals under the 2020 Plan are not determinable at this time. However, please refer to the description of grants made to our named executive officers in the last fiscal year described in the “Grants of Plan-Based Awards in 2019” table below. Grants made to our non-employee directors in the last fiscal year are described under “Director Compensation” below.
THE BOARD OF DIRECTORS unanimously RECOMMENDS thatstockholders VOTE “FOR” THE APPROVAL OF THEENERGY RECOVERY, INC. 2020INCENTIVE PLAN.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth equity compensation plan information as of May 21, 2020.
Plan Category | Number of Securities to Be Issued Upon Exercise of Outstanding Options, Warrants, and Rights | Weighted- Average Exercise Price of Outstanding Options, Warrants, and Rights | Full Value Awards Outstanding | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans | ||||||||||||
Equity compensation plans approved by security holders | 4,251,833 | 7.11 | 702,890 | 1,394,727 | ||||||||||||
Equity compensation plans not approved by security holders | None | Not Applicable | None | Not Applicable |
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PROPOSAL NO. 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED
PUBLIC Accounting firm
The Audit Committee has appointed Deloitte & Touche LLP, as our independent registered public accounting firm for the fiscal year ending December 31, 2020. Deloitte & Touche LLP was retained by us on April 11, 2018, as announced in our Current Report on Form 8-K, filed on April 13, 2018. Prior to Deloitte & Touche LLP, BDO USA, LLP acted as our independent registered public accounting firm. BDO USA, LLP audited the Company’s financial statements for the fiscal years ending December 31, 2017 and 2016. On April 11, 2018, in connection with its selection of Deloitte & Touche LLP, the Audit Committee approved the dismissal of BDO USA, LLP. A representative of Deloitte & Touche LLP is expected to be present at the virtual Annual Meeting. The representative will have an opportunity to make a statement and to respond to any questions.
The Audit Committee recognizes the importance of maintaining the independence of the Company’s independent auditor, both in fact and appearance. Each year, the Audit Committee evaluates the qualifications, performance and independence of the Company’s independent auditor and determines whether to re-engage the current independent auditor. In doing so, the Audit Committee considers the quality and efficiency of the services provided by the auditors, the auditors’ (global) capabilities and the auditors’ technical expertise and knowledge of the Company’s operations and industry. Based on this evaluation, the Audit Committee has retained Deloitte & Touche LLP as the Company’s Independent Auditor for fiscal year 2020. The members of the Audit Committee and the Board believe that, due to Deloitte & Touche’s knowledge of the Company and of the industries in which the Company operates, it is in the best interests of the Company and its stockholders to retain Deloitte & Touche LLP to serve as the Company’s independent auditor during 2020.
During the years ended December 31, 2019 and 2018, neither the Company nor anyone on its behalf has consulted with Deloitte & Touche LLP with respect to either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, and neither a written report nor oral advice was provided to the Company that Deloitte & Touche LLP concluded was an important factor considered by the Company in reaching a decision as to any accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K) or a “reportable event” (as defined in Item 304(a)(1)(v) of Regulation S-K).
The report of Deloitte and Touche LLP on the Company’s consolidated financial statements for the years ended December 31, 2019 and 2018 did not contain an adverse opinion or a disclaimer of an opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles.
During the years ended December 31, 2017 and 2016 and for the period from January 1, 2018 to April 11, 2018, there were no disagreements (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K) with BDO USA, LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of BDO USA, LLP, would have caused BDO USA, LLP to make reference to the subject matter of the disagreements in its reports on the consolidated financial statements for such years.
During the year ended December 31, 2017 and for the period from January 1, 2018 to April 11, 2018, there were no “reportable events” (as defined in Item 304(a)(1)(v) of Regulation S-K).
Principal Accountant Fees and Services
The following table sets forth all fees accrued or paid to Deloitte & Touche LLP, our independent registered public accountants, and BDO USA, LLP, our former independent registered public accountants, for fiscal years ended December 31, 2019 and 2018.
2019 | 2018 | |||||||
Audit Fees (1) | $ | 850,000 | $ | 794,000 | ||||
Audit-Related Fees (2) | 10,000 | 4,000 | ||||||
Tax Fees (3) | 168,081 | 566,361 | ||||||
All Other Fees (4) | 1,895 | 1,895 | ||||||
Total | $ | 1,029,976 | $ | 1,366,256 |
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Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm
The Audit Committee pre-approves audit, audit-related, tax, and all other services provided by our independent registered public accountants, Deloitte & Touche LLP and will not approve services that are impermissible under applicable laws and regulations. The pre-approval of services may be delegated to one or more of the Audit Committee’s members, but the decision of that member to pre-approve specific services must be reported to the full Audit Committee at its next scheduled meeting. In the fiscal years ended December 31, 2019 and 2018, all fees identified above under the captions “Audit Fees” that were billed by Deloitte & Touche LLP for 2019 and 2018, were approved by the Audit Committee in accordance with SEC requirements.
In the fiscal years ended December 31, 2019 and 2018, there were no other professional services provided by Deloitte & Touche LLP, other than those listed above, that would have required our Audit Committee to consider their compatibility with maintaining the independence of Deloitte & Touche LLP.
Ratification of Deloitte & Touche LLP
Although ratification is not required, the appointment of Deloitte & Touche LLP as the Company’s independent auditors for fiscal year 2020 is being submitted for ratification at the Annual Meeting because the Board believes doing so is a good corporate governance practice. Furthermore, the Audit Committee will take stockholders’ opinions regarding the appointment of Deloitte & Touche LLP into consideration in future deliberations. If Deloitte & Touche LLP’s appointment is not ratified at the Annual Meeting, the Audit Committee will consider the engagement of other independent auditors. The Audit Committee may terminate Deloitte & Touche LLP’s engagement as the Company’s independent accountants without the approval of the Company’s stockholders whenever the Audit Committee deems appropriate.
THE BOARD OF DIRECTORS unanimously RECOMMENDS that
stockholders VOTE “FOR” RATIFICATION
OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY’S
INDEPENDENT REGISTERED PUBLIC accountING FIRM FOR
THE YEAR ENDING DECEMBER 31, 2020
PROPOSAL NO. 4
non-binding ADVISORY vote ON EXECUTIVE COMPENSATION
The Compensation Discussion and Analysis beginning on page 38 of this Proxy Statement describes the Company’s executive compensation program and the compensation decisions made by the Compensation Committee for our fiscal year ended December 31, 2019, with respect to the executive officers named in the Summary Compensation Table on page 49. The Board of Directors is asking our stockholders to cast a non-binding advisory vote to approve the following resolution:
“RESOLVED, that the stockholders of Energy Recovery, Inc. approve, on an advisory basis, the compensation of the executive officers named in the Summary Compensation Table for 2019, as disclosed in this Proxy Statement pursuant to the compensation disclosure rules of the SEC (which disclosure includes the Compensation Discussion and Analysis, the compensation tables (other than the pay ratio), and the related footnotes and narratives accompanying the tables).”
The Board is asking our stockholders to vote “FOR” this proposal because it believes that the policies and practices described in the Compensation Discussion and Analysis section of this Proxy Statement are necessary to achieve the Company’s primary objective of the executive compensation program, that of attracting, retaining, and motivating the talent we need to meet and/or exceed the strategic, operational, and financial goals of the Company. Additionally, we want to reward superior performance and align the long-term interests of our executives with our stockholders.
This proposal, commonly known as a “Say on Pay” proposal, gives you, as a stockholder, the opportunity to express your views on our executive compensation programs and policies and the compensation paid to the executive officers named in the Summary Compensation Table.
The Company’s current policy is to hold a Say on Pay vote each year. We expect to hold another advisory vote with respect to executive compensation at the annual meeting of stockholders to be held in 2021.
Although your vote on this proposal is advisory and non-binding, the Compensation Committee values the views of our stockholders and will take into account the outcome of the vote when considering future compensation decisions for our named executive officers. We are providing this advisory vote pursuant to Section 14A of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR”
THE APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION OF OUR
NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THE COMPENSATION DISCUSSION
AND ANALYSIS, THE ACCOMPANYING COMPENSATION TABLES AND THE RELATED
NARRATIVE DISCLOSURE INCLUDED IN THIS PROXY STATEMENT.
Information about the board of directors
and CORPORATE GOVERNANCE MATTERS
Governance Overview
ERI is committed to maintaining superior governance practices that represent the long-term interests of our stockholders. Our governance framework is designed to promote governance transparency and weensure our Board has the necessary authority to review and evaluate our business operations and make decisions that are independent of management and in the best interests of our stockholders. We regularly assess and refine our corporate governance policies and procedures to take into account evolving best practices.
For example, in March 2022, the Board adopted Corporate Governance Guidelines that provide a framework for governance of the Company as a whole and describe the principles and practices that the Board follows in carrying out its responsibilities. The Corporate Governance Guidelines address the roles of the Board and management, the composition, structure and polices of the Board and its committees, the responsibilities of the Chairman and Lead Independent Director, expectations and responsibilities of directors, evaluation of Board and committee performance and other related matters. The Nominating and Corporate Governance Committee is responsible for periodically reviewing the Corporate Governance Guidelines to ensure that they reflect the best interests of both the Company and its stockholders and that they comply with all applicable rules and regulations.
given the specific circumstances then facing the Company.
The Chief Executive Officer is responsible for managing the business and affairs of the Company, subject to the oversight of the Board. The Chief Executive Officer’s duties include leading the management team, representing the Company externally, consulting with the Chairman of the Board about developments in the Company, and communicating with all directors about key issues outside of Board meetings.
Upon the departure of the Company’s prior President and Chief Executive Officer, Chris Gannon, on November 1, 2019, the Board appointed Robert Yu Lang Mao, the Company’s Chairman of the Board, as the interim Chief Executive Officer, and on May 5, 2020, the Board appointed Mr. Mao as the President and Chief Executive Officer. Accordingly, the roles of Chairman and Chief Executive Officer are currently held by Mr. Mao. To maintain the independent leadership of the Board during this interim period, at the time Mr. Mao was appointed as the interim Chief Executive Officer, the independent members of the Board appointed Arve Hanstveit as the Board’s Lead Independent Director. On May 5, 2020, the Board appointed Pamela Tondreau as the Lead Independent Director succeeding Mr. Hanstveit. We believe that the Lead Independent Director provides the Company and the Board with the same independent leadership, oversight and benefits that has historically been provided by an independent Chairman. Ms. Tondreau has been a member of the Board since 2019 and she currently serves on the Compensation Committee. Ms. Tondreau’s extensive corporate and legal experience make her qualified to serve as Lead Independent Director of our Board.
Board of Directors
members.
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| Age | Class I |
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Mr. Robert Yu Lang Mao | 78 |
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Mr. Alexander J. Buehler | 46 | x | Chair | Member | |||||||||||||||||||||||||||||||||||||||||||
Ms. Joan K. Chow | 61 | x | Member | ||||||||||||||||||||||||||||||||||||||||||||
Mr. Olav Fjell (1) | 70 | x | Member | Member | |||||||||||||||||||||||||||||||||||||||||||
Mr. Sherif Foda | 53 | x | Member | Member | |||||||||||||||||||||||||||||||||||||||||||
Mr. Arve Hanstveit | 67 | x | Member | Chair | |||||||||||||||||||||||||||||||||||||||||||
Ms. Lisa A. Pollina | 57 | x | Member | Member | |||||||||||||||||||||||||||||||||||||||||||
Ms. Pamela L. Tondreau | 62 |
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| Chair | Member | |||||||||||||||||||||||||||||||||||||||||
Immediately following
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The division of our Board of Directors into three classes with staggered three-year terms may delay or prevent a change of our management or a change of control. Under Delaware law, our directors may be removed for cause by the affirmative vote of the holders of a majority of our outstanding voting stock. Directors may not be removed by our stockholders without cause.
Any increase or decrease in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one third of the directors.
Meeting.
five years or less.
Total Number of Directors | 8 | ||||||||||||||||||||||
Female | Male | Non-Binary | Did Not Disclose Gender | ||||||||||||||||||||
Part I: Gender Identity | |||||||||||||||||||||||
Directors | 3 | 5 | — | — | |||||||||||||||||||
Part II: Demographic Background | |||||||||||||||||||||||
African American or Black | — | — | — | — | |||||||||||||||||||
Alaskan Native or Native American | — | — | — | — | |||||||||||||||||||
Asian | 1 | 1 | — | — | |||||||||||||||||||
Hispanic or Latinx | — | — | — | — | |||||||||||||||||||
Native Hawaiian or Pacific Islander | — | — | — | — | |||||||||||||||||||
White | 2 | 3 | — | — | |||||||||||||||||||
Two or More Races or Ethnicities | — | — | — | — | |||||||||||||||||||
LGBTQ+ | — | ||||||||||||||||||||||
Did Not Disclose Demographic Background | 1 |
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Audit Committee | |||||||||||||
Current Members: All Independent(1) | Key Responsibilities: | ||||||||||||
Alexander J. Buehler (Chair)
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•Oversees and reports to the Board with respect to the quality and integrity of the Company’s financial statements, accounting, and financial reporting processes, and audits of the financial statements and internal controls over financial
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Joan K. Chow | |||||||||||||
Olav Fjell | |||||||||||||
Arve Hanstveit | |||||||||||||
Lisa A. Pollina | |||||||||||||
•Appoints, compensates, and evaluates the qualifications, independence, and performance of the independent
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Meetings in 2021: 4 | |||||||||||||
The Board has unanimously determined that each member of the Audit Committee meets NASDAQ’s “financial sophistication” requirements, and that Mr. Buehler has the financial education and experience to qualify as an “Audit Committee financial expert” within the meaning of SEC regulations. | •Oversees the performance of the internal audit
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•Establishes policy standards and guidelines for the Company’s
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•Monitors the Company’s compliance with legal and regulatory requirements,
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•Reviews and approves related party
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•Reviews cyber-security and other risks relevant to the Company’s information system controls and |
Compensation Committee | |||||||||||
Current Members: All Independent (1) | Key Responsibilities: | ||||||||||
Pamela L. Tondreau (Chair) | •Review and approves the Company’s overall compensation philosophy. | ||||||||||
Alexander J. Buehler | |||||||||||
Sherif Foda | •Design and administers the Company’s executive compensation programs and policies that are aligned with business and compensation objectives. | ||||||||||
Lisa A. Pollina | |||||||||||
| •Evaluate the performance of the Chief Executive Officer and approve his compensation and other terms of employment. | ||||||||||
Meetings in | |||||||||||
The Board has determined that each member is independent under |
•Determine and approves the annual compensation of the executive officers and Section 16
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•Administer the Company’s incentive and stock plans, including establishing guidelines, interpreting plan documents, selecting participants, approving grants and
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•Review and makes recommendations to the Board concerning director
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•Retain outside advisors; directly | |||||||||||
•Review the compensation policies and practices to determine areas of resulting risk. |
Nominating and Corporate Governance Committee | |||||||||||
| Key Responsibilities:
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Arve Hanstveit (Chair) | •Identify and
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Olav Fjell | |||||||||||
Sherif Foda | •Monitor the independence of directors of the Board and Board
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Pamela L. Tondreau | |||||||||||
•Oversees the Board and Board Committees annual evaluation
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Meetings in 2021: 6 | •Develop and oversees compliance with the Company’s corporate governance functions, including the procedures for compliance with significant applicable legal, ethical and regulatory requirements that impact corporate
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The Board has determined that each member is independent under NASDAQ rules. | |||||||||||
•Review and makes recommendations to the Board with respect to the Company’s corporate governance | |||||||||||
•CEO succession planning. | |||||||||||
•Senior Management succession planning. |
The Nominating and Corporate Governance Committee considers and makes recommendations to the Board regarding any stockholder recommendations for candidates to serve on the Board. Our Bylaws contain provisions that address the process by which a stockholder may nominate an individual to stand for election to the Board. In order to nominate a candidate for director, a stockholder must give timely notice in writing to our Secretary and otherwise comply with the provisions of our Bylaws. To be timely, a stockholder’s notice to our Secretary must be delivered to or mailed and received at our principal executive offices, in the case of an annual meeting, not later than the close of business on the 90120th day, nor earlier than the close of business on the 120150th day, prior to the anniversary date on which we first mailed our Proxy Statement to stockholders in connection with the immediately preceding annual meeting. If no annual meeting was held in the previous year or the annual meeting is called for a date that is not within 3025 days before or after such anniversary date, notice by the stockholder to be timely must be so received not later than the close of business the 10th day following the day on which such notice of the date of the meeting was mailed or public disclosure of the date of the meeting was made, whichever occurs first. In the case of a special meeting of stockholders called for the purpose of electing directors, notice must be delivered to or mailed and received not later than the close of business on the 10th day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever occurs first.
In reviewing potential candidates for the Board, the Nominating and Corporate Governance Committee considers numerous factors including:
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While the Board is responsible for setting, monitoring, and maintaining the Company’s risk management policies and practices, the Company’s executive officers, and members of our management team, are responsible for implementing and overseeing our day-to-day risk management processes.
•Significant commercial risks | •Strategy | ||||
•Capital market risks | •Competitive developments | ||||
•Material legal or reputational matters | •Risks related to ESG | ||||
•Mergers and acquisitions |
The Audit Committeestrategy, and the Board ensure that the risks undertaken are consistent with the Board’s tolerance for risk. While
Audit Committee include (but not limited to):
•Financial statements and financial risk exposures | •Oversight of overall risk management processes and policies | ||||
•Tax strategy and related risks | |||||
•Business ethics and anti-corruption program | •Accounting, controls and financial disclosures | ||||
•Significant commercial risks |
•Executive compensation philosophy and program design | •Diversity and inclusion | ||||
•Talent management | |||||
•Executive development and leadership | •Turnover and employee risks |
In addition to the oversight provided by our full Board of Directors, Audit Committee, Compensation Committee, executive officers and the members of our management team, our independent directors hold regularly scheduled executive sessions as often as they deem appropriate, but in any event at least four times each year. These executive sessions provide an additional avenue through which we monitor the Company’s risk exposure and policies regarding risk management.
Director Compensation
Directors who are non-employees
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Additionally,
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Annual Compensation Structure | Retainer Fee | |||||||
$ | ||||||||
Board Fees (Total) | 150,000 | |||||||
Cash Retainer | 50,000 | |||||||
Equity Retainer | 100,000 | |||||||
Committee and Lead Independent Director Fees | ||||||||
Lead Independent Director | 15,000 | |||||||
Chair of | 15,000 |
Chair of Compensation Committee |
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Our non-employee directors (exceptAnnual cash retainer fees, paid in quarterly installments, are prorated and paid based on the Chairman) also receive:
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Equity Compensation In 2021, the equity award was granted in the form of restricted stock units (“RSU”). These RSUs awards will fully vest on |
Our Chairman also receives:
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On the date of the 2019 annual meeting of stockholders, each continuing non-employee director (except2022 Annual Meeting, provided that the Chairman) received an option grant to purchase $85,000 of the Company’s common stock. The Chairman received an option award to purchase $135,000 of the Company’s common stock. The options have a one-year vesting period and become fully vested in June 2020, subject to the directorDirector is providing service to the Board through such date.
Our non-employee director compensation program for 2019 was substantially similar to 2018, with For Directors who joined the exceptionBoard after the beginning of a reduction in the cash retainer paid2021 Board term, the RSU grant date is the date of appointment to the Chairman from $200,000 in 2018 to $100,000 in 2019Board and an increase in the amount of RSUs awarded were prorated based on the option award from $85,000 in 2018date of their appointment to $135,000 in 2019.
the Board to the date of our 2022 Annual Meeting.
2021
Director | Fees Earned and Paid in Cash | Equity Awards (1) | Total | Unvested RSU Shares Held December 31, 2021 | ||||||||||||||||||||||
Alexander J. Buehler (2) | $ | 65,000 | $ | 99,993 | $ | 164,993 | 4,812 | |||||||||||||||||||
Joan K. Chow (3) | 2,083 | 47,785 | 49,868 | 2,347 | ||||||||||||||||||||||
Olav Fjell | 50,000 | 99,993 | 149,993 | 4,812 | ||||||||||||||||||||||
Sherif Foda | 50,000 | 99,993 | 149,993 | 4,812 | ||||||||||||||||||||||
Arve Hanstveit (4) | 52,784 | 99,993 | 152,777 | 4,812 | ||||||||||||||||||||||
Ole Peter Lorentzen (5) | 24,375 | — | 24,375 | — | ||||||||||||||||||||||
Lisa A. Pollina (6) | 14,583 | 73,063 | 87,646 | 3,743 | ||||||||||||||||||||||
Pamela L. Tondreau (7) | 75,000 | 99,993 | 174,993 | 4,812 | ||||||||||||||||||||||
Total | $ | 333,825 | $ | 620,813 | $ | 954,638 | 30,150 | |||||||||||||||||||
Director | Fees Earned and Paid in Cash | Option Awards (1) | Total | |||||||||
Mr. Alexander J. Buehler(2) | $ | 65,000 | $ | 85,000 | $ | 150,000 | ||||||
Mr. Sherif Foda | 50,000 | 85,000 | 135,000 | |||||||||
Mr. Olav Fjell | 50,000 | 85,000 | 135,000 | |||||||||
Mr. Arve Hanstveit (3) | 60,000 | 85,000 | 145,000 | |||||||||
Mr. Ole Peter Lorentzen(4) | 55,000 | 85,000 | 140,000 | |||||||||
Mr. Robert Yu Lang Mao(5) | 60,694 | 135,000 | 195,694 | |||||||||
Mr. Hans Peter Michelet (6) | 90,556 | — | 90,556 | |||||||||
Ms. Pamela Tondreau (7) | 21,102 | 74,124 | 95,226 | |||||||||
TOTAL | $ | 452,352 | $ | 634,124 | $ | 1,086,476 |
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Our non-employee directors are also reimbursed for travel, lodging and other reasonable expenses incurred in connection with their attendance at Board of Directors or committee meetings.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Proposal No. 2 – Non-Binding Advisory Vote on Executive Compensation |
We have determined beneficial ownershipdisclosed in accordance withthis Proxy Statement pursuant to the compensation disclosure rules of the SEC (which disclosure includes the Compensation Discussion and Analysis, the compensation tables (other than the pay ratio), and the informationrelated footnotes and narratives accompanying the tables).”
Shares | Percent of | ||||
5% or Greater Common Stockholders: | |||||
Arvarius AS c/o Marius Skaugen (3) | 7,532,490 | 13.5% | |||
Parkv.57 c/o B. Skaugen AS 0256 | |||||
Oslo, Norway | |||||
Ludvig Lorentzen AS (4) | 6,971,520 | 12.5% | |||
Postboks A, Bygdoy, 0211 | |||||
Oslo, Norway | |||||
Trigran Investment, Inc. (5) | 4,990,344 | 9.0% | |||
630 Dundee Road, Suite 230 | |||||
Northbrook, IL 60062 | |||||
Sundt AS (6) | 4,400,000 | 7.9% | |||
Dronningen 1, 2087 | |||||
Oslo, Norway | |||||
BlackRock, Inc. (7) | 2,776,341 | 5.0% | |||
55 East 52nd Street | |||||
New York, NY 10055 | |||||
Directors, Named Executive Officers, and Current Group: | |||||
Ole Peter Lorentzen (4) | 6,971,520 | 12.5% | |||
Arve Hanstveit (8) | 1,248,314 | 2.2% | |||
Robert Yu Lang Mao (9) | 411,430 | 0.7% | |||
Joshua Ballard (10) | 280,469 | 0.5% | |||
Farshad Ghasripoor(11) | 251,775 | 0.5% | |||
Alexander J. Buehler (12) | 191,186 | 0.3% | |||
Rodney Clemente (13) | 187,689 | 0.3% | |||
Olav Fjell (14) | 132,737 | 0.2% | |||
Sherif Foda (15) | 53,376 | *% | |||
Hans Peter Michelet (16) | 31,607 | *% | |||
Pamela Tondreau(17) | 10,295 | *% | |||
Chris Gannon (18) | — | *% | |||
Eric Siebert (19) | — | *% | |||
All named executive officers and directors as a group (13 persons) (20) | 9,770,398 | 17.4% |
*Less than 0.1%
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Named Executive Officer | Title | |||||||||||||
Robert Yu Lang Mao |
| President and Chief Executive Officer | ||||||||||||
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Joshua Ballard | Chief Financial Officer | |||||||||||||
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Rodney Clemente | Senior Vice President, Water | |||||||||||||
Farshad Ghasripoor | Chief Technology Officer | |||||||||||||
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William W. Yeung | Chief | |||||||||||||
Officers (“
NEOs”).2019 Corporate Performance Highlights
We are an energy solutions provider
Base Salary Fixed pay to attract and retain talent, based on role, level of responsibilities, and individual performance. |
Annual Incentives Variable pay to incent and recognize performance in areas of short-term strategic importance. |
Long-Term Incentives Equity-based pay to incent and recognize performance in areas of long-term strategic importance, promote retention and stability, and align executives with shareholders. |
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Corporate MBOs | Weight % | ||||||||||||
1 – | Financial Performance – meet or exceed adjusted operating income target | ||||||||||||
2 – | Financial Performance - meet or exceed R&D financial targets | 5% | |||||||||||
3 – | Water – | ||||||||||||
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4 – | Oil & Gas – | ||||||||||||
5 – | Oil & Gas – | ||||||||||||
| Refrigeration – advance PX G technology towards commercialization by commencing beta tests or the equivalent demonstration of progress | ||||||||||||
7 – | 10% | ||||||||||||
8 – | Emerging Technologies – meet or exceed target orders for IsoBoost | 5% | |||||||||||
9 – | Emerging Technologies – meet or exceed target industrial wastewater orders and complete strategic growth plan | 5% | |||||||||||
10 – | Emerging Technologies – determine future of mine cooling | 5% | |||||||||||
11 – | ESG – achieve target rating score increase | 5% | |||||||||||
Overall | 100% |
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year.
Compensia also performed a similar assessment and provided advice to the Compensation Committee on director compensation for 2021.
Competitive Positioning
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CEVA | Mesa Laboratories | Plug Power | ||||||
Consolidated Water Corporation | Middlesex Water Company | York Water Company | ||||||
DSP Group | Natural Gas Services Group |
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| Omega Flex |
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Base Salary | ||||||||
Named Executive Officers | 2019 | 2018 | ||||||
Robert Mao (1) | $ | 450,000 | N/A | |||||
Joshua Ballard (2) | $ | 325,000 | $ | 325,000 | ||||
Eric Siebert (3) | $ | 270,608 | $ | 265,302 | ||||
Farshad Ghasripoor | $ | 275,096 | $ | 247,586 | ||||
Rodney Clemente | $ | 270,608 | $ | 265,302 | ||||
Chris Gannon (4) | $ | 433,500 | $ | 425,000 |
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Base Salary | |||||||||||||||||
Named Executive Officer | 2021 | 2020 | |||||||||||||||
($) | ($) | ||||||||||||||||
Robert Yu Lang Mao | 515,000 | 500,000 | |||||||||||||||
Joshua Ballard | 343,119 | 333,125 | |||||||||||||||
Rodney Clemente | 324,450 | 315,000 | |||||||||||||||
Farshad Ghasripoor | 290,432 | 281,973 | |||||||||||||||
William W. Yeung | 309,000 | 300,000 | |||||||||||||||
Annual Cash Incentive Compensation
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For 2019,
Corporate MBO | Weight % | Achievement % | ||||||
1 – Financial Performance – meet or exceed adjusted operating income target established by the Compensation Committee | 30 | % | 100 | % | ||||
2 – Water – Fill gaps in existing Water product portfolio, improve and expand product lines by developing comprehensive strategic growth business plan by end of first half of the year | 10 | % | 100 | % | ||||
3 – Water – Fill gaps in existing Water product portfolio, improve and expand product lines by executing strategic growth plan by agreed upon dates | 10 | % | 100 | % | ||||
4 – Oil & Gas – Advance VorTeq towards commercialization by completing M1 with the Company’s product licensee | 30 | % | 0 | % | ||||
5 – Oil & Gas – Advance VorTeq towards commercialization by completing a live well frac with a partner or other third party | 20 | % | 0 | % | ||||
Overall | 100 | % | 50 | % |
Corporate MBOs | Weight % | Achievement % | |||||||||||||||
1 – | Financial Performance – meet or exceed adjusted operating income target | 30% | 100% | ||||||||||||||
2 – | Financial Performance - meet or exceed R&D financial targets | 5% | 100% | ||||||||||||||
3 – | Water – meet or exceed water backlog targets | 15% | 100% | ||||||||||||||
4 – | Oil & Gas – advance VorTeq towards commercialization by completing target live well fracs | 5% | 100% | ||||||||||||||
5 – | Oil & Gas – advance VorTeq towards commercialization by completing value proposition | 5% | 0% | ||||||||||||||
6 – | Refrigeration – advance PX G technology towards commercialization by commencing beta tests or the equivalent demonstration of progress | 10% | 100% | ||||||||||||||
7 – | Refrigeration – advance PX G technology towards commercialization by entering into commercial agreements or the equivalent demonstration of progress | 10% | 100% | ||||||||||||||
8 – | Emerging Technologies – meet or exceed target orders for IsoBoost | 5% | 0% | ||||||||||||||
9 – | Emerging Technologies – meet or exceed target industrial wastewater orders and complete strategic growth plan | 5% | 100% | ||||||||||||||
10 – | Emerging Technologies – determine future of mine cooling | 5% | 100% | ||||||||||||||
11 – | ESG – achieve target rating score increase | 5% | 100% | ||||||||||||||
Overall | 100% | 90% |
Named Executive Officer | 2019 | 2019 | 2019 | 2019 | ||||||||||||
(%) | ($) | (%) | ($) | |||||||||||||
Robert Yu Lang Mao(2) | N/A | N/A | N/A | N/A | ||||||||||||
Joshua Ballard | 60 | % | 195,000 | 57 | % | 185,250 | ||||||||||
Eric Siebert(3) | 60 | % | 162,365 | 40 | % | 107,161 | ||||||||||
Farshad Ghasripoor | 50 | % | 137,548 | 41 | % | 112,789 | ||||||||||
Rodney Clemente | 60 | % | 162,365 | 60 | % | 162,365 | ||||||||||
Chris Gannon(4) | 100 | % | 433,500 | N/A | N/A |
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2021 AIP | ||||||||||||||||||||||||||
Named Executive Officer | Target | Target | AIP Paid | 2021 AIP Paid in 2022 | ||||||||||||||||||||||
(%) | ($) | (%) | ($) | |||||||||||||||||||||||
Robert Yu Lang Mao | 100 | 515,000 | 90 | 463,500 | ||||||||||||||||||||||
Joshua Ballard | 60 | 205,871 | 60 | 205,871 | ||||||||||||||||||||||
Rodney Clemente | 60 | 194,670 | 60 | 194,670 | ||||||||||||||||||||||
Farshad Ghasripoor | 60 | 174,259 | 60 | 174,259 | ||||||||||||||||||||||
William W. Yeung | 60 | 185,400 | 60 | 185,400 | ||||||||||||||||||||||
Equity-Based Incentive Compensation
2019
Named Executive Officer | Option Awards | Value | RSUs | Value | ||||||||||||
(#) | ($) | (#) | ($) | |||||||||||||
Robert Yu Lang Mao(1) | N/A | N/A | N/A | N/A | ||||||||||||
Joshua Ballard | 35,800 | 162,496 | 21,381 | 162,496 | ||||||||||||
Eric Siebert | 35,800 | 162,496 | 21,381 | 162,496 | ||||||||||||
Farshad Ghasripoor | 35,800 | 162,496 | 21,381 | 162,496 | ||||||||||||
Rodney Clemente | 35,800 | 162,496 | 21,381 | 162,496 | ||||||||||||
Chris Gannon | 95,622 | 449,997 | 19,059 | 149,994 |
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NEOs. In addition, in July 2021, the Compensation Committee authorized a one-time grant of stock options to purchase the Company’s common stock to Mr. Ballard in recognition of his increased responsibility.
Named Executive Officer | Option Awards | Value | RSUs | Value | ||||||||||||||||||||||
(#) | ($) | (#) | ($) | |||||||||||||||||||||||
Robert Yu Lang Mao | 191,534 | 1,000,771 | — | — | ||||||||||||||||||||||
Joshua Ballard | 68,604 | 375,244 | — | — | ||||||||||||||||||||||
Rodney Clemente | 33,519 | 175,138 | 12,535 | 174,989 | ||||||||||||||||||||||
Farshad Ghasripoor | 31,124 | 162,624 | 11,640 | 162,494 | ||||||||||||||||||||||
William W. Yeung | 26,336 | 137,606 | 9,849 | 137,492 | ||||||||||||||||||||||
Severance and Termination Compensation
In 2019, the Company entered into Supplement Employment Agreement with each of our Named Executive Officers, except for Mr. Mao and Mr. Gannon. Each of the named executive officers has severance and/or termination arrangements that are detailed in their respective offer letters. Severance-related terms for our named executive officers are summarized in the section entitled “Employment Arrangements with Named Executive Officers”. Because it may be difficult for our executive officers to find comparable employment following a termination without cause, these severance benefits are intended to ease the consequences to an executive officer of an unexpected termination of employment. We also believe that having such arrangements in place can help us attract and retain key employees in a marketplace where these types of arrangements are commonly offered by our peer companies. In November 2019, Mr. Gannon, the former President and Chief Executive Officer of the Company resigned from the Company. The Company entered into a Settlement Agreement and Release with Mr. Gannon, pursuant to which the Company paid Mr. Gannon a lump sum amount equal to twelve months’ of his base salary and twelve months’ of COBRA benefits, accelerated the vesting of 25% of the outstanding and unvested equity awards held by Mr. Gannon such that they vest immediately and extended the period during which Mr. Gannon can exercise any vested option through November 1, 2020, in consideration for a release of claims against the Company, an agreement to provide certain assistance to the Company in the future and complying with certain restrictive covenants.
Compensation Policies and Practices as They Relate to Risk Management
Our Compensation Committee has reviewed our compensation programs for our employees and believes that our compensation programs are structured in a manner that does not create risks that are reasonably likely to have a material adverse effect on the Company. The Compensation Committee considered, among other factors, the allocation of compensation among annual base salary, AIP and long-term equity awards.
Report of the Compensation Committee
This report is not deemed to be soliciting material filed with the SEC or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that the Company specifically incorporates it by reference into a document filed with the SEC.
The Compensation Committee reviewed and discussed the Compensation Discussion and Analysis (“CD&A”) set forth above with the Company’s management. Based on the review and discussions, the Compensation Committee recommended to the Company’s Board of Directors that the CD&A be included in this Proxy Statement.
MEMBERS OF THE COMPENSATION COMMITTEE
Arve Hanstveit, Chairman of the Compensation Committee
Sherif Foda
Alexander Buehler
Ole Peter Lorentzen
Pamela Tondreau
Summary Compensation Table
The table below summarizes certain compensation information with respect to the named executive officers for the applicable fiscal years ending December 31, 2019; December 31, 2018; and December 31, 2017. All amounts are in dollars.
Name | Year | Salary | Bonus | Stock | Option | Non-Equity Incentive Plan Compensation | All | Total | ||||||||||||||||||||||
($)(1) | ($) | ($)(2) | ($)(3) | ($)(4) | ($)(5) | ($) | ||||||||||||||||||||||||
Robert Yu Lang Mao (6) | 2019 | 62,308 | — | — | — | — | — | 62,308 | ||||||||||||||||||||||
Interim President and Chief Executive Officer | ||||||||||||||||||||||||||||||
Joshua Ballard (7) | 2019 | 325,000 | — | 162,496 | 162,511 | 195,000 | $ | 2,692 | 847,699 | |||||||||||||||||||||
Chief Financial Officer | 2018 | 118,750 | 100,000 | — | 999,839 | 195,000 | $ | 25,783 | 1,439,372 | |||||||||||||||||||||
Eric Siebert (8) | 2019 | 280,406 | — | 162,496 | 162,511 | 133,712 | 51,243 | 790,368 | ||||||||||||||||||||||
Vice President, Oil & Gas | 2018 | 265,202 | — | 262,477 | 162,500 | 133,712 | 11,461 | 835,352 | ||||||||||||||||||||||
2017 | 260,100 | — | 162,479 | 162,500 | 140,454 | 9,958 | 735,491 | |||||||||||||||||||||||
Rodney Clemente | 2019 | 290,702 | — | 162,496 | 162,511 | 159,181 | 9,667 | 784,557 | ||||||||||||||||||||||
Vice President, Water | 2018 | 265,202 | — | 137,497 | 137,500 | 159,181 | 80,165 | 779,545 | ||||||||||||||||||||||
2017 | 247,159 | — | 137,482 | 137,504 | 148,295 | 56,257 | 726,697 | |||||||||||||||||||||||
Farshad Ghasripoor | 2019 | 283,844 | — | 162,496 | 162,511 | 100,400 | 10,657 | 719,908 | ||||||||||||||||||||||
Chief Technology Officer | ||||||||||||||||||||||||||||||
Chris Gannon (9) | 2019 | 390,840 | — | 149,994 | 450,038 | 276,250 | 442,984 | 1,710,106 | ||||||||||||||||||||||
Former President and Chief Executive Officer | 2018 | 407,630 | — | 162,495 | 262,492 | 276,250 | 11,461 | 1,120,328 | ||||||||||||||||||||||
2017 | 322,928 | — | 162,479 | 162,500 | 190,868 | 12,560 | 861,335 |
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Name | Year | Insurance | 401(k) | Other(a) | Total | |||||||||||||
($) | ($) | ($) | ($) | |||||||||||||||
Robert Yu Lang Mao (6) | 2019 | — | — | — | — | |||||||||||||
Joshua Ballard (7) | 2019 | 1,567 | 1,125 | — | 2,692 | |||||||||||||
2018 | 627 | 1,125 | 24,031 | 25,783 | ||||||||||||||
Eric Siebert (8) | 2019 | 1,417 | 8,250 | 41,576 | 51,243 | |||||||||||||
2018 | 2,211 | 9,250 | — | 11,461 | ||||||||||||||
2017 | 2,173 | 7,785 | — | 9,958 | ||||||||||||||
Rodney Clemente | 2019 | 1,417 | 8,250 | — | 9,667 | |||||||||||||
2018 | 2,211 | 9,250 | 68,704 | 80,165 | ||||||||||||||
2017 | 2,711 | 9,000 | 44,546 | 56,257 | ||||||||||||||
Farshad Ghasripoor | 2019 | 2,407 | 8,250 | — | 10,657 | |||||||||||||
Chris Gannon (9) | 2019 | 1,234 | 8,250 | 433,500 | 442,984 | |||||||||||||
2018 | 2,211 | 9,250 | — | 11,461 | ||||||||||||||
2017 | 3,560 | 9,000 | — | 12,560 |
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ADDITIONAL INFORMATION REGARDING EXECUTIVE COMPENSATION
Grants of Plan-Based Awards in 2019
The following table sets forth information concerning non-equity and equity incentive plan awards to the named executive officers during 2019. The non-equity incentive plan consists of the 2019 cash incentive plan described in the “Compensation Discussion and Analysis” section above. The actual amounts realized in accordance with the non-equity incentive plan are reported in the “Summary Compensation Table” under the column entitled “Non-Equity Incentive Plan Compensation.” The table also depicts information with respect to stock option awards granted by the Company during 2019.
Estimated future payouts under non-equity incentive plan awards | Estimated future payouts under equity incentive plan awards | |||||||||||||||||||||||||||||||||||||||||
Name | Grant Date | Threshold | Target(1) | Maximum | Threshold | Target | Maximum | All other stock awards: Number of shares of stock or units(1) | All other option awards: Number of securities underlying options(2) | Exercise or base price of option awards | Grant date fair value of stock and option awards | |||||||||||||||||||||||||||||||
($) | ($) | ($) | (#) | (#) | (#) | (#) | (#) | ($/Sh) | ($) | |||||||||||||||||||||||||||||||||
Robert Yu Lang Mao (3) | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Joshua Ballard(4) | 1/31/2019 | — | 195,000 | — | — | — | — | 35,800 | — | 7.60 | 162,511 | |||||||||||||||||||||||||||||||
1/31/2019 | — | — | — | — | — | — | — | 21,381 | 7.60 | 162,496 | ||||||||||||||||||||||||||||||||
Eric Siebert(4) | 1/31/2019 | — | 162,365 | — | — | — | — | 35,800 | — | 7.60 | 162,511 | |||||||||||||||||||||||||||||||
1/31/2019 | — | — | — | — | — | — | 21,381 | 7.60 | 162,496 | |||||||||||||||||||||||||||||||||
Farshad Ghasripoor(4) | 1/31/2019 | — | 137,548 | — | — | — | — | 35,800 | — | 7.60 | 162,511 | |||||||||||||||||||||||||||||||
1/31/2019 | — | — | — | — | — | — | — | 21,381 | 7.60 | 162,496 | ||||||||||||||||||||||||||||||||
Rodney Clemente(4) | 1/31/2019 | — | 162,365 | — | — | — | — | 35,800 | — | 7.60 | 162,511 | |||||||||||||||||||||||||||||||
1/31/2019 | — | — | — | — | — | — | — | 21,381 | 7.60 | 162,496 | ||||||||||||||||||||||||||||||||
Chris Gannon(4) | 2/2/2019 | — | 433,500 | — | — | — | — | 95,622 | — | 7.87 | 450,038 | |||||||||||||||||||||||||||||||
2/2/2019 | — | — | — | — | — | — | — | 19,059 | 7.87 | 149,994 |
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Outstanding Equity Awards as of December 31, 2019
The following table presents certain information concerning equity awards held by our named executive officers as of December 31, 2019.
Option Awards(1) | Stock Awards | |||||||||||||||||||||||||
Name | Date of Grant | Number of Securities Underlying Unexercised Options Exercisable | Number of Securities Underlying Unexercised Options Unexercisable | Option Exercise Price | Option Expiration Date | Number of shares or units of stock that have not vested | Market value of shares or units of stock that have not vested(2) | |||||||||||||||||||
(#) | (#) | ($) | (#) | ($) | ||||||||||||||||||||||
Robert Yu Lang Mao (3) | — | — | — | — | — | — | ||||||||||||||||||||
Joshua Ballard | (4) | 8/13/2018 | 62,131 | 124,262 | 9.27 | 8/13/2028 | — | — | ||||||||||||||||||
(4) | 1/31/2019 | — | 35,800 | 7.60 | 1/31/2029 | — | — | |||||||||||||||||||
(5) | 1/31/2019 | — | — | — | — | 21,381 | 210,389 | |||||||||||||||||||
62,131 | 160,062 | 21,381 | 210,389 | |||||||||||||||||||||||
Eric Siebert | (6) | 6/8/2015 | 100,000 | — | 2.61 | 6/8/2025 | — | — | ||||||||||||||||||
(6) | 3/8/2016 | 30,758 | 2,051 | 8.52 | 3/8/2026 | — | — | |||||||||||||||||||
(4) | 2/2/2017 | 18,305 | 7,538 | 10.19 | 2/2/2027 | — | — | |||||||||||||||||||
(4) | 2/1/2018 | 17,228 | 20,362 | 7.50 | 2/1/2028 | — | — | |||||||||||||||||||
(4) | 1/31/2019 | — | 35,800 | 7.60 | 1/31/2029 | — | — | |||||||||||||||||||
(7) | 3/8/2016 | — | — | — | — | 1,237 | 12,172 | |||||||||||||||||||
(5) | 2/2/2017 | — | — | — | — | 7,974 | 78,464 | |||||||||||||||||||
(5) | 2/1/2018 | — | — | — | — | 16,250 | 159,900 | |||||||||||||||||||
(5) | 1/31/2019 | — | — | — | — | 21,381 | 210,389 | |||||||||||||||||||
166,291 | 65,751 | 46,842 | 460,925 | |||||||||||||||||||||||
Rodney Clemente | (6) | 3/12/2014 | 42,000 | — | 6.00 | 3/12/2024 | — | — | ||||||||||||||||||
(6) | 3/8/2016 | 24,606 | 1,641 | 8.52 | 3/8/2026 | — | — | |||||||||||||||||||
(4) | 2/2/2017 | 15,489 | 6,378 | 10.19 | 2/2/2027 | — | — | |||||||||||||||||||
(4) | 2/1/2018 | 14,578 | 17,229 | 7.50 | 2/1/2028 | — | — | |||||||||||||||||||
(4) | 1/31/2019 | — | 35,800 | 7.60 | 1/31/2029 | — | — | |||||||||||||||||||
(7) | 3/8/2016 | — | — | — | — | 989 | 9,732 | |||||||||||||||||||
(5) | 2/2/2017 | — | — | — | — | 6,747 | 66,390 | |||||||||||||||||||
(5) | 2/1/2018 | — | — | — | — | 13,750 | 135,300 | |||||||||||||||||||
(5) | 1/31/2019 | — | — | — | — | 21,381 | 210,389 | |||||||||||||||||||
96,673 | 61,048 | 42,867 | 421,811 | |||||||||||||||||||||||
Farshad Ghasripoor | (6) | 3/14/2013 | 5,388 | — | 3.92 | 3/14/2023 | — | — | ||||||||||||||||||
(6) | 3/12/2014 | 31,667 | — | 6.00 | 3/12/2024 | — | — | |||||||||||||||||||
(6) | 3/10/2015 | 39,720 | — | 2.75 | 3/10/2025 | — | — | |||||||||||||||||||
(6) | 3/8/2016 | 24,606 | 1,641 | 8.52 | 3/8/2026 | — | — | |||||||||||||||||||
(4) | 2/2/2017 | 12,672 | 5,219 | 10.19 | 2/2/2027 | — | — | |||||||||||||||||||
(4) | 2/1/2018 | 14,578 | 17,229 | 7.50 | 2/1/2028 | — | — | |||||||||||||||||||
(4) | 1/31/2019 | — | 35,800 | 7.60 | 1/31/2029 | — | — | |||||||||||||||||||
(7) | 3/8/2016 | — | — | — | — | 989 | 9,732 | |||||||||||||||||||
(5) | 2/2/2017 | — | — | — | — | 5,520 | 54,317 | |||||||||||||||||||
(5) | 2/2/2018 | — | — | — | — | 13,750 | 135,300 | |||||||||||||||||||
(5) | 1/31/2019 | — | — | — | — | 21,381 | 210,389 | |||||||||||||||||||
128,631 | 59,889 | 41,640 | 409,738 | |||||||||||||||||||||||
Chris Gannon | (6)(8) | 6/8/2015 | 200,000 | — | 2.61 | 11/1/2020 | — | — | ||||||||||||||||||
(6)(8) | 12/8/2015 | 96,875 | — | 6.88 | 11/1/2020 | — | — | |||||||||||||||||||
(6)(8) | 3/8/2016 | 30,246 | — | 8.52 | 11/1/2020 | — | — | |||||||||||||||||||
(4)(8) | 2/2/2017 | 19,382 | — | 10.19 | 11/1/2020 | — | — | |||||||||||||||||||
(4)(8) | 2/1/2018 | 21,731 | — | 7.50 | 11/1/2020 | — | — | |||||||||||||||||||
(4)(8) | 5/4/2018 | 10,840 | — | 8.22 | 11/1/2020 | — | — | |||||||||||||||||||
(4)(8) | 2/2/2019 | 23,906 | — | 7.87 | 11/1/2020 | — | — | |||||||||||||||||||
402,980 | — | — | — |
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Option Exercises and Stock Vested in 2019
The table below provides supplemental information relating to the value realized upon the vesting of restricted stock units during fiscal year 2019 for each named executive officer based on the closing share price of the Company’s common stock on the Nasdaq Stock Market on the applicable vesting date.
Option Awards | Stock Awards | |||||||||||||||
Number of shares acquired on exercise | Value realized on exercise | Number of shares acquired on vesting | Valued realized on vesting | |||||||||||||
(#) | ($) | (#) | ($) | |||||||||||||
Robert Mao | — | — | — | — | ||||||||||||
Joshua Ballard | — | — | — | — | ||||||||||||
Eric Siebert | — | — | 25,919 | 232,319 | ||||||||||||
Farshad Ghasripoor | — | — | 22,871 | 206,947 | ||||||||||||
Rodney Clemente | 75,091 | 777,063 | 11,913 | 99,300 | ||||||||||||
Chris Gannon | — | — | 24,860 | 220,819 |
Potential Payments Upon Termination or Change of Control
Change in Control Plan
We adopted the CIC Plan in March 2012 to provide change in control severance benefits for certain designated key employees. Each of the named executive officers currently serving participates in the CIC Plan described below.
2022.
The severance benefits, conditioned on the participant’s signing a release in favor of the Company and complying with certain other covenants under the CIC Plan, include the following (in addition to then earned and unpaid amounts owed less deductions required or permitted by law):
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Cash Compensation | •Additional 12 months of | ||||||||||
•100% of |
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COBRA Benefits | •Company paid coverage following first eligibility limited to the lower of 12 months or re-employment eligibility of a comparable plan with another employer | ||||||||||
Equity Compensation | •Immediate vesting of | ||||||||||
Other Compensation | •Maximum of |
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“Change in Control” means:
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Benefits
Name | Lump-Sum | Vesting of all Unvested Equity Compensation Awards, Including Time and Performance Vesting | COBRA Benefits for up to 12 Months (Medical, Dental, Vision, and Life Insurance | Maximum Outplacement Services Reimbursement | ||||||||||||
($) | ($) | ($) | ($) | |||||||||||||
Robert Yu Lang Mao(4) | — | — | — | — | ||||||||||||
Joshua Ballard | 520,000 | 361,410 | 29,135.85 | 10,000 | ||||||||||||
Eric Siebert(5) | 432,973 | 591,471 | — | 10,000 | ||||||||||||
Farshad Ghasripoor | 412,644 | 532,412 | 22,729.92 | 10,000 | ||||||||||||
Rodney Clemente | 432,973 | 544,485 | 23,057.96 | 10,000 | ||||||||||||
Chris Gannon(6) | — | — | — | — |
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(1)These amounts consist of twelve months’ base pay and 100% of the target annual bonus. (2)The CIC Plan further provides that all unvested equity compensation, including time and performance vesting awards, held by a participant will vest and become exercisable immediately prior to a Change in Control (whether or not the participant’s employment is terminated) if a Change of Control occurs and (i) the Company’s shares are no longer publicly traded or (ii) if a publicly-traded company acquires the Company, but does not replace unvested Company awards with defined equivalent equity compensation applicable to the acquiring company’s stock. For this purpose, all performance criteria, if any, underlying unvested awards are deemed to be satisfied at 100% of target. The amount in this column for vesting of equity compensation awards assumes hypothetically that each applicable trigger under the CIC Plan occurred on December 31, 2021, and in the case of vesting RSUs is based on the closing price of the Company’s common stock of $21.49 on December 31, 2021 and in the case of vesting option awards is based on $21.49 minus the exercise price of the applicable option. (3)COBRA amounts are based on NEO participation at December 31, 2021, and are estimated based on medical, dental, and vision amounts paid by Company on behalf of the Named Executive and amounts paid by the Named Executive. Energy Recovery, Inc. — 2022 Proxy Statement | 59 Severance and Termination Plan In February 2021, the Company’s Board of Directors approved, adopted and established the Energy Recovery, Inc. Severance Plan for the benefit of certain key members of management and other senior employees (the “Severance Plan”), including each of the NEOs. Designed as a retention tool, the Severance Plan is designed to protect participating executives from economic harm in the event of a Qualifying Termination (as defined in the Severance Plan). We believe these severance benefits are an essential element of our executive compensation program and assist us in recruiting and retaining talented individuals. The Severance Plan sets forth severance benefits in the event of a Qualifying Termination, which includes all payments required by applicable law, including all earned and unpaid salary, all earned but unpaid and un-deferred bonus attributable to the year that ends immediately before the year in which the termination occurs, and other benefits under applicable benefit plans to which the employee was entitled upon such termination. In addition, the Company’s Severance Plan includes the following benefits.
In the case of unvested equity compensation where the amount payable is based on the satisfaction of performance criteria, the amount of unvested equity will be determined by deeming all performance criteria satisfied at 100% target; to the extent the equity compensation is subject to the IRC, Section 409A, the vesting acceleration of the equity compensation shall not cause any distribution or payment under the equity compensation to be made before the earliest date it may be made without violating the IRC, Section 409A. The severance benefits are contingent upon the employee meeting certain eligibility requirements, including delivering to the Company a general release. Because it may be difficult for the Company’s executive officers to find comparable employment following a termination without cause, these severance benefits are intended to ease the consequences to an executive officer of an unexpected termination of employment. The Company also believes that having such arrangements in place can help the Company attract and retain key employees in a marketplace where these types of arrangements are commonly offered by the Company’s peer companies.
Energy Recovery, Inc. — 2022 Proxy Statement | 60
Key Defined Terms of the Severance Plan “Qualifying Termination” means an (i) involuntary termination without “Cause” as defined in the CIC Plan, as amended and in effect at the time of the Eligible Employee ’s termination, and (ii) Eligible Employee is not terminated for a “Non-Qualifying Reason,” each as determined by the Plan Administrator in its sole discretion. For clarity, a “Qualifying Termination” shall include the situation where the Eligible Employee is notified of an involuntary termination without “Cause” as defined in the CIC Plan, as amended and in effect at the time of their termination, and which is not for a “Non-Qualifying Reason,” followed by an agreement between the Eligible Employee and the Employer to have the employee voluntarily resign their employment with Employer. In order for an involuntary termination to qualify, the termination of employment must occur with respect to employment with all entities in the Plan Sponsor’s controlled group as determined under the rules of Internal Revenue Code Section 414, as modified by Internal Revenue Code Section 409A. “Non-Qualifying Reason” means either (i) the Eligible Employee voluntarily terminates their employment for whatever reason (except when such voluntary termination of employment is based on an agreement with Employer following notice by Employer to the Eligible Employee of a “Qualifying Termination”); or (ii) the Eligible Employee separates from Employer for whatever reason, and (a) Eligible Employee accepts any position with Employer that begins prior to the effective date of their employment termination with Employer, or (b) a comparable position with Employer is offered to the Eligible Employee prior to the effective date of their employment termination with Employer. For comparison of internal positions, a comparable position is a position determined by the Plan Administrator as having the same or higher base salary, or which is paid no more than 15% lower in base salary than the employee’s terminated position. Energy Recovery, Inc. — 2022 Proxy Statement | 61 Potential Payments under the Severance Plan The payments summarized below are triggered if a termination, as defined in the Severance Plan, occurs on December 31, 2021. The amounts described below do not take into account the “better after-tax” provision or applicable taxes.
(1)These amounts consist of six months’ base pay. (2)The Severance Plan further provides that 25% of all unvested equity compensation, including time and performance vesting awards, held by a participant will vest and become exercisable immediately prior to termination. The amount in this column for vesting of equity compensation awards assumes hypothetically that each applicable trigger under the Severance Plan occurred on December 31, 2021, and in the case of vesting RSUs is based on the closing price of the Company’s common stock of $21.49 on December 31, 2021 and in the case of vesting option awards is based on $21.49 minus the exercise price of the applicable option. (3)COBRA amounts are based on NEO participation at December 31, 2021, and are estimated based on medical, dental, and vision amounts paid by Company Compensation Policies and Practices as They Relate to Risk Management Our Compensation Committee has reviewed our compensation programs for our employees and believes that our compensation programs are structured in a manner that does not create risks that are reasonably likely to have a material adverse effect on the Company. The Energy Recovery, Inc. — 2022 Proxy Statement | 62 Table of
REPORT OF THE This report is not deemed to be soliciting material filed with the SEC or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that the Company specifically incorporates it by reference into a document filed with the SEC. The
MEMBERS OF THE COMPENSATION COMMITTEE Pamela L. Tondreau, Chair of the Compensation Committee Alexander J. Buehler Sherif Foda Lisa A. Pollina Energy Recovery, Inc. — 2022 Proxy Statement | 63 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information with respect to the beneficial ownership of our common stock as of April 11, 2022 for
We have determined beneficial ownership in accordance with
Energy Recovery, Inc. — 2022 Proxy Statement | 64
* Less than 0.1% (1)Beneficial ownership is determined in accordance with the rules of the SEC. In (2)Percent of class is based on the number of shares of Common Stock outstanding as of April 11, 2022, the Record Date, which were 56,668,786 shares. (3)Based on a Schedule 13G filed by BlackRock, Inc. with the (4)Number of shares owned outright consists of shares held by Mr. Hanstveit and Mr. Hanstveit’s daughters. Mr. Hanstveit has shared voting and investment power over the (5)Number of shares owned outright consists of shares held by Mr. Mao as trustee of The Robert and Iran Mao Rev Trust dated 04-06-2006. Energy Recovery, Inc. — 2022 Proxy Statement | 65 Summary Compensation Table The table below summarizes certain compensation information with
(1)The amounts in the
(2)The amounts in the “Option Award” column set forth the grant date fair value of stock options granted in the years indicated as calculated in accordance with FASB ASC Topic 718 without regard to estimated forfeitures. The methodology and (3)Non-Equity Incentive Plan Compensation is also referred to as cash incentive bonuses. The amounts for each year shown was paid to the employee in the following year (e.g., 2021 non-equity incentives were earned in 2021 but paid to the employee in 2022). Energy Recovery, Inc. — 2022 Proxy Statement | 66 (4)“All Other Compensation” includes the following components:
(a)Other Compensation in fiscal year 2021 includes cash value of certain gifts awarded. Other Compensation in fiscal year 2020 for Mr. Clemente includes a cash payment for previously accrued Paid-Time-Off. (5)Mr. Mao was appointed the President and Chief Executive Officer on May 5, 2020 and served as the interim President and Chief Executive Officer since November 1, 2019. The 2020 annual base salary for Mr. Mao represents the number of months of service to the Company during the year beginning in January 1, 2020 through May 4, 2020 (4 months) at an annualized base salary of $450,000 and from May 5, 2020 at an annualized base salary of $500,000. The 2019 annual base salary for Mr. Mao represents the number of months of service to the Company during the year beginning in November 2019 (2 months). Mr. Mao is also the Executive Chairman of the Board and these amounts do not reflect any amounts Mr. Mao received prior to assuming the role of interim President and Chief Executive Officer. (6)In addition to the 2021 annual equity incentive award of 325,248, Mr. Ballard was granted additional stock options valued at $49,996 in July 2021. Energy Recovery, Inc. — 2022 Proxy Statement | 67 Additional Information Regarding Executive Compensation Grants of Plan-Based Awards in 2021 The following table sets forth information concerning non-equity and equity incentive plan awards to the named executive officers during 2021. The non-equity incentive plan consists of the 2021 cash incentive plan described in the “Compensation Discussion and Analysis” section above. The actual amounts realized in accordance with the non-equity incentive plan are reported in the “Summary Compensation Table” under the column entitled “Non-Equity Incentive Plan Compensation.” The table also depicts information with respect to stock option awards granted by the Company during 2021.
(1)Amounts reflect the aggregate grant date fair value of option awards granted in 2021, calculated in accordance with FASB ASC Topic 718 without regard to estimated forfeitures. See Note 10 of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, (2)Amounts reflect the aggregate grant date fair value of RSU awards calculated in accordance with FASB ASC Topic 718 without regard to estimated forfeitures. The grant date fair value of each award is measured based on the
(3)In 2021, under our non-equity incentive plan, Mr. Mao was eligible to earn a cash award in an amount not to exceed 100% of his annual salary; Messrs. Ballard, Clemente, Gharispoor and Yeung each were eligible to earn a cash award in an amount not to exceed 60% of their annual salary. See the section entitled “Annual Cash Incentive Compensation” table for more information regarding 2021 cash awards. (4)In July 2021, Mr. Ballard received an additional option award that vests 25% on the first anniversary following the date of grant, and 1/48th monthly thereafter. Energy Recovery, Inc. — 2022 Proxy Statement | 68
Outstanding Equity Awards as of December 31, 2021 The following table
Energy
(1)Includes unvested options awards and stock awards for shares, subject to time vesting, granted under the 2008 Equity Incentive Plan, the 2016 Incentive Plan and the 2020 Incentive Plan.
Joshua Ballard,age 49,joined the Company in August 2018 as Chief Financial Officer. He brings more than 20 years of finance and operations experience, both domestically and internationally, working across industries within complex organizations to successfully navigate high growth. Most recently Mr. Ballard held the position of Operating Partner at Orox Capital Management, a Dallas-based private equity firm. During his time there he was responsible for the management of and collaboration with portfolio company teams to implement long-term strategic plans and improve finance and operations. Additionally, he served as the CFO for Southwest Spirit and Wines, an Orox Capital portfolio company, during a critical growth period in the company’s development. Prior to joining Orox Capital Management, Mr. Ballard was the Managing Director of Lanterne Advisors, LLC, where he held multiple CFO roles with venture-backed companies. He also served as Executive Director of Finance and Investor Relations for SigmaBleyzer Investment Group, a private equity fund, with investments across a broad range of industries within the U.S., Southeast Europe, and other former Soviet bloc countries. Mr. Ballard started out his career working on multiple international oil and gas projects, most notably with Fluor Corporation and holds a CFA, CMA and a Global MBA in Finance from Thunderbird School of Global Management. Rodney Clemente, age 42, joined Energy Recovery in 1998 and currently holds the position of Senior Vice President, Water. Responsible for all of Energy Recovery, Inc.’s sales, technical service, support and aftermarket activities for the Water business unit, Mr. Clemente provides a high level of system design, technical consultation and commercial support for desalination customers worldwide. During Mr. Clemente’s tenure with the Company, he has gained intimate knowledge of energy recovery technologies, pumping systems, desalination systems and various industrial processes. His expertise also spans several verticals, including manufacturing, marketing and business development. He is an active member of many of the leading industry organizations such as IDA and AMTA. Mr. Clemente has a BS in Engineering from California State University, East Bay and an Executive MBA from the University of Virginia’s Darden School of Business. Energy Recovery, Inc. — 2022 Proxy Statement | 73 Farshad Ghasripoor, age 62, joined the Company in 2012 and is the Chief Technology Officer at Energy Recovery, Inc. and is responsible for the conceptualization and ongoing development of the revolutionary VorTeq hydraulic pumping system. Mr. Ghasripoor has been instrumental for the rapid growth and diversification of the business into multiple segments. He has built a world class engineering organization that has become the driving force behind Energy Recovery’s product development efforts. The focus of the engineering team is on further expanding the Pressure Exchanger Technology into other applications and industrial sectors as well as expanding the portfolio of pumps and other energy recovery devices. Prior to joining Energy Recovery, he served a 12-year term at GE, starting at the General Electric Global Research Center, where he led the development of abradable seals for steam and gas turbines. Today, the seals he developed are installed in more than 250 GE gas turbines and all of GE’s reaction steam turbines. He also developed a solid particle erosion protection system for steam path airfoils, which is currently implemented in GE steam turbines to substantially extend the life of turbine airfoils. His first position was at Sulzer’s Research and Development division in Switzerland, where he improved the performance of large marine diesel engines, industrial pumps and compressors, and led the development of a new generation of abradable seals for gas turbines. He is a named inventor on 64
William W. Yeung, age 49, joined Energy Recovery in June 2016 and is the Chief Legal Officer. Mr. Yeung brings over 20 years of legal experience, with extensive experience in securities law, corporate governance and compliance, corporate strategy, SEC reporting and regulatory compliance, mergers and acquisitions, and general contracts. His clients have included Goldman Sachs, JP Morgan, Credit Suisse, Citigroup Global Markets, Lehman Brothers, UBS, Salomon Smith Barney, BNP Paribas, Del Monte, Sony Capital Corporation, McDonald’s Corporation, KBC Bank, The Interpublic Group of Companies, The Bank of New York, United Technologies Corporation, and Nortel Networks. Prior to joining the Company, Mr. Yeung was the General Counsel of SharesPost, Inc. and served as a senior legal executive for Thomas Weisel Partners Group Inc. and Socialutions Inc. Mr. Yeung began practicing law at Cleary, Gottlieb, Steen & Hamilton LLP in New York and practiced at Morrison & Foerster LLP in San Francisco. Energy Recovery, Inc. — 2022 Proxy Statement | 74
The Audit Committee has appointed Deloitte & Touche LLP, as our independent registered public accounting firm for the fiscal year ending December 31, 2022. Deloitte & Touche LLP has served as our auditors since 2018. A representative of Deloitte & Touche LLP is expected to be present at the virtual Annual Meeting. The representative will have an opportunity to make a statement and to respond to any questions. The Audit Committee recognizes the importance of maintaining the independence of the Company’s independent auditor, both in fact and appearance. Each year, the Audit Committee evaluates the qualifications, performance and independence of the Company’s independent auditor and determines whether to re-engage the current independent auditor. In doing so, the Audit Committee considers the quality and efficiency of the services provided by the auditors, the auditors’ (global) capabilities and the auditors’ technical expertise and knowledge of the Company’s operations and industry. Based on this evaluation, the Audit Committee has retained Deloitte & Touche LLP as the Company’s Independent Auditor for fiscal year 2022. The members of the Audit Committee and the Board believe that, due to Deloitte & Touche LLP’s knowledge of the Company and of the industries in which the Company operates, it is in the best interests of the Company and its stockholders to retain Deloitte & Touche LLP to serve as the Company’s independent auditor during fiscal year 2022. During the years ended December 31, 2021 and 2020, neither the Company nor anyone on its behalf has consulted with Deloitte & Touche LLP with respect to either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, and neither a written report nor oral advice was provided to the Company that Deloitte & Touche LLP concluded was an important factor considered by the Company in reaching a decision as to any accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K) or a “reportable event” (as defined in Item 304(a)(1)(v) of Regulation S-K). The report of Deloitte & Touche LLP on the Company’s consolidated financial statements for the years ended December 31, 2021 and 2020 did not contain an adverse opinion or a disclaimer of an opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles. Energy Recovery, Inc. — 2022 Proxy Statement | 75 Principal Accountant Fees and Services The following table sets forth all fees accrued or paid to Deloitte & Touche LLP, our independent registered public accountants for fiscal years ended December 31, 2021 and 2020.
(1)Audit Fees consist of fees for professional services rendered in connection with the audit of our annual consolidated financial statements and review of the financial statements included in our quarterly reports on Form 10-Q and services that are normally provided by the independent registered public accountants in connection with statutory and regulatory filings or engagements for those fiscal years. (2)Audit-related Fees consist of professional services rendered for assurance and related services reasonably related to the performance of the audit or review of our financial statements. (3)Tax Fees consist of fees for professional services rendered for tax compliance, tax advice and tax planning. (4)All Other Fees consist of product and services other than those reported above. Energy Recovery, Inc. — 2022 Proxy Statement | 76 Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm The Audit Committee pre-approves audit, audit-related, tax, and all other services provided by our independent registered public accountants, Deloitte & Touche LLP and will not approve services that are impermissible under applicable laws and regulations. The pre-approval of services may be delegated to one or more of the Audit Committee’s members, but the decision of that member to pre-approve specific services must be reported to the full Audit Committee at its next scheduled meeting. In the fiscal years ended December 31, 2021 and 2020, all fees identified above under the captions “Audit Fees” that were billed by Deloitte & Touche LLP for 2021 and 2020, were approved by the Audit Committee in accordance with SEC requirements. In the fiscal years ended December 31, 2021 and 2020, there were no other professional services provided by Deloitte & Touche LLP, other than those listed above, that would have required our Audit Committee to consider their compatibility with maintaining the independence of Deloitte & Touche LLP. Ratification of Deloitte & Touche LLP Although ratification is not required, the appointment of Deloitte & Touche LLP as the Company’s independent auditors for fiscal year 2022 is being submitted for ratification at the Annual Meeting because the Board believes doing so is a good corporate governance practice. Furthermore, the Audit Committee will take stockholders’ opinions regarding the appointment of Deloitte & Touche LLP into consideration in future deliberations. If Deloitte & Touche LLP’s appointment is not ratified at the Annual Meeting, the Audit Committee will consider the engagement of other independent auditors. The Audit Committee may terminate Deloitte & Touche LLP’s engagement as the Company’s independent accountants without the approval of the Company’s stockholders whenever the Audit Committee deems appropriate. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, 2022 Energy Recovery, Inc. — 2022 Proxy Statement | 77 REPORT OF THE AUDIT COMMITTEE This report is not deemed to be soliciting material filed with the SEC or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that the Company specifically incorporates it by reference into a document filed with the SEC. The Audit Committee oversees the Company’s financial reporting process on behalf of the Board of Directors. The Company’s management has the primary responsibility for the financial statements, for maintaining effective internal control over financial reporting, and for assessing the effectiveness of internal control over financial reporting. In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed the consolidated audited financial statements and the related schedules in the Annual Report with Company management, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements. The Audit Committee is governed by a charter. A copy of the charter is available on the Company’s website at www.energyrecovery.com. The charter was last amended effective April, 2020. The Audit Committee held four meetings during fiscal year 2021. The Audit Committee is comprised solely of independent directors as defined by the NASDAQ listing standards and Rule 10A-3 of the Exchange Act. The meetings of the Audit Committee are designed to facilitate and encourage communication among the committee, the Company, the Company’s internal audit function and the Company’s independent auditor. The Audit Committee discussed with the Company’s internal auditors and independent auditor the overall scope and plans for their respective audits. The Audit Committee meets with the internal auditors and the independent auditor, with and without management present, to discuss the results of their examinations; their evaluations of the Company’s internal control, including internal control over financial reporting; and the overall quality of the Company’s financial reporting. Energy Recovery, Inc. — 2022 Proxy Statement | 78 The Audit Committee reviewed and discussed with Deloitte & Touche LLP, which was responsible for expressing an opinion on the conformity of those consolidated audited financial statements and related schedules with United States (“U.S.”) Generally Accepted Accounting Principles, its judgments as to the quality, not just the acceptability, of the Company’s accounting principles and such other matters as are required to be discussed with the Audit Committee by the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), including PCAOB Auditing Standard No. 1301, Communications With Audit Committees, the rules of the SEC, and other applicable regulations. In addition, the Audit Committee has received the written disclosures and the letter from Deloitte & Touche LLP required by applicable PCAOB requirements regarding Deloitte & Touche LLP’s communications with the Audit Committee concerning independence. Additionally, the Audit Committee has discussed with Deloitte & Touche LLP, Deloitte & Touche LLP’s independence from Company management and the Company, including the matters in such letter, and has considered the compatibility of non-audit services with Deloitte & Touche LLP’s independence. In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors, and the Board has approved, that the consolidated audited financial statements and related schedules be included in the Annual Report on Form 10-K for the year ended December 31, 2021, and filed by the Company with the SEC. MEMBERS OF THE AUDIT COMMITTEE Alexander J. Buehler, Chair of the Audit Committee Joan K. Chow Olav Fjell Arve Hanstveit Lisa A. Pollina Energy Recovery, Inc. — 2022 Proxy Statement | 79
Information About The Annual Meeting Q: What is the purpose of the Annual Meeting? A: Stockholders of record at the close of business on April 11, 2022 (the “Record Date”) will vote on the following items at the Annual Meeting: •the election of two (2) Class I directors and three (3) Class II directors to serve until our 2023 Annual Meeting (and until his respective successor has been elected and qualified, or until the director’s earlier removal or resignation); •to hold a non-binding advisory vote on executive compensation; •to ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2022; and •to transact such other business that may properly come before the Annual Meeting or at any adjournment or postponement thereof. Q: Why are you conducting a Virtual Stockholder Meeting? A: We believe the virtual meeting format enables stockholders to participate fully, and equally, from any location around the world, at little to no cost to them. We designed the format of our Annual Meeting to ensure that our stockholders who attend our Annual Meeting will be afforded the same rights and opportunities to participate as they would at an in-person meeting. Our directors will also attend the meeting virtually. Q: What Happens If There Are Technical Difficulties During the Annual Meeting? A: We will have technicians ready to assist you with any technical difficulties you may have accessing the virtual annual meeting, voting at the annual meeting or submitting questions at the annual meeting. If you encounter any difficulties accessing the virtual meeting during the check-in or meeting time, please call the technical support number that will be posted on the Virtual Shareholder Meeting on the log in page. Energy Recovery, Inc. — 2022 Proxy Statement | 80 Q: How do I access the Audio Webcast of the Annual Meeting? A: The live audio webcast of the Annual Meeting will begin promptly at 10:00 a.m. Pacific Daylight Time. Online access to the audio webcast will open approximately fifteen (15) minutes prior to the start of the Annual Meeting to allow time for you to log in and test the computer audio system. We encourage our stockholders to access the meeting prior to the start time. To attend the virtual Annual Meeting, log in at www.virtualshareholdermeeting.com/ERII2022. Stockholders will need their unique 16-digit control number which appears on the Notice Regarding the Availability of Proxy Materials, the proxy card (printed in the box and marked by the arrow), and the instructions that accompanied the proxy materials. In the event that you do not have a control number, please contact your broker, bank or other nominee as soon as possible and no later than Wednesday, June 8, 2022, so that you can be provided with a control number and gain access to the meeting. Q: How do I vote? A: If you are a stockholder of record as of the Record Date, there are four ways to vote: •Via the Internet. You may vote by proxy via the Internet by following the instructions found on the proxy card or the Notice. •By Telephone. You may vote by proxy by calling the toll-free number found on the proxy card or the Notice. •By Mail. You may vote by proxy by filling out the proxy card and returning it in the envelope provided. If you vote by mail, your proxy card must be received by June 8, 2022. •At the Virtual Meeting. You may vote live at the Annual Meeting at www.virtualshareholdermeeting.com/ERII2022. Please note that the Internet and telephone voting facilities will close at 11:59 p.m. Eastern Daylight Time (8:59 p.m. Pacific Daylight Time) on June 8, 2022. If you are a beneficial owner of shares held in street name as of the Record Date, you should have received from your broker, bank, trustee or other nominee instructions on how to vote or instruct the broker to vote your shares, which are generally contained in a “vote instruction form” sent by the broker, bank, trustee or other nominee. Please follow their instructions carefully. Street name stockholders generally may vote by one of the following methods: •Via the Internet. You may vote by proxy via the Internet by following the instruction form provided to you by your broker, bank, trustee, or other nominee. •By Telephone. You may vote by proxy by calling the toll-free number found on the vote instruction form provided to you by your broker, bank, trustee, or other nominee. •By Mail. You may vote by proxy by filling out the vote instruction form and returning it in the envelope provided to you by your broker, bank, trustee, or other nominee. Energy Recovery, Inc. — 2022 Proxy Statement | 81 •At the Virtual Meeting. You may vote live at the virtual Annual Meeting at www.virtualshareholdermeeting.com/ERII2022 using your unique 16-digit control number which appears on the Notice Regarding the Availability of Proxy Materials, the proxy card (printed in the box and marked by the arrow), and the instructions that accompanied the proxy materials. Q: How does the Board of Directors recommend I vote on these proposals? A: The Board recommends a vote: •FOR the election of Class I directors Joan K. Chow and Lisa A. Pollina, and Class II directors Sherif Foda, Arve Hanstveit and Pamela L. Tondreau ; •FOR the approval of our executive compensation; and •FOR the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2022. Q: What is included in the proxy materials? A: The proxy materials include this Proxy Statement and our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on February 24, 2022 (the “Annual Report”). These materials were first made available to you via the Internet on or about April 25, 2022. Our principal executive offices are located at 1717 Doolittle Drive, San Leandro, CA 94577, and our telephone number is (510) 483-7370. We maintain a website at www.energyrecovery.com. The information on our website is not a part of this Proxy Statement. Q: Why did I receive a Notice of Internet Availability of Proxy Materials instead of a full set of proxy materials? A: In accordance with the rules of the SEC, we have elected to furnish our proxy materials, including this Proxy Statement and the Annual Report, primarily via the Internet. The Notice containing instructions on how to access our proxy materials is first being mailed on or about April 25, 2022 to all stockholders entitled to vote at the virtual Annual Meeting. Stockholders may request to receive all future proxy materials in printed form by mail or electronically by e-mail by following the instructions contained in the Notice. We encourage stockholders to take advantage of the availability of our proxy materials via the Internet to help reduce the environmental impact of our Annual Meetings. Q: How many votes do I have? A: On each matter to be voted upon, you have one vote for each share of common stock you own as of the Record Date. Energy Recovery, Inc. — 2022 Proxy Statement | 82 Q: Can I change my vote or revoke my proxy after submitting my proxy? A: You may change your vote or revoke your proxy at any time prior to the taking of the vote at the Annual Meeting. If you are the stockholder of record, you may change your vote by (1) granting a new proxy bearing a later date (which automatically revokes the earlier proxy) using any of the methods described on pages 81-82 of this Proxy Statement (and until the applicable deadline for each method); (2) providing a written notice of revocation to the Company’s Secretary at Energy Recovery, Inc., 1717 Doolittle Drive, San Leandro, CA 94577 prior to your shares being voted; or (3) attending the Annual Meeting and voting at the Annual Meeting. Attendance at the Annual Meeting will not cause your previously granted proxy to be revoked unless you specifically so request or vote at the virtual Annual Meeting. For shares you hold beneficially in street name, you generally may change your vote by submitting new voting instructions to your broker, bank, trustee, or nominee following the instructions they provided, or, if you have obtained a legal proxy from your broker, bank, trustee, or nominee giving you the right to vote your shares, by attending the virtual Annual Meeting and voting in person. Q: What if I return a proxy card but do not make specific choices? A: When proxies are properly dated, executed, and returned, the shares represented by such proxies will be voted at the Annual Meeting in accordance with the instructions of the stockholder. If no specific instructions are given, the shares will be voted in accordance with the recommendations of our Board of Directors as described on page 82 of this Proxy Statement. If any matters not described in this Proxy Statement are properly presented at the Annual Meeting, the proxy holders will use their own judgment to determine how to vote your shares. If the Annual Meeting is postponed or adjourned, the proxy holders can vote your shares on the new meeting date as well, unless you have revoked your proxy instructions, as described above under “Can I change my vote or revoke my proxy after submitting my proxy?” Q: Who pays for the expenses related to the preparation and mailing of the Proxy Statement? A: The Company will bear the costs of soliciting proxies, including the costs for the preparation, assembly, printing, and mailing of the Proxy Statement and related proxy materials. In addition, the Company will reimburse brokerage firms and other nominees representing beneficial owners of shares for their expenses in forwarding solicitation materials to beneficial owners of those shares. We have retained Alliance Advisors as our proxy solicitors, and proxies may be solicited by a representative of that firm. For its services, we will pay Alliance Advisors a fee of $7,000 plus reasonable expenses. Proxies may also be solicited by certain of the Company’s directors, officers, and regular employees, without additional compensation, either personally, by telephone, facsimile, or mail. Energy Recovery, Inc. — 2022 Proxy Statement | 83 Q: Who can vote at the Annual Meeting? A: Only stockholders of record at the close of business on April 11, 2022, the Record Date, will be entitled to notice of, and to vote at, our Annual Meeting. Each stockholder of record will be entitled to one vote on each matter for each share of common stock held on the Record Date. On the Record Date, the Company had 56,668,786 shares of common stock outstanding, held by 17 holders of record. Q: Will there be any other items of business on the agenda? A: We do not know of any business to be considered at the Annual Meeting other than the proposals described in this Proxy Statement; however, the proxy holders (who are the management representatives named on the proxy card) may vote using their discretion with respect to any other matters properly presented for a vote at the meeting. Q: How many votes are required for the approval of each item? A: Proposal No. 1 (election of director): The candidates who receive the greatest number of votes cast (also known as a “plurality” of the votes cast) at the Annual Meeting will be elected, provided that a quorum is present. The Board recommends a vote “FOR” the nominees. Proposal No. 2 (advisory approval of the Company’s executive compensation) and Proposal No. 3 (ratification of Deloitte & Touche LLP as our independent registered public accountants): An affirmative vote of a majority of the shares of the Company’s common stock present and entitled to vote is required to approve Proposals No. 2 and No. 3, provided that a quorum is present. The Board recommends a vote “FOR” each of the Proposals No. 2 and No. 3. Q: What is the quorum requirement? A: A “quorum” of stockholders must be present for us to hold a valid meeting of stockholders. Stockholders representing a majority (more than 50%) of the voting power of our outstanding common stock as of the Record Date, present in person or represented by proxy, constitute a quorum for the transaction of business at the Annual Meeting. Your shares will be counted towards the quorum only if you submit a valid proxy or if you vote in person at the meeting. Stockholders who submit signed and dated proxies without specifying their votes and broker “non-votes” described below will be counted towards the quorum requirement. If there is no quorum, the chairperson of the meeting or a majority of the votes present at the meeting may adjourn the meeting to another date. Energy Recovery, Inc. — 2022 Proxy Statement | 84 Q: What is a record holder? A: If your shares are registered directly in your name with our transfer agent, American Stock Transfer & Trust Company, LLC, you are considered a “record holder” of those shares. If you are a record holder, you will receive a Notice on how you may access and review the proxy materials on the Internet. Q: What is a beneficial owner? A: If your shares are held in a stock brokerage account, by a bank, or by another nominee, those shares are registered with American Stock Transfer & Trust Company, LLC in the “street name” of the brokerage account, bank, or other nominee, you are considered the “beneficial owner” of those shares. If you are a beneficial owner, your broker or other nominee will send you a form of voting instructions along with instructions on how to access proxy materials. As a beneficial owner, you have the right to direct your broker, bank, or other nominee on how to vote your shares by using the voting instruction form included in the mailing or by following the instructions on the voting instruction card for voting via the Internet or telephone. If there are multiple beneficial owners in the same household, your broker or other nominee may send only one set of voting instructions or copy of the proxy materials to your household. If you are receiving multiple copies of these materials and would like to receive a single copy in the future, please contact your broker, bank, or other nominee to request a single copy in the future. Q: How are votes counted? A: All shares of common stock represented by valid proxies will be voted in accordance with their instructions. In the absence of instructions, proxies will be voted “FOR” Proposals Nos. 1, 2 and 3. Brokers, banks, and other nominees may submit a proxy card for shares of common stock that they hold for a beneficial owner but may decline to vote on certain items because they have not received instructions from the beneficial owner. These are called “Broker Non-Votes” and are not included in the tabulation of the voting results for the election of directors or for purposes of determining the number of votes cast with respect to a particular proposal. Consequently, Broker Non‑Votes will not count as votes cast for purposes of Proposals Nos. 1 and 2. Brokers have the discretion to vote such shares for which they have not received voting instructions from the beneficial owners on routine matters but not on non-routine matters. The only routine matter up for vote this year is the ratification of the independent registered public accounting firm (Proposal No. 3). Energy Recovery, Inc. — 2022 Proxy Statement | 85 A broker is prohibited from voting on a non-routine matter unless the broker receives specific voting instructions from the beneficial owner of the shares. The election of directors (Proposal No. 1), and the advisory vote on executive compensation (Proposal No. 2) are non-routine matters, and your broker cannot vote your shares on these proposals unless you have timely returned applicable voting instructions to your broker. Abstentions have no effect on the outcome of voting for Proposal No. 1, election of directors. Abstentions are treated as shares present or represented and voting regarding Proposals Nos. 2 and 3, so abstentions have the same effect as negative votes on those proposals. A summary of the voting provisions, provided a valid quorum is present or represented at the Annual Meeting, for the matters described in “What is the purpose of the Annual Meeting?” is as follows:
(1)“Routine” means if you hold your shares in street name, your broker may vote your shares for you absent any other instructions from you. “Non-routine” means if you hold your shares in street name, your broker may not vote your shares for you. (2)“Plurality” means that the nominees who receive the largest number of votes cast “for” are elected as directors. Accordingly, the five nominees receiving the highest number of affirmative votes will be elected as the Class I and Class II directors to serve until the 2023 Annual Meeting. Abstentions and broker non‑votes will have no effect on the outcome of the vote. Q: Who counts or tabulates the votes? A: The votes of stockholders attending the Annual Meeting and voting in person will be counted or tabulated by an independent inspector of election. For our meeting, a representative of Broadridge Investor Communications Solutions, Inc. will tabulate votes cast by proxy and in person. Energy Recovery, Inc. — 2022 Proxy Statement | 86 Q: How do I access the proxy materials and annual report via the Internet? A: A Notice will be mailed or emailed with instructions on how to access proxy materials via the Internet. This Proxy Statement, the 2021 Annual Report, and related proxy materials for the Annual Meeting to be held on June 9, 2022 will also be available electronically at http://ir.energyrecovery.com. If you have previously chosen to receive the proxy materials via the Internet, you will be receiving an e-mail on or about April 25, 2022 with information on how to access stockholder information and instructions for voting over the Internet. Stockholders of record may vote via the Internet until 11:59 p.m. Eastern Daylight Time (8:59 p.m. Pacific Daylight Time) on June 8, 2022. If your shares are registered in the name of a brokerage firm and you have not elected to receive proxy materials over the Internet, you may still be eligible to vote shares electronically over the Internet. Many brokerage firms participate in programs that provide eligible stockholders who receive a paper copy of the Proxy Statement and Annual Report the opportunity to vote via the Internet. If your brokerage firm participates in such a program, a form from the broker will provide voting instructions. Stockholders can elect to view future Proxy Statements and Annual Reports over the Internet instead of receiving paper copies. Stockholders of record wishing to receive future stockholder materials electronically can elect this option by following the instructions provided when voting over the Internet at www.proxyvote.com. Upon electing to view future Proxy Statements and Annual Reports over the Internet, you will receive an e-mail notification next year with instructions containing the Internet address of those materials. The choice to view future Proxy Statements and Annual Reports over the Internet will remain in effect until you contact your broker or the Company to rescind the instructions. Internet access does not have to be elected each year. Stockholders who elected to receive this Proxy Statement electronically over the Internet and who would now like to receive a paper copy of this Proxy Statement so that they may submit a paper proxy in lieu of an electronic proxy should contact either their broker or the Company. Q: What should I do if I get more than one proxy or voting instruction card? A: Stockholders may receive more than one set of voting materials, including multiple copies of the proxy materials and multiple Notices, proxy cards, or voting instruction cards. For example, stockholders who hold shares in more than one brokerage account may receive separate sets of proxy materials for each brokerage account in which shares are held. Stockholders of record whose shares are registered in more than one name will receive more than one set of proxy materials or one Notice. You should vote in accordance with all of the proxy cards and voting instruction cards you receive relating to our Annual Meeting to ensure that all of your shares are counted. Energy Recovery, Inc. — 2022 Proxy Statement | 87 Q: I share an address with another stockholder, and we received only one paper copy of the proxy materials. How may I obtain an additional copy of the proxy materials? A: The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for Proxy Statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single Proxy Statement addressed to those stockholders. This process is commonly referred to as “house-holding.” Brokers with account holders who are Energy Recovery stockholders may be house-holding our proxy materials. A single set of proxy materials may be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker that it will be house-holding communications to your address, house-holding will continue until you are notified otherwise or until you notify your broker or The Company that you no longer wish to participate in house-holding. If, at any time, you no longer wish to participate in house-holding and would prefer to receive a separate Proxy Statement and Annual Report, you may (1) notify your broker, (2) direct your written request to: Investor Relations, Energy Recovery, Inc., 1717 Doolittle Drive, San Leandro, CA 94577 or (3) contact our Investor Relations department by email at IR@energyrecover.com or by telephone at (281) 962-8105. Stockholders who receive multiple copies of the Proxy Statement or Annual Report at their address and would like to request house-holding of their communications should contact their broker. In addition, we will promptly deliver, upon written or oral request to the address or telephone number above, a separate copy of the Annual Report and Proxy Statement to a stockholder at a shared address to which a single copy of the documents was delivered. Q: What if I have questions about my Energy Recovery shares or need to change my mailing address? A: You may contact our transfer agent, American Stock Transfer & Trust Company, LLC, by telephone at (800) 937-5449 (U.S.) or (718) 921-8124 (outside the U.S.), or by email at info@amstock.com, if you have questions about your Energy Recovery shares or need to change your mailing address. Q: Where can I find the voting results of the Annual Meeting? A: We will announce preliminary voting results at the Annual Meeting. We will also disclose voting results on a Current Report on Form 8-K that we will file with the SEC within four business days after the Annual Meeting. If final voting results are not available to us in time to file a Current Report on Form 8‑K within four business days after the Annual Meeting, we will file a Current Report on Form 8‑K to publish preliminary results and will provide the final results in an amendment to this Current Report on Form 8-K as soon as they become available. Energy Recovery, Inc. — 2022 Proxy Statement | 88 RELATED PERSON POLICIES AND TRANSACTIONS The Related party transactions are, subject to certain limited exceptions, any transaction, arrangement or relationship in which we are a participant and the amount involved exceeds $120,000, and the related party had, has or will have a direct or indirect material interest. Related party includes: (a) any person who is or was (at any time during the last fiscal year) an executive officer, director or nominee for election as a director; (b) any person or group who is a beneficial owner of more than 5% of our voting securities; (c) any immediate family member of a person described in clauses (a) or (b) of this sentence; or (d) any entity in which any of the foregoing persons is employed, is a director, executive officer or partner, or is in a similar position, or in which such person, together with all other “related parties,” have in the aggregate 5% or greater beneficial ownership interest. The Board’s Nominating and Corporate Governance Committee charter also provides that the Nominating and Corporate Governance Committee will review potential conflicts of interest. In addition, the Company’s Code of Business Conduct and Ethics provides that each employee and non-employee director is expected to disclose potential conflicts of interest involving that individual or the individual’s family members to a supervisor, executive officer, or member of the Audit Committee as described in the Company’s Code of Business Conduct and Ethics. Notwithstanding the foregoing, all compensation-related matters must be approved by the Compensation Committee of the Board of Directors or recommended by the Compensation Committee to the Board of Directors for its approval. During fiscal Energy Recovery, Inc. — 2022 Proxy Statement | 89 REQUIREMENTS FOR STOCKHOLDER PROPOSALS Requirements for Stockholder Proposals to be Brought Before an Annual Meeting For stockholder proposals to be considered properly brought before an annual meeting, the stockholder must have given timely notice in writing to the Secretary of the Company and otherwise comply with the provisions of our Bylaws regarding the requirements for stockholder proposals to be brought before an annual meeting. Under our Bylaws, to be timely for the annual meeting of stockholders to be held in Energy Recovery, Inc. — 2022 Proxy Statement | 90 Requirements for Stockholder Proposals to be Considered for Inclusion in the Company’s Proxy Materials Stockholder proposals submitted pursuant to Rule 14a-8 under the Exchange Act, and intended to be presented at Requirements for Proxy Access In addition, our Bylaws permit certain of our stockholders who have beneficially owned 3% or more of our outstanding common stock continuously for at least three years to submit nominations to be included in the Company’s proxy materials for a number not to exceed the greater of two (2) or twenty percent (20%) of the total number of directors then serving. Notice of proxy access director nominations for the 2023 Annual Meeting must be delivered to our Corporate Secretary at our principal executive offices no earlier than November 26, 2022, and no later than the close of business on December 26, 2022. The notice must set forth the information required by our Bylaws with respect to each proxy access director nomination that eligible stockholder or stockholders intend to present at the 2023 Annual Meeting and must otherwise be in compliance with our Bylaws.
Delinquent Section 16(a) Reports Section 16(a) of the Exchange Act requires the Company’s directors, executive officers, and persons who own more than 10% of the Company’s common stock (collectively Based solely on our review of copies of the reports we have received and written representations provided to us from the individuals required to file the reports, we believe that each of our executive officers and directors has complied with applicable reporting requirements for transactions in our common stock during the year ended December 31, Energy Recovery, Inc. — 2022 Proxy Statement | 91 Other The Board of Directors does not know of any other matters to be presented at the Annual Meeting. If any additional matters are properly presented or otherwise allowed to be considered at the Annual Meeting, the persons named in the enclosed proxy will have discretion to vote shares they represent in accordance with their own judgment on such matters. It is important that your shares be represented at the meeting, regardless of the number of shares that you hold. You are, therefore, urged to submit your proxy or voting instructions at your earliest convenience. Forward-Looking Statements This Proxy Statement contains forward-looking statements within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements in this report include, but are not limited to, statements about our expectations, objectives, anticipations, plans, hopes, beliefs, intentions or strategies regarding the future. Forward-looking statements represent our current expectations about future events, are based on assumptions, and involve risks and uncertainties. If the risks or uncertainties occur or the assumptions prove incorrect, then our results may differ materially from those set forth or implied by the forward-looking statements. Our forward-looking statements are not guarantees of future performance or events and it is important to note that our actual results could differ materially from the results set forth or implied by our forward-looking statements. Words such as “expects,” “anticipates,” “aims,” “projects,” “intends,” “plans,” “believes,” “estimates,” “seeks,” “continue,” “could,” “may,” “potential,” “should,” “will,” “would,” variations of such words and similar expressions are also intended to identify such forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions that are difficult to predict. Readers are directed to risks and uncertainties identified under the heading Item 1A, “Risk Factors,” in our Annual Reports on Form 10-K for factors that may cause actual results to be different from those expressed in these forward-looking statements. Except as required by law, we undertake no obligation to revise or update publicly any forward-looking statements for any reason. Energy Recovery, Inc. — 2022 Proxy Statement | 92 Forward-looking statements in this Proxy Statement include, without limitation, statements about the following:
Energy Recovery, Inc. — 2022 Proxy Statement | 93
The Annual Report on Form 10-K for the fiscal year ended December 31, We filed our Annual Report filed with the SEC on
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