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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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Midstates Petroleum Company, Inc. |
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MIDSTATES PETROLEUM COMPANY, INC.
321 South Boston Avenue, Suite 1000
Tulsa, Oklahoma 74103
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of Midstates Petroleum Company, Inc.:
Notice is hereby given that the 20152018 Annual Meeting of Stockholders of Midstates Petroleum Company, Inc. (the "Company"“Company”) will be held at The St. Regis Houston, 1919 Briar Oaks Lane, Houston, Texas 77027,the offices of Kirkland & Ellis LLP, 300 North LaSalle, Chicago, Illinois 60654, on May 22, 2015,June 1, 2018, at 9:00 a.m. Central Time (the "Annual Meeting"“Annual Meeting”). The Annual Meeting is being held for the following purposes:
1. To elect seveneight directors.
2. To approve, on a non-binding advisory basis, the compensation of our named executive officers.
3. To approve an amendment to our amended and restated certificate of incorporation to effect, at the discretion of our board of directors:
a) a reverse split of our Common Stock (as defined below), whereby each outstanding five, six, seven, eight, nine or ten shares would be combined, converted and changed into one share of Common Stock; and
b) a reduction in the number of authorized shares of our Common Stock from 300,000,000 to 175,000,000, 150,000,000, 125,000,000, 125,000,000, 100,000,000 or 100,000,000, respectively.
4.3. To ratify the appointment of Deloitte & ToucheGrant Thornton LLP as the Company'sCompany’s independent registered public accountants for 2015.2018.
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4. To transact such other business as may properly come before the Annual Meeting.
These proposals are described in the accompanying proxy materials. You will be able to vote at the Annual Meeting, or any adjournment or postponement thereof, only if you were a stockholder of record at the close of business on April 16, 2015.30, 2018.
YOUR VOTE IS IMPORTANT
Please vote over the internet atwww.proxyvote.com or by phone at 1-800-690-6903 promptly so that your shares may be voted in accordance with your wishes and so that we may have a quorum at the Annual Meeting. Alternatively, if you did not receive a paper copy of the proxy materials (which includes the proxy card), you may request a paper proxy card at the website or telephone number provided above, which you may complete, sign and return by mail.
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| | By Order of the Board of Directors, |
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| | Frederic F. Brace
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| /s/ David J. Sambrooks |
| David J. Sambrooks |
| Interim President, and Chief Executive Officer and Director
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| Tulsa, Oklahoma |
| April 30, 2018 |
Tulsa, Oklahoma
April 29, 2015
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MIDSTATES PETROLEUM COMPANY, INC.
321 South Boston Avenue, Suite 1000
Tulsa, Oklahoma 74103
PROXY STATEMENT
2015
2018 ANNUAL MEETING OF STOCKHOLDERS
The Board of Directors of the Company (the "Board“Board of Directors"Directors” or the "Board"“Board”) requests your proxy for the Annual Meeting that will be held on May 22, 2015June 1, 2018 at 9:00 a.m. Central Time, at The St. Regis Houston, 1919 Briar Oaks Lane, Houston, Texas 77027.the offices of Kirkland & Ellis LLP, 300 North LaSalle, Chicago, Illinois 60654. By granting the proxy, you authorize the persons named on the proxy to represent you and vote your shares at the Annual Meeting. Those persons will also be authorized to vote your shares to adjourn the Annual Meeting from time to time and to vote your shares at any adjournments or postponements of the Annual Meeting. The proxy materials, including this proxy statement (the "Proxy Statement"“Proxy Statement”), proxy card or voting instructions and our 20142017 annual report, are being distributed and made available on or about April 30, 2015.2018.
If you attend the Annual Meeting, you may vote in person. If you are not present at the Annual Meeting, your shares may be voted only by a person to whom you have given a proper proxy. You may revoke the proxy in writing at any time before it is exercised at the Annual Meeting by delivering to the Corporate Secretary of the Company a written notice of the revocation, by submitting your vote electronically through the internet or by phone after the grant of the proxy, or by signing and delivering to the Corporate Secretary of the Company a proxy with a later date. Your attendance at the Annual Meeting will not revoke the proxy unless you give written notice of revocation to the Corporate Secretary of the Company before the proxy is exercised or unless you vote your shares in person at the Annual Meeting.
Stockholders of Record and Beneficial Owners
Most of the Company'sCompany’s stockholders hold their shares through a broker, bank or other nominee rather than directly in their own name. As summarized below, there are some distinctions between shares held of record and those owned beneficially.
Stockholders of Record. If your shares are registered directly in your name with the Company'sCompany’s transfer agent, you are considered the stockholder of record with respect to those shares, and the proxy materials, including a proxy card, is being sent directly to you by our agent. As a stockholder of record, you have the right to vote by proxy or to vote in person at the Annual Meeting.
Beneficial Owners. If your shares are held in a brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in "street“street name,"” and the proxy materials will be forwarded to you by your broker or nominee. The broker or nominee is considered the stockholder of record with respect to those shares. As the beneficial owner, you have the right to direct your broker how to vote. Beneficial owners that receive the proxy materials by mail from the stockholder of record should follow the instructions included in the proxy materials to transmit voting instructions.
QUORUM AND VOTING
Voting Stock. The Company'sCompany’s common stock, par value $0.01 per share (the "Common Stock"“common stock”), is the only class of securities that entitles holders to vote generally at meetings of the Company'sCompany’s stockholders. The Company's Series A Mandatorily Convertible Preferred Stock, par value $0.01 per share (the "Preferred Stock"), entitles holders to vote on most matters submitted to the holders of the Common Stock for approval, except that the holders of the Preferred Stock are not permitted to vote on proposals involving the election of directors and proposals seeking the approval of certain transactions where the holders of the Preferred Stock would be entitled to consideration at least equal
to the current liquidation preference. Each share of Common Stockcommon stock outstanding on the Record Date (defined below) is entitled to one vote and each share of Preferred Stock is entitled to vote with the holders of our Common Stock on permitted matters on an as-converted to Common Stock basis utilizing the then-current conversion ratio.vote.
Record Date. The record date for stockholders entitled to notice of and to vote at the Annual Meeting is the close of business on April 16, 201530, 2018 (the "Record Date"“Record Date”). As of the Record Date, 71,672,51925,153,381 shares of Common Stockcommon stock were outstanding and entitled to be votedvote at the Annual Meeting and 325,000 shares of Preferred Stock were outstanding and convertible into 29,393,933 shares of Common Stock.Meeting.
Quorum and Adjournments. The presence, in person or by proxy, of the holders of a majority of the outstanding shares of Common Stockcommon stock entitled to vote at the Annual Meeting is necessary to constitute a quorum at the Annual Meeting.
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If a quorum is not present, the Chairman of the meeting or a majority of the outstanding shares of Common Stockcommon stock entitled to vote who are present in person or by proxy at the Annual Meeting have the power to adjourn the Annual Meeting from time to time, without notice other than an announcement at the Annual Meeting, until a quorum is present. At any adjourned Annual Meeting at which a quorum is present, any business may be transacted that might have been transacted at the Annual Meeting as originally notified.
Vote Required. Directors will be elected by the affirmative vote of the holders of a pluralitymajority of the shares of Common Stockcommon stock present in person or represented by proxy and entitled to be voted at the Annual Meeting ("(“Proposal ONE"ONE”). The proposal seeking approval, on a non-binding advisory basis, of the compensationCompensation of our named executive officers ("(“Proposal TWO"TWO”) requires the affirmative vote of the holders of a majority of the shares of capitalcommon stock of the Company voting together as a single class, present in person or by proxy at the Annual Meeting and entitled to vote on the matter. The proposal seeking an amendment to our amended and restated certificate of incorporation to grant our Board the ability to effect a reverse split of our Common Stock and a reduction in the number of authorized shares of our Common Stock ("Proposal THREE") requires the affirmative vote of the holders of a majority in voting power of all of the capital stock of the Company, voting together as a single class, entitled to vote on the matter. The proposal seeking ratification of the appointment of Deloitte & ToucheGrant Thornton LLP as the Company's auditorsCompany’s independent registered public accounting firm for 2015 ("2018 (“Proposal FOUR"THREE”) requires the affirmative vote of the holders of a majority of the shares of capitalcommon stock of the Company voting together as a single class, present in person or by proxy at the Annual Meeting and entitled to vote on the matter. Collectively, Proposal ONE, TWO, THREE and FOURTHREE may be referred to as the "Proposals."“Proposals.”
An automated system that Broadridge Financial Solutions administers will tabulate the votes. Brokers who hold shares in street name for customers are required to vote shares in accordance with instructions received from the beneficial owners. Brokers are permitted to vote on discretionary items if they have not received instructions from the beneficial owners (a "broker non-vote"“broker non-vote”), but they are not permitted to vote on non-discretionary items absent instructions from the beneficial owner. Broker non-votes generally occur because the broker (i) does not receive voting instructions from the beneficial owner and (ii) lacks discretionary authority to vote the shares. Brokers do not have discretionary voting authority with respect to Proposals ONE TWO or THREETWO of this Proxy Statement. For Proposal FOUR,THREE, ratification of the appointment of the Company's auditors,Company’s independent registered public accounting firm, brokers will have discretionary authority in the absence of timely instructions from their customers. Abstentions (i.e., if you or your broker marks "ABSTAIN"“ABSTAIN” on a proxy) and broker non-votes will count in determining whether a quorum is present at the Annual Meeting. However, (1) broker non-votes will not have any effect on the outcome of Proposals ONE TWO or FOURTHREE and (2) abstentions will have the effect of votes cast against on Proposals TWO THREE and FOURTHREE and will not have any effect on Proposal ONE.
Default Voting. A proxy that is properly completed and submitted will be voted at the Annual Meeting in accordance with the instructions on the proxy. If you properly complete and submit a proxy, but do not indicate any contrary voting instructions, your shares will be voted FOR each of the director nominees listed in Proposal ONE and FOR Proposals TWO THREE and FOUR.THREE.
If any other business properly comes before the stockholders for a vote at the meeting,Annual Meeting, your shares will be voted in accordance with the discretion of the holders of the proxy. The Board of Directors knows of no matters, other than those previously stated, to be presented for consideration at the Annual Meeting.
The
In this Proxy Statement, the terms “Company,” “Midstates,” “we,” “us,” “our,” and similar terms refer to Midstates Petroleum Company, Inc. and Midstates Petroleum Company LLC unless the context indicates otherwise. Midstates Petroleum Company, Inc. was incorporated pursuant to the laws of the State of Delaware on October 25, 2011 to become a holding company for Midstates Petroleum Company LLC ("Midstates Sub"LLC. On April 30, 2016, we filed voluntary petitions (the “Chapter 11 Cases”) for reorganization under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). On October 21, 2016 (the “Effective Date”), which was previously a wholly-owned subsidiary of Midstates Petroleum Holdings LLC ("Holdings LLC"). Pursuant tofollowing the termsBankruptcy Court’s approval of a corporateplan of reorganization, that was completed in connection with the closing of the Company's initial public offering, all of the interests in Holdings LLC were exchanged for newly issued common shares of the Company, and as a result, Midstates Sub became a wholly-owned subsidiary of the Company and Holdings LLC ceased to exist as a separate entity. In this Proxy Statement, the terms "Company," "we," "us," "our," and similar terms when used in the present tense, prospectively or for historical periods since April 25, 2012, refer to Midstates Petroleum Company, Inc. and its subsidiary, and for historical periods prior to April 25, 2012, refer to Midstates Petroleum Holdings LLC and its subsidiary, unless the context indicates otherwise.we emerged from bankruptcy.
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PROPOSAL ONE
ELECTION OF DIRECTORS
At the recommendation of the Nominating and Governance Committee, the Board of Directors has nominated the following individuals for election as directors of the Company to serve for a one year term beginning at the Annual Meeting and expiring at the annual meeting to be held in 2016:2019:
David J. Sambrooks
Alan J. Carr
Frederic F. Brace
Thomas C. Knudson
George A. DeMontrond
Alan J. Carr
Patrice D. Douglas
Neal P. Goldman
Michael S. Reddin
Todd R. Snyder
Bruce Stover
Robert E. Ogle
John MogfordH. Vincent
Each of the above nominees is currently serving as a director of the Company. Biographical information for each nominee is contained in the "Directors“Directors and Executive Officers"Officers” section below.
The Board of Directors has no reason to believe that any of its nominees will be unable or unwilling to serve if elected. If a nominee becomes unable or unwilling to accept nomination or election, either the number of the Company'sCompany’s directors will be reduced or the persons acting under the proxy will vote for the election of a substitute nominee that the Board of Directors recommends.
Required Vote
The election of directors in this proposal requires the affirmative vote of the holders of a pluralitymajority of the shares of Common Stockcommon stock present and entitled to be voted at the Annual Meeting. Neither abstentions nor broker non-votes will have any effect on the outcome of voting on director elections.
Recommendation
The Board of Directors unanimously recommends that stockholders vote FOR the election of each of the nominees.
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DIRECTORS AND EXECUTIVE OFFICERS
After the Annual Meeting, assuming the stockholders elect the nominees of the Board of Directors as set forth in "Proposal“Proposal One—Election of Directors"Directors” above, the Board of Directors of the Company will be, and the executive officers of the Company are:
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| Age | | |
| Title |
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Frederic F. BraceDavid J. Sambrooks
| | 59 | 57 | | Interim President and& Chief Executive Officer and Director |
Thomas C. Knudson(1)Alan J. Carr(l)(2)
| | 48 | 68 | | Chairman and Director |
George A. DeMontrond(2)Frederic F. Brace
| | 60 | 32 | | Director |
Alan J. Carr(2)Patrice D. Douglas(1)(3)
| | 55 | 45 | | Director |
Bruce Stover(1)(2)(3)Neal P. Goldman(2)
| | 48 | 66 | | Director |
Robert E. Ogle(3)Michael S. Reddin (1)(2)
| | 58 | 65 | | Director |
John Mogford(1)Todd R. Snyder(1)(3)
| | 55 | 61 | | Director |
Nelson M. HaightBruce H. Vincent(3)
| | 70 | 50 | Director |
Scott C. Weatherholt | | 40 | | Executive Vice President Chief Financial Officer and- General Counsel & Corporate Secretary |
Amelia K. Harding | | 48 | | Vice President - Human Resources & Administration |
Richard W. McCullough | | 38 | | Vice President & Chief Accounting Officer |
Mitchell G. Elkins
| | | 55 | | Executive Vice President—Operations |
Mark E. Eck
| | | 56 | | Executive Vice President and Chief Operating Officer |
(1)
- Member of the Nominating and Governance Committee.
(2)
- Member of the Compensation Committee.
(3)
- Member of the Audit Committee.
The Company'sCompany’s Board of Directors currently consists of seveneight members. Other than the director who is elected by the holders of the Preferred Stock (which is currently unfilled), the Company'sThe Company’s directors serve for a one yearone-year term. Directors may be removed from office either for or without cause upon the affirmative vote of the holders of at least 75%a majority of the outstanding shares of stock of the Company entitled to vote generally for the election of directors.
Set forth below is biographical information about each of the Company'sCompany’s executive officers, directors and nominees for director.
Frederic F. BraceDavid J. Sambrooks has served as our Interim President and Chief Executive Officer and as a member of our Board of Directors since March 18,November 1, 2017. Mr. Sambrooks has over 37 years of experience in the energy industry. Most recently he served as the President, Chief Executive Officer and a member of the Board of Directors of Sabine Oil & Gas Corporation (including its predecessor, Sabine Oil & Gas LLC, which was formerly known as NFR Energy LLC) from May 2007 to October 2016 (in July 2015, Sabine Oil & Gas Corporation and certain subsidiaries filed for protection under Chapter 11 of the Bankruptcy Code and emerged from bankruptcy in August 2016). In his roles at Sabine, Mr. Sambrooks led strategic, financial, operational, business development and organizational efforts. Mr. Sambrooks previously served as Vice President and General Manager of the Southern Division for Devon Energy Corporation as well as Vice President and General Manager of Devon’s International Division from 2001 to 2007. Prior to Devon, Mr. Sambrooks’ career included key leadership and technical roles in domestic and international operations with Santa Fe Energy Resources, Oryx Energy and Sun Oil Company. Mr. Sambrooks holds a Bachelor of Science degree in Mechanical Engineering from The University of Texas at Austin, and a Master of Business Administration from The University of Houston. Mr. Sambrooks serves as board president of the non-profit Communities In Schools of Houston and has served as a board member and volunteer for various non-profit organizations. We believe Mr. Sambrooks’ experience in the energy industry and in representing public and private companies as a director brings valuable insight, experience and skill to our Board of Directors.
Alan J. Carr has served as a member of our Board of Directors since March 9, 2015. Mr. Carr is an investment professional with over twenty years of experience working from the principal and advisor side on complex, process-intensive financial situations. Mr. Carr is the founder of Drivetrain Advisors, a fiduciary services firm that supports the investment community in legally- and process-intensive investments as a representative, director, or trustee. Prior to founding Drivetrain Advisors in 2013, Mr. Carr was a Managing Director at Strategic Value Partners, LLC where he led financial restructurings for companies in North America and Europe, working in both the US and Europe over nine years. Prior to joining Strategic Value Partners, Mr. Carr was a corporate attorney at Skadden, Arps, Slate, Meagher & Flom. Mr. Carr currently serves on the boards of directors of Tidewater Inc., Atlas Iron Limited and Verso Corporation and has previously served on the board of numerous public and private
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companies. Mr. Carr has experience serving on boards of a variety of companies in North America, Europe and Asia. He received his B.A. in Economics and Sociology from Brandeis University in 1992 and his J.D. from Tulane Law School in 1995. We believe Mr. Carr’s extensive financial expertise and experience in representing public and private companies brings important experience and skill to our Board of Directors.
Frederic F. Brace served as our President and Chief Executive Officer from October 21, 2016 to November 1, 2017 and has served as a member of our Board of Directors since March 9, 2015. Mr. Brace previously served as Interim President and Chief Executive Officer from March 2015 through October 20, 2016. On April 30, 2016, Midstates filed for protection under Chapter 11 of the Bankruptcy Code and emerged from bankruptcy on October 21, 2016. Upon emergence from bankruptcy, Mr. Brace was named as the Company’s President and Chief Executive Officer. Mr. Brace has over twenty years of experience in business management and board representations. He is currently Chairman and Chief Executive Officer of Beaucastel LLC and Sangfroid Advisors Ltd. Previously, Mr. Brace worked for Niko Resources, Ltd., an oil and gas company, from August 2013 to December 2014 serving first as Senior Advisor and then as President of the company. From 2010 through March 2012, Mr. Brace held various executive officer positions with The Great Atlantic & Pacific Tea Company, a retail food business (in December 2010, The Great Atlantic & Pacific Tea Company filed for protection under Chapter 11 of the Bankruptcy Code, and it emerged from bankruptcy in March 2012). From 1988 to 2008, Mr. Brace worked at the UAL Corporation (now United Continental Holdings, Inc.), the parent company of United Airlines, Inc. and Continental Airlines, Inc., where he served as Executive Vice President and Chief Financial Officer of UAL Corporation and United Airlines, Inc. from 2002 to 2008. From 2012 to August 2013 Mr. Brace worked as an independent consultant. Mr. Brace is currently a member of the board of directors of Anixter International and Standard Register. HeiHeartMedia, Inc. and has alsopreviously served on the board of numerous public and private companies. He received his BS in Industrial Engineering from the University of Michigan in 1980 and his MBA with a specialization in finance from the University of Chicago Graduate School of Business in 1982. We believe Mr. Brace'sBrace’s knowledge of the energy industry and expertise in representing public and private companies will allowallows him to provide valuable insights to our Board of Directors.
Thomas C. KnudsonPatrice D. Douglas has served as a member of our Board of Directors since May 2013 and as ChairmanOctober 21, 2016. Mrs. Douglas is an attorney with the law firm of the Board of Directors since April 2014. Mr. Knudson has served as the Non-Executive Chairman of Bristow Group Inc. (NYSE: BRS) since August 2006 and as a Director of Bristow since June 2004. Mr. Knudson has been president of Tom Knudson Interests, which provides consulting
services in energy, sustainable development, and leadership, since its formation in 2004. Following seven years of active duty as a U.S. Naval aviator and an aerospace engineer, he joined Continental Oil Company (Conoco) in 1975 and retired in 2004 from Conoco's successor, ConocoPhillips, as Senior Vice President of Human Resources, Government Affairs and Communications and as a member of ConocoPhillips' management committee. He was the founding Chairman of the Business Council for Sustainable Development in both the United States and the United Kingdom. Mr. Knudson served as a Director of NATCO Group, Inc. from April 2005 to November 2009, Williams Partners L.P. from November 2005 to September 2007, and MDU Resources Group Inc. (NYSE: MDU) from November 2008 to April 2014. He served as a Trustee of the Episcopal Seminary of the Southwest since February 2012 andSpencer Fane LLP, where she is Of Counsel. Mrs. Douglas currently serves as a member of the National Councilboard of Methodist Neurological Institute sincedirectors of Bank SNB. She previously was a Commissioner at the Oklahoma Corporation Commission, where she served as Vice-Chairman from February 2014 to January 2015 and as Chairman from August 2012 to February 2014. Her prior professional experience includes service as an Executive Vice President of First Fidelity Bank from April 2008 to October 2011. Mr. Knudson has2011, and as President, Greater OKC Metro Market, of SpiritBank from 2004 to 2008. Mrs. Douglas was elected Mayor of the City of Edmond, Oklahoma in April 2009 and served for two consecutive terms. Ms. Douglas earned a bachelor'sB.S. degree in aerospace engineeringcomputer information systems from Oklahoma Christian University, and a J.D. from the U.S. Naval Academy and a master's degree in aerospace engineering from the U.S. Naval Postgraduate School.University of Oklahoma College of Law. We believe Mr. Knudson'sMrs. Douglas’ extensive knowledgefinancial expertise and expertiseexperience in the energy industry willrepresenting both public and private companies, as well as her roles in public service, allow himher to provide valuable insightsbring important experience, skill and insight to our Board of Directors.
George A. DeMontrondNeal P. Goldman has served as a member of our Board of Directors since April 2014.October 21, 2016 and is currently the Managing Member of SAGE Capital Investments, LLC, a consulting firm specializing in independent board of director services, turnaround consulting, strategic planning, and special situation investments. Mr. DeMontrond is a Vice President with First Reserve Corporation ("First Reserve"), a global energy-focused private equity and infrastructure investment firm, and joined the firm in 2007. Mr. DeMontrond's responsibilities at First Reserve range from deal origination and structuring to due diligence, execution and monitoring, with a particular emphasis on the reserves sector. Prior to joining First Reserve, Mr. DeMontrond served as an Investment Banking Analyst in the Energy, Utilities & Chemicals Group at Deutsche Bank Securities Inc. He holds a bachelor's degree from Rice University. We believe Mr. DeMontrond's extensive energy industry background brings important experience and skill to our Board of Directors.
Alan J. Carr has served as a member of our Board of Directors since March 9, 2015. Mr. Carr is an investment professional with twenty years of experience working from the principal and advisor side on complex, process-intensive financial situations. Mr. Carr is the founder of Drivetrain Advisors, a fiduciary services firm that supports the investment community in legally- and process-intensive investments as a representative, director, or trustee. Prior to founding Drivetrain Advisors in 2013, Mr. CarrGoldman was a Managing Director at Strategic Value Partners,Och Ziff Capital Management, L.P. from 2014 to 2016 and a Founding Partner of Brigade Capital Management, LLC ("Strategic Value Partners"), wherefrom July 2007 to 2012, which he led financial restructurings for companieshelped build to over $12 billion in North America and Europe, working in both the US and Europe over nine years.assets under management. Prior to joining Strategic Value Partners,this, Mr. CarrGoldman was a corporate attorneyPortfolio Manager at Skadden, Arps, Slate, MeagherMackay Shields, LLC and also held various positions at Salomon Brothers Inc., both as a mergers and acquisitions banker and as an investor in the high yield trading group. Throughout his career, Mr. Goldman has held numerous board representations including roles as an independent member of the boards of directors of Lightsquared, Inc., Pimco Income Strategy Fund I & Flom.II, and Catalyst Paper Corporation as well as a member of the boards of directors of Jacuzzi Brands and NII Holdings, Inc. Mr. CarrGoldman currently serves onas Chairman of the Board of Stone Energy Corporation, and is a member of the board of directors of Tanker Investments Ltd.Ultra Petroleum Corporation and Brookfield DTLA Fund Office Trust Investor Inc.Ditech Holding Corporation. Mr. Carr has experience serving on boardsGoldman received a B.A. from the University of Michigan and a varietyM.B.A. from the University of companies in North America, Europe and Asia. He received his B.A. in Economics and Sociology from Brandeis University in 1992 and his J.D. from Tulane Law School in 1995.Illinois. We believe Mr. Carr'sGoldman’s extensive financial expertise and experience in representing public and private companies in complex financial situations and brings important experience and skill to our Board of Directors.
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Bruce StoverMichael S. Reddin has served as a member of our Board of Directors since March 18, 2015.October 21, 2016. Mr. StoverReddin has over forty years ofextensive experience as an executive in the oil and gas industry, having served as the President and hasChief Executive Officer of Davis Petroleum Corp from 2009 to 2016, as President and Chief Executive Officer of Kerogen Resources, Inc. from 2008 to 2009, and in two separate Vice President roles for BP America, Inc. before that. Prior to joining BP, Mr. Reddin held technical, commercial and management roles of increasing responsibility for ARCO Oil and Gas Company and Vastar Resources, Inc. Mr. Reddin currently serves as an extensive background in mergers and acquisitions as well as global operations and business development. Mr. Stover has servedindependent director on the boardboards of directors ofRidge Runner Resources, LLC, Southcross Holdings GP, LLC and Energy XXI Gulf Coast, Inc. He is the Bristow Group, Inc. since 2009 and asformer Chairman of the Compensation CommitteeBoard of such board since 2012. Prior to joining the board of Bristow Group,Energy XXI Gulf Coast, Inc., he was a founding member of the management team of Endeavor International Corporation, where he served as Executive Vice President, Operations and Business Development, from 2003 to 2010. Before serving at Endeavor International Corporation, Mr. Stover was Senior Vice President, Worldwide Business Development for Anadarko Petroleum Corporation responsible for evaluating and securing domestic and international business opportunities. While there, Mr. Stover also served as Presidentinterim Chief Executive Officer while a permanent CEO was being recruited in early 2017. Mr. Reddin previously served as a director on the boards of Berry Petroleum Company, Gulfport Energy, Davis Petroleum Corp., and General Manager of Anadarko Petroleum Corporation's Algerian subsidiary. He began his career as an engineer
with Amoco Production Company.Kerogen Resources, Inc. Mr. Reddin received a B.S. degree in Mechanical Engineering from Texas A&M University. We believe Mr. Stover'sReddin’s experience in the energy industry and expertise in representing public and private companies brings important experience and skill to our Board of Directors.
Robert E. OgleTodd R. Snyder has served as a member of our Board of Directors since March 18, 2015.October 21, 2016. Mr. OgleSnyder is the founder and Senior Managing Partner of TRS Advisors LLC. Previously, Mr. Snyder was the Executive Vice Chairman of North American GFA and Co-Chair of the North American Debt Advisory and Restructuring Group of Rothschild Inc., a leading international investment banking and financial advisory firm. Mr. Snyder has been an advisor to companies in restructurings and reorganizations for thirty years and has been instrumental in a certified public accountant for over thirty-five years with experiencediverse selection of complex transactions, including reorganizations, restructurings, financings, spinoffs, workouts, exchange offers, mergers, divestitures and management-led buyouts. Before joining Rothschild in March 2000, Mr. Snyder was a Managing Director in the upstreamRestructuring and downstream oilReorganization group at Peter J. Solomon Company and gas industries, retail, airlinea Managing Director at KPMG Peat Marwick in the Corporate Recovery Group, where he also was the National Director of the Corporate Recovery Practice for Governmental Enterprises (regulated and service industries, representing debtors, creditors, investors and governmental agencies. Mr. Ogle is currently a Senior Advisor with The Claro Group.privatizing industries). Prior to joining The Claro Group, he wasmoving to the investment banking field, Mr. Snyder practiced law in the Business Reorganization department of Weil, Gotshal & Manges. Mr. Snyder currently serves as an independent member on the board of directors of EcoStim Energy Solutions. Mr. Snyder received a founderB.A. degree from Wesleyan University and Chief Financial Officer for Ute Energy LLCa J.D. from 2005 to 2009. Before serving there, Mr. Ogle was the DirectorUniversity of Corporate Recovery Services at Huron Consulting and prior to joining Huron Consulting was a Corporate Recovery Services Partner at Arthur Andersen, where he started their corporate recovery services practice in Houston. While at Arthur Andersen, Mr. Ogle provided services to Link Energy, Continental Airlines, Delta Airlines, United Airlines, Edge Petroleum Corporation, Orion Refinery, Entergy and many others. Mr. Ogle co-founded the Houston Chapter of the Turnaround Management Association.Pennsylvania Law School. We believe Mr. Ogle'sSnyder’s extensive financial expertise and experience in representing public and private companies in complex financial situations brings important experience and skill to our Board of Directors.
John MogfordBruce H. Vincent has served as a member of our Board of Directors since March 2011.October 21, 2016. Mr. Mogford joined First Reserve as Operating Partner in 2009 and was a Managing Director based in London through April 1, 2015. He now servesVincent served as a consultantdirector of Swift Energy Company from May 2005 until February 2015 and as President of Swift Energy Company from November 2004 until February 2015. Mr. Vincent previously served in a variety of strategic roles for Swift Energy Company, including as Secretary from February 2008 until August 2012 and from August 2000 until May 2005, as Executive Vice President—Corporate Development from August 2000 to First Reserve. He provides direct operational supportNovember 2004, and guidanceas Senior Vice President—Funds Management from 1990 (when he joined Swift Energy Company) to First Reserve's portfolio company executives2000. Mr. Vincent has previously served as chairman of the Independent Petroleum Association of America and continues to serve on their board of directors as well as strategic advice to First Reserve investment teams. Prior to joining First Reserve,a member of the National Petroleum Council. Mr. Mogford spent thirty-two years at BP, mainly in upstream, most recently as the Executive Vice President for Refining. HeVincent previously served as onea director on the boards of 10 members of BP's Executive Committee. He holdsPeninsula Resources Corporation, Tangent Oil & Gas, and Energy Assets International. Mr. Vincent received a B.A. degree from SheffieldDuke University and business qualificationsa MBA degree from INSEAD and Stanford Universities.the University of Houston. We believe Mr. Mogford's extensiveVincent’s experience in the energy industry background, particularly hisand expertise in exploration and production operations,representing public companies brings important experience and skill to our Board of Directors.
Nelson M. HaightScott C. Weatherholt has served joined the Company in February 2015 and currently serves as ourits Executive Vice President - General Counsel & Corporate Secretary and Chief Financial Officer since January 2015, and previously served as Senior Vice President and Chief Financial Officer from January 2014 through January 2015, and as our Chief Accounting Officer from August 2013 through January 2014. Mr. Haight previously served as our Vice President and Controller from December 2011 to August 2013. Mr. Haight is a Certified Public Accountant and prior to joining the Company, Mr. Haight was a partner with the audit firms of GBH CPAs from November 2008 to December 2011 and Malone Bailey, PC from July 2007 to November 2008. Prior to those positions, Mr. Haight served in a variety of public accounting and finance roles and began his career in 1988 with Arthur Andersen and Co. Mr. Haight holds a bachelor's degree and a master's degree in public accounting from the University of Texas at Austin.
Mitchell G. Elkins has served as our Executive Vice President of Operations since January 2015 after his previous role of Vice President of Drilling and Completions, which he held since 2012. Prior to joining the Company, Mr. Elkins worked as the International Drilling Manager for Transatlantic in Instanbul, Turkey from May 2011 through January 2012 and the Drilling and Completions manager for Apache in their Australian operations from July 2006 through April 2011. Prior to that, Mr. Elkins held a variety of roles for Unocal as well as Apache, and also owned a project management company supporting clients such as Apache, Chevron, Perenco, Shell and others in international operations. Mr. Elkins holds a BS in Control Engineering with a Petroleum Production Base from the University of Texas—Permian Basin.
Mark E. Eck has served as our Executive Vice President and Chief Operating Officer since December 2014.- Land. Prior to joining Midstates, Mr. EckWeatherholt served as an attorney at Samson Resources, located in Tulsa, Oklahoma from May 2005 to February 2015, where he most recently held the position of Assistant General Counsel and oversaw the company’s corporate transactional legal matters, mergers and acquisitions, as well as had managerial responsibility for Samson’s Land Administration and Division Order Departments. Prior to Samson, Mr. Weatherholt was engaged in the private practice of law in Tulsa, Oklahoma with the Pray Walker law firm, with an emphasis upon energy and royalty owner litigation. Mr. Weatherholt graduated from the University of Oklahoma Michael F. Price College of Business with a B.B.A. degree in Finance as well as the University of Oklahoma College of Law where he received his Juris Doctorate degree. Mr. Weatherholt is a member of the American Bar Association, Oklahoma Bar Association as well as the Association of Corporate Counsel. Mr. Weatherholt serves as a member of the board of
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directors of the Oklahoma Independent Petroleum Association and is a member of the board of directors of the State Chamber of Oklahoma.
Amelia K. Harding joined the Company in September 2015 and currently serves as our Vice President - Human Resources & Administration. Prior to joining Midstates, Ms. Harding worked as the General Manager, Human Resources for Samson Resources from March 2012 through September 2015 where she oversaw all human resources and organizational development activities for the company. Prior to this role, Ms. Harding served withas the Manager, Employee Relations and Recruiting for Samson Resources Company ("Samson")from June 2009 through February 2012. Preceding those positions, Ms. Harding led the human resources teams for Southwest United Industries Inc., an oil and gas explorationKOPCO Inc., from 1998-2009. She received her Bachelor of Business Administration degree in Management from Fort Hays State University, and production company,her Master of Human Resources and Organization Development from the University of Oklahoma. Ms. Harding is a certified Senior Professional in Human Resources, certified facilitator for both CCL 360 Assessment and DiSC and a member of SHRM.
Richard W. McCullough joined Midstates in April 2015 and currently serves as its Vice President Business
Development from December 2012 to October 2013, as Vice President, Operations and Midstream from March 2012 to December 2012 and as General Manager, Haynesville from March 2010 to February 2012.Chief Accounting Officer. Prior to joining Midstates, from January 2013 to March 2015, Mr. McCullough was the Controller of Corporate Accounting and Reporting for Samson Resources, located in Tulsa, Oklahoma, where he oversaw various activities associated with the financial reporting and accounting functions of the company. From March 2012 through December 2012, Mr. Eck served asMcCullough was the Business Development Manager for SMVice President of Finance and Accounting at Caballo Energy, Company, an oila private equity backed midstream company and gas exploration and production company, from August 2009 through March 2008 to February 2010 and their2012, was the Manager of Supply Chain ManagementFinancial Reporting for Alliance Resource Partners, L.P., both located in Tulsa, Oklahoma. Prior to his time with Alliance Resource Partners, Mr. McCullough worked in the Tulsa Office of Grant Thornton LLP from April 2007 to February 2008. Before SM Energy,January 2003 through August 2009 on a variety of clients, including public midstream companies. Mr. Eck was the Business Development ManagerMcCullough graduated from Oklahoma State University with a B.S. degree and Project Engineer for Springfield Underground from 2000 to 2007 and served in various positions with ARCO Oil & Gas Company from 1981 to 2000. Mr. Eck received his Bachelor'sa M.S degree in Mechanical Engineering from Missouri-Rolla University in 1980.Accounting and is a Certified Public Accountant.
MEETINGS AND COMMITTEES OF DIRECTORS
The Board of Directors held five11 meetings during 2014,2017, and its independent directors met in executive session four7 times during 2014.2017. During 2014,2017, each of our directors attended at least 75% of the meetings of the Board of Directors and the meetings of the committees of the Board of Directors on which that director served.
The Board of Directors has three standing committees: the Audit Committee, the Compensation Committee and the Nominating and Governance Committee. Additionally, the Board created one special committee that was formed during 2017 for the sole purpose of assisting the Board in the Company’s Chief Executive Officer search.
Audit Committee. Information regarding the functions performed by the Audit Committee and its membership is set forth in the "Audit“Audit Committee Report"Report” included herein and also in the "Audit“Audit Committee Charter"Charter” that is posted on the Company'sCompany’s website at www.midstatespetroleum.comwww.midstatespetroleum.com..
The members of the Audit Committee are Messrs. Stover, CarrVincent (Chairman) and Ogle (Chairman). Messrs. Stover, CarrSnyder and Ogle each joined the Audit Committee in March 2015, replacing Mary P. Ricciardello, Loren M. Leiker and Thomas Knudson. Dr. Peter J. Hill served on the Audit Committee in 2014 until April 2014.Mrs. Douglas. The Audit Committee held nine8 meetings during 2014.2017.
Compensation Committee. Responsibilities of the Compensation Committee, which are discussed in detail in the "Compensation“Compensation Committee Charter"Charter” that is posted on the Company'sCompany’s website atwww.midstatespetroleum.com,, include among other duties, the responsibility to:
·
•- periodically review the compensation, employee benefit plans and fringe benefits paid to, or provided for, executive officers of the Company;
·
•- approve the annual salaries, bonuses and share-based awards paid to the
Company'sCompany’s executive officers;·
•- periodically review and recommend to the full Board of Directors total compensation for each non-employee director for services as a member of the Board of Directors and its committees; and
·
•- exercise oversight of all matters of executive compensation policy.
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The Compensation Committee is delegated all authority of the Board of Directors as may be required or advisable to fulfill the purposes of the Compensation Committee. The Compensation Committee may form and delegate some or all of its authority to subcommittees when it deems appropriate. Meetings may, at the discretion of the Compensation Committee, include members of the Company'sCompany’s management, other members of the Board of Directors, consultants or advisors, and such other persons as the Compensation Committee or its chairperson may determine in an informational or advisory capacity.
Our Chief Executive Officer annually reviews the competitive pay, position and the performance of each member of senior management other than himself.himself, taking into consideration third party compensation survey data and other input from the Compensation Committee’s independent compensation consultant. Our Chief Executive Officer'sOfficer’s conclusions and recommendations, including those for base salary adjustments and award amounts for the current year and target annual award amounts for the next year under our Bonus Plan,bonus plan, are presented to the Compensation Committee. The Compensation Committee makes all compensation decisions and approves all share-based awards for the Named Executive Officers and other officers at or above the vice president level. The Compensation Committee may exercise its discretion in modifying any compensation adjustment or awards to any executive officer, including reducing or increasing the payment amount for one or more components of such awards.
Our Board of Directors annually considers the performance of our Chief Executive Officer. The Compensation Committee determines all components of our Chief Executive Officer'sOfficer’s compensation and meets outside the presence of all of our executive officers to consider appropriate compensation for our Chief Executive Officer.
The Compensation Committee has the sole authority to retain, amend the engagement with, and terminate any compensation consultant to be used to assist in the evaluation of director, CEO or officer compensation, including employment contracts and change in control provisions. The Compensation Committee has sole authority to approve the consultant's fees and other retention terms and has authority to cause the Company to pay the fees and expenses of such consultants. During 2014, the Compensation Committee engaged the services of Longnecker & Associates ("Longnecker"). In selecting Longnecker as its independent compensation consultant, the Compensation Committee assessed the independence of Longnecker pursuant to Securities and Exchange Commission ("SEC") rules and considered, among other things, whether Longnecker provides any other services to us, the policies of Longnecker that are designed to prevent any conflict of interest between Longnecker, the Compensation Committee and us, any personal or business relationship between Longnecker and any member of the Compensation Committee or between Longnecker and one of our executive officers and whether Longnecker owns any shares of our common stock. The terms of Longnecker's engagement are set forth in an engagement agreement that provides, among other things, that Longnecker is engaged by, and reports only to, the Compensation Committee and will perform the compensation advisory services requested by the Compensation Committee. Longnecker does not provide any other services to the Company, and the Compensation Committee has concluded that we do not have any conflicts of interest with Longnecker.
Among the services Longnecker was asked to perform was apprising the Compensation Committee of compensation-related trends, developments in the marketplace and industry best practices; informing the Compensation Committee of compensation-related regulatory developments; providing peer group survey data to establish compensation ranges for the various elements of compensation; providing an evaluation of the competitiveness of the Company's executive and director compensation and benefits programs; assessing the relationship between executive pay and performance; and advising on the design of the Company's incentive compensation programs. Longnecker has not provided any other services to the Company during the last fiscal year.
The Compensation Committee does not adopt all recommendations given by the compensation consultant but uses the consultant's work as a reference in exercising its own judgment with respect to its own executive compensation actions and decisions. Longnecker meets privately with the committee at its request. Our management provides information to the consultant but does not direct or oversee its activities with respect to our executive compensation program.
The members of the Compensation Committee are Messrs. StoverGoldman (Chairman), Carr and DeMontrond. Messrs. Stover and Carr each joined the Compensation Committee in March 2015, replacing Messrs. Leiker and Tichio. Dr. Hill served as Chairman of the Compensation Committee during 2014 until April 2014. Anastasia Deulina also served as a member of the Compensation Committee until her departure from the Board of Directors in April 2014.Reddin. The Compensation Committee held six8 meetings during 2014.2017.
Nominating and Governance Committee. The Nominating and Governance Committee assists the Board of Directors in evaluating potential new members of the Board of Directors, recommending committee members and structure, and advising the Board of Directors about corporate governance practices. Additional information regarding the functions performed by the Nominating and Governance Committee is set forth in the "Corporate Governance"“Corporate Governance” section included herein and also in the "Nominating“Nominating and Governance Committee Charter"Charter” that is posted on the Company'sCompany’s website at www.midstatespetroleum.comwww.midstatespetroleum.com..
The Nominating and Governance Committee has several methods of identifying Board candidates. First, the committee considers and evaluates whether or not the existing directors whose terms are expiring remain appropriate candidates for the Board. Second, the committee requests from time to time that its members and the other Board members identify possible candidates. Third, the committee
has the authority to retain one or more search firms to aid in its search. The search firm assists the Board in identifying potential Board candidates, interviewing those candidates and conducting investigations relative to their background and qualifications.
The members of the Nominating and Governance Committee are Mrs. Douglas (Chairwoman) and Messrs. Knudson (Chairman), MogfordCarr, Reddin and Stover. Mr. Stover joined the Nominating and Governance Committee in March 2015, replacing Ms. Ricciardello.Snyder. The Nominating and Governance Committee held six6 meetings during 2014.2017.
CEO Search Committee. In addition to its three standing committees, during 2017 the Board of Directors established a CEO Search Committee. The CEO Search Committee was formed on January 30, 2017 to assist the Board of Directors in a search for a Chief Executive Officer for the Company. The Compensation Committee convened on February 8, 2017, and with input from its independent compensation consultant, established the compensation to be paid to the members of the CEO Search Committee. The members of the CEO Search Committee were Messrs. Snyder (Chairman), Goldman, Vincent and Mrs. Douglas. Mr. Brace served on the CEO Search Committee as an ex-officio member. The CEO Search Committee held 5 meetings during 2017. On October 31, 2017, the CEO Search Committee was terminated by the Board as Mr. Sambrooks, the Company’s current President and Chief Executive Officer, had been selected and started his employment with the Company on November 1, 2017.
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EXECUTIVE COMPENSATION AND OTHER INFORMATION
Compensation Discussion and Analysis
This compensation discussionCompensation Discussion and analysis,Analysis, or CD“CD&A,” provides information about our compensation objectives and policies for (i) any individual who served as our Chief Executive Officer or our Chief Financial Officer during 2014,2017, (ii) our three other most highly compensated executive officers, or, if fewer than three executive officers are employed by us on the last day of the year, as was the case in 2014, such lesser number of executive officers, and (iii) any former executive officer who would have been one of our three most highly-compensated executive officers during 20142017 but for the fact the executive was no longer providing services to us at the end of 2014.2017. We refer to the aforementioned individuals throughout this discussion as the "Named“Named Executive Officers"Officers” or “NEOs” and their names, titles and positions are as follows:
| | |
| | |
| Title and Position |
|---|
Dr. PeterDavid J. HillSambrooks
| | Former Interim President and& Chief Executive Officer |
John A. CrumFrederic F. Brace
| | Former Chairman, Former President and& Chief Executive Officer |
Nelson M. Haight | | Executive Vice President and Chief Financial Officer |
Thomas L. Mitchell
| | Former Executive Vice President and& Chief Financial Officer |
Dexter BurleighMitchell G. Elkins
| | SeniorFormer Executive Vice President—Strategic Planning and TreasuryPresident - Operations |
Gregory HebertsonScott C. Weatherholt
| | Former SeniorExecutive Vice President—ExplorationPresident - General Counsel & Corporate Secretary |
Curtis NewstromRichard W. McCullough
| | Former Senior Vice President & Chief Accounting Officer |
Amelia K. Harding | | Vice President—Business DevelopmentHuman Resources & Administration |
Effective January 6, 2014,November 1, 2017, Mr. MitchellBrace resigned from employment with the Company andbut continues to serve on our Board of Directors. Simultaneous with Mr. Brace’s resignation, Mr. Sambrooks was appointed President & Chief Executive Officer of the Company. Effective June 15, 2017, Mr. Haight was promoted toresigned from employment with the position of Senior Vice President and Chief Financial Officer.Company. Mr. Haight was promoted to Executive Vice President and Chief Financial Officer as of January 1, 2015. Mr. Crum'sElkins’ employment with the Company terminated effective March 31, 2014 and Dr. Hill was appointed Interim President and Chief Executive Officer, effective March 31, 2014. On March 4, 2015, Dr. Hill notified the Board of his intent to resign from his current position as interim President and Chief Executive Officer following the filing of the Company's annual reportended on Form 10-K, and subsequently resigned from this position on March 18, 2015. Furthermore, Dr. Hill has resigned from the Board effective as of March 9, 2015. Dr. Hill will continue to provide transition services to us until April 30, 2015. On March 18, 2015, Frederic (Jake) F. Brace was appointed as our new Interim President and Chief Executive Officer.January 23, 2018.
This CD&A focuses primarily on the information in the tables below and related footnotes, as well as the supplemental narratives, relating to the fiscal year ended December 31, 2014.
2014 Business Highlights2017.
We believe that our
EXECUTIVE SUMMARY
2017 Performance Highlights
Our executive management team created significantperformed well in 2017 and laid the groundwork for creating stockholder value for our stockholders in 2014.moving forward. The following are key highlights of our achievements during fiscal year 2014:2017:
•Increased· Maintained strong, delevered balance sheet throughout 2017.
· Uplisted the Company’s common stock to the NYSE Big Board on May 4, 2017.
· Achieved average daily production 34% year-over-year to 32,137of 22,148 barrels of oil equivalent per day ("Boepd"(“Boepd”) in 2014, up from 23,927 Boepd in 2013.2017, firmly within guidance and on budget.
·
•Achieved record Generated Adjusted EBITDA, before acquisition and transaction costs, of $474.1$128.2 million in 2014, up 35% from $330.8 million in 2013.2017.·
•Completed Rationalized portfolio through divestment of non-core Lincoln County, Oklahoma producing properties and placed on production 120 gross (98 net) wells during 2014.initiated strategic alternatives process for non-core Anadarko Basin assets.·
•Increased total estimated net proved oil Set market-focused strategy aimed at reducing costs, generating free cash flow, improving liquidity and natural gas reservesfocusing activity to 153.7 MMBoe at December 31, 2014, a 20% increase over year-end 2013 total estimated net proved reserves.
maximize optionality.Summary Of 2017 Executive Compensation Program Philosophy
The following lists key compensation highlights and Objectives
Our future success and the ability to create long-term valuedecisions for our stockholders depends onChief Executive Officer and our ability to attract, retainNamed Executive Officers in 2017:
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· The Compensation Committee, which consists entirely of independent directors, determines the total amount and motivate someappropriate mix of compensation for our executive officers, including the most qualified individuals in the oil and gas industry. OurNamed Executive Officers. We believe that our compensation program is designed to rewardso that pay is commensurate with the level of performance that supportsgenerated, with incentive compensation representing the majority of total compensation. Accordingly, as of December 31, 2017, our long-term strategyChief Executive Officer had 84.06% of his pay “at risk” or “variable” and dependent upon Company and stock price performance, as well as his individual performance. The other Named Executive Officers who remain employed with the Company had, on average, 82.87% of their pay “at risk” or “variable.”
| 
|
Note: For the Chief Executive Officer, the above chart reflects his 2017 base salary and annual incentive target, and the achievementactual grant date fair value of his long-term incentive, granted in November 2017 and intended to cover his 2017 and 2018 grants. For other NEOs who remain employed with the Company, the above chart reflects the average of their base salaries and target bonuses, as well as the target grant date fair value of their post-emergence 2016 long-term incentive grants. These post-emergence 2016 long-term incentive grants were intended to cover the balance of the 2016 calendar year as well as the 2017 performance year. The Company intends to make annual long-term incentive grants going forward.
· The only executive to receive a salary increase from 2016 to 2017 was Richard W. McCullough, in connection with the increased scope of his role. His increase was 9.8%.
· As discussed in more detail under “Elements of the Executive Compensation Program,” our Named Executive officers, as well as other Company employees, are eligible to receive a cash incentive payment based upon the Company’s performance relative to pre-established goals or Key Performance Indicators (“KPIs”). The table below sets forth our actual 2017 performance measures approved by the Compensation Committee. Our performance resulted in an annual cash incentive award payout of 54.2% of target for certain of our short-term goals. We believe thatNamed Executive Officers reflecting our pay for performance philosophy.
Performance Measure | | Weight | | Threshold | | Target | | Maximum | |
Production Volume (BOEPD) | | 30 | % | 20,700 | | 22,400 | | 24,100 | |
Reserve Replacement Cost ($/BOE) | | 25 | % | $ | 13.00 | | $ | 9.00 | | $ | 5.00 | |
Full Program IRR | | 25 | % | 20 | % | 30 | % | 45 | % |
Lease Operating Expense ($/BOE) | | 10 | % | $ | 9.55 | | $ | 8.30 | | $ | 7.05 | |
G&A Expense (Cash) - $MM | | 10 | % | $ | 25.8 | | $ | 24.0 | | $ | 22.2 | |
Total | | 100 | % | N/A | | N/A | | N/A | |
· Following the Company’s emergence from Chapter 11 in 2016, the current Named Executive Officers, with the exception of Mr. Sambrooks (who was appointed on November 1, 2017) received a portion of their income in the form of non-qualified stock options and time-based restricted stock units (“RSUs”), representing 50% of the grant date value. Both the stock options and time-based RSUs vested as to 1/6 of
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the award on April 21, 2017, an additional 1/6 of the award vested on October 21, 2017, an additional 1/3 of the award will vest on October 21, 2018, and the final 1/3 of the award will vest on October 21, 2019. The stock options have an exercise price equal to $19.66 per share, which was the fair market value of a share of the Company’s common stock as of the grant date, which was October 21, 2016.
· Upon his hiring on November 1, 2017, Mr. Sambrooks, our Chief Executive Officer, received a grant of time-based RSUs and performance-based RSUs, weighted at one-third and two-thirds, respectively. The time-based RSUs vest ratably on each of the first three anniversaries of the date of grant. Mr. Sambrooks’ performance-based RSUs are subject to cliff vesting at the conclusion of a three-year performance period, dependent upon the Company’s absolute and relative total stockholder return (“TSR”) achievement.
Compensation Objectives and Core Elements
Our primary executive compensation should:
•helpobjectives are to attract, motivate and retain the most qualified individuals in the oilkey leaders, reward current performance, drive future performance and gas industry by being competitive with compensation paid to persons having similar responsibilities and duties in other companies in the same and closely related industries;
•- align the long-term interests of
the individualour executives with those of our stockholdersstockholders. In pursuing these objectives, the Compensation Committee uses certain guiding principles in designing the specific elements of the executive compensation program.��
Consistent with these principles, the core elements of our executive compensation program consist of:
· Cash compensation, in the form of market competitive base salary and motivate long-term value creation;
•be directlyan annual incentive opportunity tied to certain KPIs, selected annually by the attainmentCompensation Committee to align the Company with goals established to achieve a desired result and for delivering stockholder value. In 2017, these KPIs included, production volumes, reserve replacement cost, full program internal rate of annual performance targetsreturn (“IRR”), Lease Operating Expense, and reflectG&A Expense relative to pre-established goals; and· Long-term equity compensation, in the form of non-qualified stock options, and time-based restricted stock units and performance-based restricted stock units.
Other benefits are provided to the Named Executive Officer's individual contribution thereto;
•pay for performance, whereby an individual's total directOfficers that are generally consistent with those provided to other employees of the Company, including health plans and retirement benefits.This CD&A is intended to facilitate a better understanding of the detailed information provided in our executive compensation is heavily influencedtables that follow by company performance;analyzing such data within the context of our overall compensation program.
To guide the discussion and
•reflect analysis, we have organized our CD&A after this “Executive Summary” into the unique qualifications, skills, experiencefollowing sections:·Executive Compensation Program Roles and Responsibilities — This section describes the respective oversight roles and responsibilities of each individual.
Setting Executive Officer Compensation
Ourthe Compensation Committee and the Compensation Committee’s independent compensation consultant.
·Executive Compensation Program Objectives and Principles — This section describes the objectives that guide our compensation programs and discusses the individual principles the Compensation Committee has established to drive our achievement of those objectives. This includes how compensation is benchmarked to market reference points.
·Executive Compensation Processes and Decision Making — This section sets forth the processes undertaken by our Compensation Committee as it evaluates our executive compensation program and plans and makes alldecisions regarding the compensation elements and levels applicable to our senior leaders.
·Elements of the Executive Compensation Program — This section discusses the individual elements of our compensation program for the Named Executive Officers, including base salary, annual cash incentive opportunity, long-term equity incentives, severance benefits and specific
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discussion of the Chief Executive Officer’s compensation for 2018, as well as a discussion of any 2018 compensation decisions relatedaffecting our Named Executive Officers who remain employed with the Company other than the Chief Executive Officer.
·Additional Executive Compensation Information — This section includes an overview of other important executive compensation programs and policies, including executive stock ownership guidelines, certain other benefits available to our Named Executive Officers. For each fiscal year,Officers, employment agreements, and tax and accounting implications.
Say-on-Pay and Say-When on Pay Advisory Votes
At our Chief Executive Officer reviewsannual meeting of stockholders in May 24, 2017, our stockholders were provided the opportunity to cast a non-binding advisory vote on executive compensation (a “say-on-pay” vote). Through this say-on-pay vote, in which we received approximately 97.63% approval, our stockholders reaffirmed their strong support for our executive compensation program and practices. Following the say-on-pay vote, the Compensation Committee considered these results of this vote and concluded that the Company’s executive compensation program provides a competitive pay-for-performance package that effectively incentivizes our Named Executive Officers' current compensationOfficers, encourages long-term retention and makes a recommendationaligns the interests of management with those of our stockholders. In 2017, we introduced performance-based RSUs to our executive compensation program by awarding them to Mr. Sambrooks when he was appointed as our President and Chief Executive Officer. Mr. Sambrooks’ performance-based RSUs cliff vest in three years from the grant date of November 1, 2017 and are based in part upon absolute TSR and in part upon relative TSR compared to a selected peer group. Additionally, in March 2018 the Compensation Committee regarding overall compensation structure and individual compensation levels for each Named Executive Officer other than himself.
As discussed in greater detail throughout this CD&A, our Compensation Committee met numerous times during 2014 to review and discuss executive compensation matters with respect to 2014. Our Compensation Committee intends to set our Named Executive Officer's base salary compensation at approximately the 50th percentile within our peer group and to provideawarded certain of our Named Executive Officers with an opportunityperformance-based RSUs which cliff vest after a three-year period that are tied to earn compensation uprelative TSR of our common stock as compared to approximately the 75th percentile for total direct compensation, subject to target performance metrics being met or exceeded. Although our Compensation Committee reviews survey information asPeer Group (articulated below under “—Executive Compensation Program Objectives and Principles”) over that period.
At our annual meeting of stockholders on May 23, 2014, we conducted a framenon-binding advisory vote on the frequency of reference, ultimatelyfuture say-on-pay votes (a “say-when-on-pay” vote), and approximately 99.02% of votes were cast in favor of the compensation decisions take into consideration, in material part, factors such as a particular Named Executive Officer's contribution to our financial performance and condition, as well as such officer's qualifications, skills, experience and responsibilities.Company holding an annual say-on-pay vote. Our Compensation Committee considers outside factors as well, such as shortages innext say-when-on-pay vote will be conducted at the industry2020 annual meeting of qualified employees for such positions, recent experience in the marketplace, and the elapsed time between the surveys used and when compensation decisions are made. In light of these qualitative and other considerations, the base salary of a particular officer may be greater or less than the 50th percentile of our peers and total direct compensation may be greater or less than the 75th percentile of our peers and, if lower than these levels, our Compensation Committee recognizes that the compensation of certain of our executive officers may continue to build to these levels.stockholders.
Our
Executive Compensation Committee reviews ourProgram Roles and Responsibilities
Our executive compensation program on an annual basis. Duringis administered by the first quarter of 2014, ourCompensation Committee. Consistent with the NYSE corporate governance listing standards, the Compensation Committee reviewed recommendations regarding changes to 2014is composed entirely of independent, non-employee Board members.
As reflected in its charter, the Compensation Committee has overall responsibility for setting the compensation for our NamedChief Executive OfficersOfficer and, followingin consultation with management, in February 2014, our Compensation Committee approved certain changes to our executive compensation programthe Chief Executive Officer, for 2014 that are described in the following sections of this CD&A.
Benchmarking and Peer Group. For 2014, our Compensation Committee met with members of our management team and representatives from Longnecker, our compensation consultant, to select a
group of companies as a "peer group" for executive and director compensation analysis purposes. This peer group was then used for purposes of developing the recommendations presented to our Board of Directors for 2014 compensation packages for our executive officers and our non-employee directors that receive compensation. The oil and gas companies that comprise this peer group were selected primarily because they (i) have similar annual revenue, assets, market capitalization and enterprise value as us and (ii) potentially compete with us for executive-level talent. In light of these considerations, it was determined that certain changes to the 2013 peer group were necessary in order to establish an appropriate peer group for 2014 to reflect changes in the Company's annual revenue, assets, market capitalization and enterprise value. The 2014 peer group for compensation purposes consists of:
•Approach Resources, Inc.
•Bill Barrett Corp.
•Clayton Williams Energy, Inc.
•Endeavour International Corporation
•EPL Oil & Gas, Inc.
•Forest Oil Corporation
•Goodrich Petroleum Corp.
•Halcon Resources Corporation
•Magnum Hunter Resources Corp.
•PDC Energy, Inc.
•Penn Virginia Corporation
•Stone Energy Corp.
•Swift Energy Co.
Longnecker compiled compensation data for the peer group from a variety of sources, including proxy statements and other publicly filed documents. Longnecker also provided published survey compensation data from multiple sources. This compensation data was then used to comparesetting the compensation of our other executive officers, including the Named Executive Officers to individuals with comparable duties and responsibilities at companies within our peer group and in the survey data. As noted above, our Compensation Committee generally targets base salary levels for our Named Executive Officers at roughly the 50th percentile of our peer group, and annual cash and long-term incentive awards so that our Named Executive Officers have the opportunity to realize, in future years, total direct compensation up to the 75th percentile of our peer group based on strong company performance.Officers.
For subsequent years, our Compensation Committee will review and re-determine on an annual basis the composition of our peer group so that the peer group will continue to consist of appropriate peer companies, taking into account the factors previously mentioned.
Role of the Compensation Consultant.Committee Our
The Compensation Committee's charter grants the Committee has the sole authority to retain, at our expense, outside consultants or expertsamend the engagement with, and terminate any compensation consultant to be used to assist it in its duties. For 2014, ourthe evaluation of director, Chief Executive Officer or officer compensation, including employment contracts and change in control provisions. The Compensation Committee has sole authority to approve the consultant’s fees and other retention terms and has authority to cause the Company to pay the fees and expenses of such consultants. During 2017, the Compensation Committee engaged Longneckerthe services of Lyons, Benenson & Company, Inc. (“LB&Co.”) for compensation consulting services. In selecting LB&Co. as its compensation consultant, the Compensation Committee assessed the independence of LB&Co. pursuant to advise it with respectSecurities and Exchange Commission (“SEC”) rules and considered, among other things, whether the consultant provides any other services to executive compensation matters, including developmentus, the policies of the annual compensation peer groupconsultant that are designed to prevent any conflict of interest between the consultant, the Compensation Committee and an annual reviewus, any personal or business relationship between the consultant and evaluationany member of the Compensation Committee or between the consultant and one of our executive officers and director compensation packages generally, based on,whether the consultant owns any shares of our common stock. The terms of LB&Co.’s engagement are
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set forth in a separate engagement agreement that provides, among other things, survey datathat the consultant is engaged by, and information regarding general trends. Representatives from Longnecker periodically meet with our Compensation Committee throughoutreports only to, the year and advise our Compensation Committee with regard to general trends in director and executive compensation,
including (i) competitive benchmarking; (ii) incentive plan design; (iii) peer group selection; and (iv) other matters relating to executive compensation. In addition, Longnecker provides our Compensation Committee and management with surveywill perform the compensation data regarding our compensation peer group for each fiscal year. Longnecker didadvisory services requested by the Compensation Committee. LB&Co. does not provide any other services to us or to management other than the services provided to the Compensation Committee. As discussed above under "MeetingsCompany, and Committees of Directors—Compensation Committee," the Compensation Committee has concluded that we do not have any conflicts of interest with Longnecker.LB&Co.
Role of the Independent Compensation Consultant
LB&Co. has been retained to advise the Compensation Committee on all aspects of our executive compensation program, and they provide no other services to the Company. The services they provide include:
Elements· Reviewing and advising the Company on its compensation philosophy, strategy and program, and evaluating how well our compensation programs adhere to the philosophies and principles articulated below under “—Executive Compensation Program Objectives and Principles.”
· Providing advice and counsel on best practices in compensation and corporate governance and keeping the Company and the Compensation Committee apprised of Our Compensationtrends, developments, legislation and Why We Pay Each Elementregulations affecting executive and director compensation.
· Providing and analyzing competitive market compensation data, including that of our peer group.
· Analyzing the effectiveness of executive compensation programs in supporting the Company’s compensation philosophy and strategy and making recommendations, as appropriate.
· Assisting in the design and negotiation of executive employment agreements, as applicable.
· Analyzing the appropriateness of the compensation peer group.
· Conducting a risk assessment of the Company’s incentive compensation plans and programs at least annually and making recommendations, as appropriate.
The Compensation Committee does not adopt all recommendations given by LB&Co. but uses their work as a reference in exercising its own judgment with respect to its own executive compensation programactions and decisions. LB&Co. meets privately with the Compensation Committee at its request. Our management provides information to LB&Co. but does not direct or oversee their activities with respect to our executive compensation program.
Compensation Consultant Conflict of Interest Assessment
As required by rules adopted by the SEC under the Dodd-Frank Act, the Compensation Committee assessed all relevant factors and determined that the work of LB&Co. did not raise any conflict of interest in 2017. In making this determination, the Compensation Committee considered all relevant factors, including those set forth in Rule 10C-1(b)(4)(i) through (vi) under the Exchange Act.
The Compensation Committee Charter is available online at: https://ir.midstatespetroleum.com/governance-docs.
Role of the Chief Executive Officer
In making determinations regarding compensation for our Named Executive Officers other than our Chief Executive Officer, the Compensation Committee considers the recommendations of the Chief Executive Officer and the input received from LB&Co. The Chief Executive Officer recommends compensation (including the compensation provisions of employment agreements for those who have them) for the Named Executive Officers (other than himself) as well as for all others whose compensation is determined by the Compensation Committee. In making these recommendations, the Chief Executive Officer assesses the performance of each executive, considers each executive’s responsibilities and compensation in relation to other officers of the Company, and reviews publicly available information as well as third party compensation survey data to evaluate the competitive marketplace for talent. In making these recommendations, our Chief Executive Officer takes into account the role and responsibilities of each executive, their relative achievements during the performance year, their appraised
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potential and competitive compensation data developed by LB&Co. that is drawn from our Compensation Peer Group and publicly-available surveys.
The Compensation Committee determines the compensation of the Chief Executive Officer without management input, but is assisted in this determination by LB&Co. Compensation of the Chief Executive Officer is approved by the Compensation Committee, but is also reviewed by the other non-employee, independent members of the Board.
Executive Compensation Program Objectives and Principles
Our primary compensation objectives are to attract, motivate and retain key leaders, reward current performance, drive future performance and align the long-term interests of our executives with those of our stockholders. While the individual compensation elements may differ, the design of the executive compensation program is generally based on the same objectives as the overall compensation program provided to all our employees. The Compensation Committee has established the following principles, which are meant to affect these compensation objectives and guide the design and administration of specific plans, agreements and arrangements for our executives, including the Named Executive Officers.
Compensation Should be Performance-Based
The Compensation Committee believes that a portion of our executives’ total compensation should be “at risk” and tied to how well they perform individually, while other metrics should be “at risk” based on how well the Company performs relative to applicable financial and non-financial objectives. To accomplish this, the Compensation Committee uses a variety of targeted, performance-based compensation vehicles in our executive compensation program that are specifically designed to incorporate performance criteria that promote our annual operating plan and long-term business strategy, build long-term stockholder value and discourage excessive risk-taking.
As the Compensation Committee believes that there should be a strong correlation between executive pay and Company performance, in years when our performance exceeds objectives established for the relevant performance period, executive officers should be paid more than 100% of the established target award. Conversely, when performance does not meet the established objectives, incentive award payments should be less than 100% of the established target level or eliminated altogether if performance is below threshold performance levels.
Compensation Should Reinforce Our Business Objectives and Values
Our goal is to increase stockholder value by focusing our activity, reducing costs, generating free cash flow and improving our liquidity. We seek to achieve these goals through the following strategies:
· Prudently develop our core Mississippian Lime assets.
· Maintain a low and effective cost structure.
· Utilize our technical and operating expertise to enhance returns.
· Maintain a strong, delevered balance sheet.
· Apply rigorous investment analysis to capital allocation decisions.
The Compensation Committee considers these strategies, as well as the Company’s risk tolerance, when identifying the appropriate incentive measures and when assigning individual goals and objectives to the Named Executive Officers.
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Performance-Based Compensation Should be Benchmarked
Our executive compensation program is designed to reward achievement of the approved goals and to attract, retain and motivate our leaders in a competitive talent market. The Compensation Committee examines the executive compensation of a group of peer companies (our “Compensation Peer Group”) to stay current with market pay practices and trends, and to understand the competitiveness of our total compensation and its various elements. The Compensation Committee reviews at least annually the Compensation Peer Group to confirm that it includes companies that are comparable to Midstates on the basis of industry focus, scope of operations, size (based on revenues) and the competitive marketplace for talent. We use this data solely for informational purposes and do not target a specific percentile or make significant pay decisions based on market data alone. Although we believe this information can be helpful, we recognize that benchmarking is not always reliable and is subject to significant change from one year to the next, particularly for companies whose revenues are dependent upon changing commodity prices.
In October 2017, LB&Co. recommended and the Compensation Committee adopted the Compensation Peer Group for Midstates, which is comprised of 16 companies from the Oil and Gas Exploration and Production Global Industrial Classification Standards, or “GICS,” Sub-Industry. The 2017 Compensation Peer Group includes the following five elements:companies:
•Approach Resources, Inc. | | Matador Resources Company |
Bill Barrett Corporation | | Parsley Energy, Inc. |
Bonanza Creek Energy Inc. | | PDC Energy, Inc. |
Callon Petroleum Company | | Penn Virginia Corporation |
Comstock Resources, Inc. | | RSP Permian, Inc. |
Halcón Resources Corporation | | Sanchez Energy Corporation |
Jones Energy, Inc. | | SandRidge Energy, Inc. |
Laredo Petroleum, Inc. | | SilverBow Resources, Inc. |
The process for creating the Compensation Peer Group began by compiling an initial sample of potential comparable organizations from current peers and relevant competitors based on GICS Sub-Industries. LB&Co. then used a top-down, multi-stage filtering approach to distill the comparable sample and establish the Compensation Peer Group. The first filter imposed a revenue requirement between $115 and $702 million. The second filter required that the average three-year TSR be above the Oil and Gas Exploration and Production GICS Sub-Industry median. The third filter focused on key financial performance indicators, such as revenue CAGR, three-year average return on invested capital and three-year average operating margin. The final filter focused on core business and strategic alignment criteria. In developing the Compensation Peer Group, LB&Co. used the filters as guidelines, in an effort to bring as many relevant, high-performing companies as possible into the peer group, while also being mindful of ensuring that the most relevant competitors, in terms of the marketplace for products, services and talent, are also included.
Compensation Levels Should be Market Competitive
To encourage building long-term stockholder value and attracting and retaining executive talent, at least once each year the Compensation Committee reviews market compensation survey data compiled and prepared by third parties and summarized by management, which is also reviewed by the Compensation Committee’s compensation consultant, as well as market compensation proxy and survey data compiled by LB&Co. to evaluate how and whether our executive compensation program is market competitive. The market data used by the Compensation Committee comes from the proxy statements of the Compensation Peer Group as well as broad-based survey data from various sources including Willis Towers Watson, US Mercer Total Compensation Survey for the Energy Sector and Effective Compensation Inc.
The Compensation Committee uses this proxy and survey data to benchmark our executives’ base salary;
•- salary, annual bonus opportunities, total cash compensation, long-term incentive opportunities and total direct compensation. Additionally, the Compensation Committee uses the data to evaluate how, for each executive
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position, the Compensation Committee’s compensation actions are appropriate, reasonable and consistent with the Company’s philosophy, practices and policies, considering the various labor markets in which we compete for executives.
The Compensation Committee believes that compensation should be reasonable, appropriate and competitive, however we do not target a specific percentile in setting our setting target compensation. Rather, the Compensation Committee considers all relevant proxy and survey data, Company and individual performance, and internal equity within Midstates to arrive at the appropriate total direct compensation opportunities for each of our Named Executive Officers, including our Chief Executive Officer.
Incentive Compensation Should Represent the Majority of Total Compensation
The Compensation Committee believes that the proportion of an executive’s total compensation that is “at risk” based on individual, division, function and/or corporate performance should increase in line with the scope and level of the executive’s business responsibilities. Following our emergence from bankruptcy in 2016, all of our Named Executive Officers received long-term incentive grants in the form of non-qualified stock options and time-based RSUs for the balance of the 2016 calendar year as well as for the 2017 calendar year. Following the initial, post-emergence grants, the Compensation Committee did not award any long-term incentive grants during 2017 other than to new hires (including Mr. Sambrooks as our President and Chief Executive Officer). Excluding our Chief Executive Officer, on average, 82.87% of the total target direct compensation opportunity of our Named Executive Officers who remain employed with the Company was at risk, inclusive of post-emergence equity awards granted to such Named Executive Officers for 2016 and calendar year 2017.
The Compensation Committee believes that the Chief Executive Officer’s “at risk” compensation should be a higher percentage of total direct compensation compared to the other Named Executive Officers (on average) in light of the position’s strategic focus, global governance and management responsibilities and accompanying risks. Some 84.06% of the total target compensation of our Chief Executive Officer, who was hired on November 1, 2017, was variable and at risk.
The following table presents the percentage of each Named Executive Officer’s total target-direct compensation for 2017 that was “at risk” as of the time of award.
Named Executive Officer | | Percent of Fiscal 2017 Pay “At Risk”(1) | |
David Sambrooks | | 84.06 | %(2) |
Frederic F. Brace | | N/A | (3) |
Nelson M. Haight | | N/A | (3) |
Scott C. Weatherholt | | 84.48 | %(4) |
Amelia K. Harding | | 84.47 | %(4) |
Richard W. McCullough | | 78.51 | %(4) |
Mitchell G. Elkins | | 89.53 | %(4) |
N/A - Not Applicable |
(1) | Calculated by dividing (i) the sum of the 2017 annual incentive opportunity and target long-term incentive opportunity by (ii) the sum of the 2017 base salary, 2017 target annual incentive opportunity and target long-term incentive opportunity. |
(2) | Given the timing of Mr. Sambrooks’ hire, the Compensation Committee intended his November 2017 long-term incentive grant to cover 2017 and 2018. |
(3) | Mr. Brace resigned from his position as our President and Chief Executive Officer as of November 1, 2017 but remains a member of our Board of Directors. Mr. Haight resigned from his position as our Chief Financial Officer as of June 15, 2017. Because neither of these two former executives remained employed by the Company as of December 31, 2017 their “at risk” percentages for 2017 are not shown. |
(4) | For the NEOs other than Mr. Sambrooks, includes 2017 base salary, 2017 annual incentive opportunity and the grant date value of their post-emergence equity grants (granted on October 21, 2016), which grants were intended to cover the balance of 2016 following emergence as well as 2017. Messrs. Brace and Haight were not employed by the Company as of December 31, 2017. Mr. Elkins’ employment with the Company ended on January 23, 2018. |
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Incentive Compensation Should Balance Short-Term and Long-Term Performance
As stated above, the Compensation Committee believes that executive compensation should be linked to building long-term stockholder value while remaining consistent with our business objectives and values. For 2016 and 2017, our executive compensation program addressed this objective by including long-term incentives in the form of equity-based awards, such as time-based RSUs and performance-based RSUs and non-qualified stock option awards, which makes improved performance of the Company’s common stock a goal, as the executives only experience gains to the extent that our stock price rises above the exercise price of the stock options. As discussed in further detail below, we have also established minimum stock ownership guidelines for our executives that support the Company’s objective of aligning the interests of the executives with those of the stockholders and building long-term stockholder value.
The Compensation Committee also recognizes that, while stock prices correlate to corporate performance over the long-term, other factors may significantly affect stock prices at any point in time. These factors include general economic conditions, industry business cycles, commodity prices and varying attitudes among investors toward the stock market in general and specific industries and/or companies in particular. The influence of these factors makes performance of the Company’s common stock alone an incomplete measure of the Company’s performance. Accordingly, the base salary and annual cash incentive awards;
•opportunity compensation components emphasize current or short-term corporate performance and the realization of defined business and financial objectives, which tend to be less affected by short-term fluctuations in the price of the Company’s common stock.Following our emergence from bankruptcy in October 2016, it has been the goal of the Compensation Committee to maintain a ratio of base salary and annual cash incentive opportunity (short-term focus compensation) to long-term equity-basedincentive compensation (including(long-term focus compensation) that is more heavily weighted towards long-term compensation for our Named Executive Officers. The Compensation Committee believes that this greater emphasis on long-term compensation appropriately aligns the executives’ total compensation with the Company’s short-term and long-term performance objectives. This emphasis provides each Named Executive Officer a competitive cash compensation opportunity each year (with the opportunity to increase that amount if annual incentive objectives or KPIs are exceeded), complemented by an opportunity to earn a substantial amount of additional compensation if the Company and the executives are successful in achieving the Company’s long-term objectives. For the Chief Executive Officer, the emphasis on long-term compensation is greater than that for the other Named Executive Officers, which the Compensation Committee believes is appropriate in light of the position’s strategic focus, global governance and management responsibilities and accompanying risks.
Long-Term Incentives Should Balance Stock-Based and Financial-Based Achievements
In 2016, our Named Executive Officers, including our former Chief Executive Officer, each received long-term incentive awards consisting of an equal number of restricted stock awards);units which and non-qualified stock options, each of which vested,
•retention awards;over a period of three years, as follows: one-sixth vested on the six-month anniversary of the grant date of October 21, 2016, an additional one-sixth vested on the twelve-month anniversary of the grant date, an additional one-third will vest on the twenty-four month anniversary of the grant date and
•other employee benefits. the final one-third will vest on the thirty-six month anniversary of the grant date. Base Salary. Base salary
In 2017, our long-term incentive award for our current Chief Executive Officer was comprised of time-based restricted stock units representing one-third of the award and performance-based restricted stock units representing two-thirds of his award.
The allocation of each of the equity awards granted which cover 2017 is set forth below.
| | | | Stock
Options | | Time-Based
RSUs | | Performance-
Based RSUs | |
· | | Current Chief Executive Officer | | N/A | | 33.33 | % | 66.67 | % |
· | | NEOs Post-Emergence (Including Former Chief Executive Officer and NEOs) | | 50.00 | % | 50.00 | % | N/A | |
N/A — Not Applicable
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The Compensation Committee has determined that this long-term incentive mix of time-based RSUs and performance-based RSUs, which it began using in 2017 with the fixedhiring of our current Chief Executive Officer, appropriately encourages long-term equity ownership, promotes a balance between stock-based and operations-based achievements and aligns the interests of the Named Executive Officers with the Company’s risk profile and the interests of our stockholders.
The Compensation Committee may in the future adjust the mix of award vehicles, adjust vesting conditions or approve different types of awards as part of its overall long-term incentive program. Any review of the long-term incentive program would be undertaken as part of the established practice of annually granting and approving equity awards to the long-term incentive plan participants at the Compensation Committee’s annual compensation wereview, as discussed below.
The Executive Compensation Program Should be Reviewed Annually for Effectiveness
At the first regular committee meeting following our fiscal year end, the Compensation Committee concludes its annual review of all components of our executive compensation program. This review is done with the input of the Compensation Committee’s independent compensation consultant and in light of evolving market practices in the general industry, external regulatory requirements, the competitive market for executives, our risk management objectives and our executive compensation philosophy. In conducting its review, the Compensation Committee reviews information related to each executive officer’s income and benefits, including base salary, target annual and long-term incentives, and health and welfare benefits.
Executive Compensation Processes and Decision Making
The primary goal of the Compensation Committee is to fulfill its oversight responsibilities related to setting, monitoring and implementing the Company’s compensation philosophy, strategy and programs. In discharging its duties, the Compensation Committee works closely with its independent compensation consultant, LB&Co., and management to examine pay and performance matters throughout the year. In determining the compensation of the Named Executive Officers other than the Chief Executive Officer, the Compensation Committee considers the recommendations of the Chief Executive Officer, which are based primarily on Company and individual performance as well as competitive market data.
The Compensation Committee’s Performance Review & Measurement Process
2017 | | 2018 | |
| | | | | | | |
Q1: Goal Setting | | Q2/Q3: Progress Assessment | | Q4: Preliminary Perf.
Results | | Q1: Perf. Assessment & TDC | |
| | | | | | | |
| |
During the first quarter of each year, the Compensation Committee reviews each Named Executive Officer’s total compensation opportunity. The Compensation Committee members also meet regularly with the Named Executive Officers at various times during the year, both formally within Board meetings and informally outside of Board meetings, which allows the Compensation Committee to assess directly each Named Executive Officer’s performance. The Compensation Committee also solicits input from all non-employee members of the Board as to the Chief Executive Officer’s performance during the year.
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Except in years of Chief Executive Officer transition where the incumbent officer has completed less than one year of service in this capacity, the Compensation Committee considers the results of its process for reviewing the Chief Executive Officer’s performance with all independent Board members. The Compensation Committee’s process includes the independent committee members individually and collectively presenting their assessment of the Chief Executive Officer’s performance, as well as the Chief Executive Officer presenting a self-assessment of his own performance. The Compensation Committee then uses these results when determining the Chief Executive Officer’s recommended compensation.
In addition, the Chief Executive Officer annually presents an evaluation of the performance of each of the other Named Executive Officers to the Compensation Committee, which includes a review of each officer’s contributions over the past year, and his or her strengths, weaknesses, development plans and succession potential. The Chief Executive Officer also presents compensation recommendations for each Named Executive Officer for performing specific job responsibilities. It represents the minimum incomeCompensation Committee’s consideration. Following this presentation and a Named Executive Officer may receive in any year. Webenchmarking review for pay, the Compensation Committee makes its own assessments and deliberates and approves of the compensation amounts for each Named Executive Officer a base salary in order to:
•recognizewith respect to each executive officer's unique value and contributions to our success in light of salary normsthe elements in the industryCompany’s executive compensation program as described below.Elements of the Executive Compensation Program
Overview
The primary elements of the Company’s executive compensation program in 2017 are shown in the following table and are discussed in detail below:
Category |
| Compensation Element |
| Description |
Cash | | Base Salary | | Fixed cash compensation set at competitive levels that served to attract and retain high-caliber talent and is predicated on responsibility, skill and experience. |
| |
| | |
| | Short Term Incentive Opportunity | | Annual cash incentive for Company achievement of pre-determined financial and operational performance metrics; payment ranges from 0% to 150%, or in the case of the Chief Executive Officer 200%, of the target award. |
| |
| | |
Long-Term Incentives | | Time-Based Restricted Stock Units | | Time-Based: Vest ratably, generally annually on each of the first three anniversaries of grant with the exception of those grants awarded upon the Company’s emergence from bankruptcy, which vest over a period of three years, as follows: one-sixth vested on the six-month anniversary of the grant date, an additional one-sixth vested on the twelve-month anniversary of the grant date, an additional one-third will vest on the twenty-four month anniversary of the grant date and the final one-third will vest on the thirty-six month anniversary of the grant date. |
| | | | |
| | Performance-Based Restricted Stock Units | | Performance Based: 0% to 150% of the target award cliff vests at the conclusion of a three-year performance period, subject to performance achievement. |
| | | | |
| | Non-Qualified Stock Options | | Prior to November 2017, the Compensation Committee granted non-qualified stock options which would vest, over a period of three years, as follows: one-sixth vested on the six-month anniversary of the grant date, an additional one-sixth vested on the |
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| |
| | twelve-month anniversary of the grant date, an additional one-third will vest on the twenty-four month anniversary of the grant date and the final one-third will vest on the thirty-six month anniversary of the grant date. |
| |
| | |
Retirement | | 401(k) Retirement Plan | | 401(k) retirement program offered to all employees, with a Company match of up to 8% of an employee’s pay and immediate vesting. |
| |
| | |
| | Other Benefits | | Refer to Summary of Employee Agreements |
Base Salary
During the general marketplace;
•remain competitive for executive-level talent within our industry;
•provide executives with sufficient, regularly-paid income; and
•reflect position and levelfirst quarter of responsibility. In setting annual base salary amounts, our Compensation Committee aims to pay base salaries that, by position, are in approximately the 50th percentile of our peer group, althougheach year, the Compensation Committee also takes into consideration factors such as the particular officer's contribution to our financial performancereviews and condition, as well as the officer's qualifications, skills, experience and responsibilities.
At its February 2014 meeting, our Compensation Committee reviewed data provided by Longnecker with respect to our 2014 compensation peer group and approved increases toestablishes the base salaries of certain of our Named Executive Officers for fiscal year 2014. These increases were primarily implemented so that the base salaries of our Named Executive Officers would more closely align with the 50th percentile of our 2014 compensation peer group. In light of the additional responsibilities of Messrs. Burleigh and Newstrom in a variety of areas throughout our organization, their annual base salaries for 2014 remain above the 50th percentile of base salaries for other officers with similar positions at companies within our 2014 compensation peer group. In addition, the base salary increase for Mr. Haight reflects his promotion to Senior Vice President and Chief Financial Officer in January
2014. As such, the 2014 base salaries of our Named Executive Officers as compared to the base salary rates of officers with like positions at the 50th percentile of our peer group were set as follows:
| | | | | | | | | | |
| | 2014 Base
Salary(1) | | 50th Percentile
of 2014 Peer Group | | Percentage of
50th Percentile | |
|---|
John A. Crum | | $ | 600,000 | | $ | 680,745 | | | 88 | % |
Nelson M. Haight | | $ | 300,000 | | $ | 412,673 | | | 73 | % |
Dexter Burleigh | | $ | 290,000 | | $ | 238,735 | | | 121 | % |
Gregory Hebertson | | $ | 315,000 | | $ | 312,119 | | | 101 | % |
Curtis Newstrom | | $ | 320,000 | | $ | 276,134 | | | 116 | % |
(1)Base salaries for each of the Named Executive Officers listed in the table above, prior to the modification by ourOfficers. The Compensation Committee were as follows: $600,000 for Mr. Crum; $250,000 for Mr. Haight; $280,000 for Mr. Burleigh; $300,000 for Mr. Hebertson;has established and $310,000 for Mr. Newstrom. Themaintains base salary increases enumerated inmarket reference points for the table above were effective March 1, 2014, except with respect to Mr. Haight, whose base salary increase was effective in January 2014 to correspond with his promotion. No base salary modification is listed above for Mr. Mitchell because he resigned on January 6, 2014.
Additionally, in connection with Dr. Hill's appointmentCompany’s various executive positions as Interim Presidentindicated by the market compensation survey data compiled and Chiefprepared by management and independently reviewed by the Compensation Committee’s compensation consultant. For each Named Executive Officer, on March 31, 2014, the Compensation Committee reviewed data provided by Longnecker with respect to the compensation of interim chief executive officers of similarly situated companies and approved cash compensation of $100,000 per month to Dr. Hill for assuming the role. During 2014, Dr. Hill participated in the Company's annual performance-based cash incentive bonus program but did not receive any equity grants under the LTIP related to his service as Interim President and Chief Executive Officer. Dr. Hill retained his prior compensation package for his service on the Company's Board of Directors, which includes an annual cash retainer in the amount of $50,000 and an award of restricted stock equal to a number of shares having a value of approximately $125,000 on the date of grant, under the terms of the LTIP.
Annual Performance-Based Cash Incentive Awards. We have historically utilized, and expect to continue to utilize, performance-based annual cash incentive awards to reward achievement of specified performance goals for the Company as a whole with a time horizon of one year or less. We include an annual performance-based cash incentive award as part of our compensation program because we believe this element of compensation helps to:
•motivate management to achieve key annual corporate objectives, and
•align executives' interests with our stockholders' interests.
Amounts paid under the performance-based annual cash incentive program are paid in the Compensation Committee's sole discretion. The Compensation Committee takes into account several quantitativethe scope of his or her responsibilities, experience and qualitativeindividual performance, and then balances these factors includingagainst competitive salary practices. The Compensation Committee also considers internal pay equity on an annual basis with respect to the achievement of pre-established goalsother executives and references external benchmarks provided by its compensation consultant. The Compensation Committee did not assign any relative or metrics, which we call "Key Performance Indicators," or "KPIs," when determiningspecific weights to these factors. Based on the amount of payment awarded to eachfactors discussed above, the Named Executive Officer. At the beginning of each year, our Chief Executive Officer develops a proposal for the annual performance metrics for that year. Officers’ salaries were:
Named Executive Officer | | 2016 Base
Salary | | 2017 Base
Salary | | %
Change | | Rationale For Change | |
David J. Sambrooks | | N/A | | $ | 600,000 | | N/A | | N/A | |
| | | | | | | | | |
Frederic F. Brace | | $ | 1,200,000 | | $ | 700,000 | | (41.67 | )% | Executive’s base salary was reduced to $700,000 effective on 10/21/16, following the Company’s emergence from bankruptcy. Executive resigned during 2017 but remains a member of our Board of Directors. | |
| | | | | | | | | |
Richard W. McCullough | | $ | 255,000 | | $ | 280,000 | | 9.80 | % | Reflects the Executive’s expanded scope and role. | |
| | | | | | | | | |
Nelson M. Haight | | $ | 375,000 | | $ | 375,000 | | 0.00 | % | Executive resigned during 2017. | |
| | | | | | | | | |
Scott C. Weatherholt | | $ | 300,000 | | $ | 300,000 | | 0.00 | % | N/A | |
| | | | | | | | | |
Amelia K. Harding | | $ | 235,000 | | $ | 235,000 | | 0.00 | % | N/A | |
| | | | | | | | | |
Mitchell G. Elkins | | $ | 400,000 | | $ | 400,000 | | 0.00 | % | Executive’s employment ended with the Company on January 23, 2018. | |
N/A — Not Applicable
The Chief Executive Officer then presents his proposal to the Compensation Committee, which independently analyzes the proposed annual performance metrics, makes modifications as it sees fit, and then approves a final set of performance metrics for the year. The performance metrics are then presentedbase salaries paid to the Named Executive Officers and other membersduring 2017 are shown in the “Summary Compensation Table” under the “Salary” column.
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Short-Term Incentive Plan (“STIP”)
During the first quarter of senior management so that they fully understand the program and the goals for that particular year. In the event that the Company makes a material acquisition during the course of theeach year, the performance metrics may be adjusted by the Compensation Committee in its discretion, to appropriately address any changes in the asset makeup of the Company post-acquisition.
Under our annual bonus program, our performance goals serve less asestablishes a formula and more as guidelines for our Compensation Committee to utilize throughout the year to ensure that payment of compensation under the program is aligned with the achievement of our Company's goals and targets. The performance goals are only one factor utilized by our Compensation Committee, alongside a number of other subjective features, such as extenuating market circumstances, individual performance and safety performance, when determining actual amounts of awards. Our Compensation Committee retains the ability to apply discretion to awards based on extenuating market circumstances or individual performance and to modify amounts based on safety performance.
If we achieve the target performance metric, the cashshort-term incentive awards are expected to be paid at target levels. In order to create additional incentive for exceptional company performance based on the metrics described above and the discretion of our Compensation Committee, awards can be paid up to a maximum percentage of the base salary designatedopportunity for each Named Executive Officer but it is not expectedunder the STIP. At that payment at this level would occur in most years. We set threshold, targettime, the Compensation Committee approves: (i) the overall KPIs and maximum levelsgoals for the performance metrics to servefiscal year; and (ii) a STIP target opportunity for each Named Executive Officer.
Setting the STIP Target Opportunity.
Each year, the Compensation Committee establishes an STIP target opportunity for each Named Executive Officer, expressed as a guidelinepercentage of the executive’s base salary. The Compensation Committee sets these targets in consultation with LB&Co. as its independent compensation consultant and in adherence to our stated executive compensation objectives and principles. The target annual incentive opportunity for determiningeach Named Executive Officer in 2017 is set forth in the actual bonus amounts earned byfollowing table:
Named Executive | | 2017 STIP as a % of Base Salary at | |
Officer | | Threshold | | Target | | Maximum | |
David Sambrooks | | 50 | % | 100 | % | 200 | % |
| | | | | | | |
Frederic F. Brace | | N/A | | 100 | % | N/A | |
| | | | | | | |
Richard W. McCullough | | 25 | % | 50 | % | 75 | % |
| | | | | | | |
Nelson M. Haight | | 40 | % | 80 | % | 120 | % |
| | | | | | | |
Scott C. Weatherholt | | 30 | % | 60 | % | 90 | % |
| | | | | | | |
Amelia K. Harding | | 30 | % | 60 | % | 90 | % |
| | | | | | | |
Mitchell G. Elkins | | 40 | % | 80 | % | 120 | % |
N/A — Not Applicable
Setting Key Performance Indicators.
The Compensation Committee, and the Chief Executive Officer, evaluate and approve of the Company’s STIP KPIs for each fiscal year. The Compensation Committee sets each Named Executive Officer’s STIP KPIs that are consistent with our business strategy and tied to the achievement of important strategic objectives that drive the success of our business. The Company’s STIP KPIs and thresholds, targets and maximums, unadjusted for extraordinary events, established for 2017 were as follows:
Performance Measure | | Weight | | Threshold | | Target | | Maximum | |
Production Volume (BOEPD) | | 30 | % | 20,700 | | 22,400 | | 24,100 | |
Reserve Replacement Cost ($/BOE) | | 25 | % | $ | 13.00 | | $ | 9.00 | | $ | 5.00 | |
Full Program IRR | | 25 | % | 20 | % | 30 | % | 45 | % |
Lease Operating Expense ($/BOE) | | 10 | % | $ | 9.55 | | $ | 8.30 | | $ | 7.05 | |
G&A Expense (Cash) - $MM | | 10 | % | $ | 25.8 | | $ | 24.0 | | $ | 22.2 | |
Total | | 100 | % | N/A | | N/A | | N/A | |
Measuring Performance and Establishing Payout.
The 2017 payout range established for our Chief Executive Officer was 0% to 200%, and for each of the remaining Named Executive Officers for 2014. In setting the performance incentive metrics for 2014, ourwas 0% to 150% of his or her respective target award opportunity. The Compensation Committee considered the extentperformance target levels to which targets were met in prior years to ensurebe attainable, but that achievement of the targets utilized are sufficiently challenging. In February 2014,would require strong performance and execution. Failure to meet the Compensation Committee establishedminimum performance threshold
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corresponding to a specified performance measure resulted in the target,participant not receiving any portion of the payout award related to such performance measure. Payouts for performance between threshold and maximum awards to our Named Executive Officers, as a percentage of base salary, as set out in the table below. Actual award amounts are dependent on performance relative to specified performance metricstarget and subject to the discretion of our Compensation Committee. Threshold,between target and maximum award levels were not establishedare subject to linear interpolation. The actual payout percentage for Dr. Hill but our Compensation Committee took into account all of the factors described below when setting the value of his 2014 annual bonus.
| | | | | | | | | | |
| | Threshold Award
(as a % of base salary) | | Target Award
(as a % of base salary) | | Maximum Award
(as a % of base salary) | |
|---|
John A. Crum | | | 50 | % | | 100 | % | | 200 | % |
Nelson M. Haight | | | 37.5 | % | | 75 | % | | 150 | % |
Dexter Burleigh | | | 32.5 | % | | 65 | % | | 130 | % |
Gregory Hebertson | | | 32.5 | % | | 60 | % | | 130 | % |
Curtis Newstrom | | | 35 | % | | 70 | % | | 140 | % |
In 2014, the Compensation Committee established five KPIs, in addition to an overall adjustment for safety and environmental performance that could increase bonuses awarded under the Bonus Plan by up to 25% in the event of extraordinary performance in that area or decrease the bonuses awarded under the Bonus Plan by up to 100% in the event of severe underperformance. The specific goals set by the Compensation Committee at the beginning of 2014 and the weight given to each are listed below.
2014 Annual Performance-Based Bonus Plan
| | | | | | | | | | | | | |
Key Performance Indicators | | % of
Bonus
Target | | Minimum
Performance
for Payout | | Target
Performance | | Maximum
Performance
Payout | |
|---|
Production Volumes (Boe/d) | | | 30 | % | | 30,000 | | | 33,000 | | | 36,000 | |
Drilling and Completion Internal Rate of Return (%) | | | 15 | % | | 40 | % | | 50 | % | | 60 | % |
All Sources Finding Costs ($/Boe) | | | 10 | % | $ | 30.00 | | $ | 25.00 | | $ | 15.00 | |
Lease Operating Expense ($/Boe) | | | 15 | % | $ | 8.10 | | $ | 7.05 | | $ | 6.00 | |
Year End 2014 Liquidity (Available Undrawn Capacity at Year End) | | | 30 | % | $ | 50MM | | $ | 100MM | | $ | 150MM | |
Safety & Environmental Performance | | | Overall consideration of performance in these areas, which may increase or decrease total bonus amount
| |
2017 was calculated as follows:
Base Salary x STIP Target % x Final KPI Achievement Result = Total Short-Term Incentive Payment
Actual performance for each KPI for the fiscal year is measured and reviewed by the Compensation Committee during the first few months following the end of the fiscal year for which the annual short-term incentive bonus is earned. As noted above, while the Compensation Committee closely examines companyCompany and individual performance with respect to each KPI, the Compensation Committee retains the discretion to increase or decrease a Named Executive Officer'sOfficer’s annual cashshort-term incentive bonus despite KPI performance based on an overall qualitative assessment of the individual officer'sofficer’s performance.
In February 2015,2018, the Compensation Committee reviewed 20142017 actual performance against each of the KPIs. The Company achieved (i) between the minimumthreshold and target performance for payout under the Production Volumes metric, (ii) below target performance under the Drilling and Completions Internal Rate of ReturnProduction Volume metric, (iii) above maximum(ii) below threshold performance under the All Sources Finding CostsReserve Replacement Cost metric, (iii) below threshold performance under the Full Program IRR metric, (iv) between the target and maximum performance under the Lease Operating Expense metric, and (v), at the target under Year End 2014 Liquidity metrics, which were established to focus primarily upon maintaining financial flexibility and improvement of debt metrics. The Compensation Committee did not increase or decrease the payoutmaximum performance under the 2014 Bonus PlanG&A Expense (Cash) metric. With the exception of Mr. McCullough, all of our Named Executive Officers (including our Chief Executive Officer) received the portion of their annual short-term incentive bonus tied to corporate performance at a payout rate of 54.2% for safetythe final KPI achievement result. Fifty percent (50%) of Mr. McCullough’s annual short-term incentive bonus was tied to corporate performance at a payout rate of 54.2% and environmental performance.fifty percent (50%) of Mr. McCullough’s annual short-term incentive bonus was tied to personal performance at a payout rate of one hundred percent (100%), delivering an overall bonus payment of 77.1% of Mr. McCullough’s target award opportunity.
Overall, the formulaic outcome based on the above KPI payouts called for a total payout under the 2014 Bonus Plan of approximately 95% of the target level. However, due to the current commodity price environment, the Compensation Committee established a total bonus pool under the 2014 Bonus Plan equal to 65% of the target awards of the participants in the plan. The Compensation Committee granted
Long-Term Incentives
Our long-term incentive program rewards the Named Executive Officers awardsfor the Company’s performance over a multi-year period. Following the Company’s emergence from Chapter 11 in 2016, the following amounts, which are included in the "Non-Equity Incentive Plan Compensation" column of the "Summary Compensation Table" for 2014: Dr. Hill—$750,000; and Mr. Haight—$239,693. Our employment relationship with each of Messrs. Crum, Mitchell, Hebertson, Newstrom, and Burleigh terminated prior to the payment of the 2014 annual bonus. As such, Messrs. Crum, Mitchell and Newstrom did not receive payment of their 2014 annual bonus. Pursuant to the terms of their separation agreements with the Company, Messrs. Burleigh and Hebertson received annual bonus payments for 2014 in the following amounts: $188,500 for Mr. Burleigh; and $187,360 for Mr. Hebertson.
Long-Term Equity-Based Incentives. We believe a formal long-term equity incentive program is a valuable compensation tool and is consistent with the compensation programs of the companies in our peer group. We maintain a Long-Term Incentive Plan, or LTIP, which permits the grant of our stock, options, restricted stock, restricted stock units, phantom stock, stock appreciation rights and other awards, any of which may be designated as performance awards or be made subject to other conditions. We believe that long-term equity-based incentive compensation is an important component of our overall compensation program because it:
•balances short and long-term objectives;
•aligns our executives' interests with the long-term interests of our stockholders;
•rewards long-term performance relative to industry peers;
•makes our compensation program competitive from a total remuneration standpoint;
•encourages executive retention; and
•gives executives the opportunity to share in our long-term value creation.
Our Compensation Committee has the authority under the LTIP to award incentive equity compensation to our executive officers in such amounts and on such terms as the Committee determines appropriate in its sole discretion. To date, our long-term equity-based incentive compensation program has consisted solely of restricted stock awards. In 2014, the Compensation Committee made annual awards of restricted stock to ourthen current Named Executive Officers (including our former Chief Executive Officer), with the exception of Mr. Sambrooks (who was appointed on November 1, 2017), received a portion of their income in February,the form of non-qualified stock options and time-based RSUs. Both the stock options and time-based RSUs vest ratably over a discretionaryperiod of three years: one-sixth vested on the six-month anniversary of the grant date, an additional one-sixth vested on the twelve-month anniversary of the grant date, an additional one-third will vest on the twenty-four month anniversary of the grant date and the final one-third will vest on the thirty-six month anniversary of the grant date. The stock options have an exercise price equal to $19.66 per share, which was the fair market value of a share of our Company’s stock as of the grant date. These grants were intended to cover the post-emergence “stub” period for the balance of the in 2016 fiscal year as well as the full 2017 fiscal year.
Upon his hire as our current Chief Executive Officer on November 1, 2017, Mr. Sambrooks received a grant of restricted stock to Mr. Haight in connection with his promotion in January (the
"Promotion Grant"),time-based RSUs and loyaltyperformance-based RSUs, weighted at one-third and retention grants of restricted stock in June (described in more detail below in the subsection entitled "Loyalty and Retention Awards").two-thirds, respectively. The Compensation Committee may determine in the future that different and/or additional award types are appropriate.
We believe restricted stock awards effectively align our executive officers with the interests of our stockholders on a long-term basis and have retentive attributes. For 2014, our Compensation Committee made annual awards of restricted stock to our Named Executive Officers with an aggregate value at the time of grant equal to a specified percentage of the individual's base salary for the year.
At its February 2014 meeting, our Compensation Committee approved annual restricted stock awards to our Named Executive Officers. The number of shares of restricted stock granted to each Named Executive Officer is as follows: (i) Mr. Haight—120,000 restricted shares, (ii) Mr. Burleigh—87,000 restricted shares (iii) Mr. Hebertson—96,000, and (iv) Mr. Newstrom—129,000 restricted shares. These awards were granted to our Named Executive Officers on February 21, 2014 and willtime-based RSUs vest as to one-third of the total award grantedratably on each of the first three anniversaries of the date of grant. Mr. Sambrooks’ performance-based RSUs are subject to cliff vesting at the conclusion of a three-year performance period, dependent upon the Company’s absolute and relative TSR achievement. This November 1, 2017 grant providedwas intended to serve as Mr. Sambrooks’ 2017 and 2018 long-term incentive grants.
The material terms and conditions of these equity awards are determined under the award recipient remains continuouslyprovisions of our equity compensation plans that our stockholders previously approved. The Company’s 2016 Long Term Incentive Plan was included as an exhibit to the Company’s Form S-8 filed with the SEC on October 24, 2016.
Restricted Stock Unit Awards.
The Compensation Committee grants restricted stock unit awards that vest ratably over a three-year period to deliver a meaningful long-term incentive that balances risk and potential reward. These awards also serve as an
24
effective incentive for our superior executive performers to remain with the Company and continue such performance.
Restricted stock unit awards are only earned if the individual continues to be employed throughby the Company until the applicable vesting dates.dates of the awards. Until vesting, holders of restricted stock unit awards do not have voting rights on the units, but the units are entitled to receive dividend accruals, if any.
Non-Qualified Stock Options.
In 2016, post-emergence, the Compensation Committee granted non-qualified stock options that vest ratably over a period of three years: one-sixth vested on the six-month anniversary of the Grant Date, an additional one-sixth vested on the twelve-month anniversary of the Grant Date, an additional one-third will vest on the twenty-four month anniversary of the Grant Date and the final one-third will vest on the thirty-six month anniversary of the Grant Date. These awards were intended to promote sustained increases in long-term stockholder value and are inherently performance-oriented as the recipients only get rewarded to the extent that there have been increases in the fair market value of our stock over the exercise price, which was set at the fair market value on the Grant Date.
Performance-Based Stock Unit Awards.
In 2017, the Compensation Committee granted a performance-based restricted stock unit award to our Chief Executive Officer. This award vests in a cliff at the conclusion of a three-year performance period, based on the Company’s absolute and relative Total Stockholder Return performance during the performance period. The vestingCompensation Committee believes that this type of award is both retentive, in that the Chief Executive Officer must be employed by the Company through the conclusion of the performance period, and motivational, in that the Chief Executive Officer will only earn these awards will accelerate in fullshares if the award recipient's employment is terminated due to either death or disability,Company meets the articulated relative and absolute Total Stockholder Return goals.
The grant date fair value of the restricted stock unit, stock option and performance-based stock unit awards are subject to the accelerated vesting provisions contained in any existing employment agreement. These accelerated vesting provisions are described in greater detail below in the section entitled "Potential Payments upon Termination or Change in Control." The awardsgranted to the Named Executive Officers during 2016 and 2017, calculated in accordance with accounting principles generally accepted in the United States (“GAAP”) pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 718, “Compensation — Stock Compensation,” are shown in the “Summary Compensation Table” under the “Stock Awards” column and the accompanying footnotes. Additional information on the awards granted in 2017 is shown in the “Grants of Plan-Based Awards for 2017” table.
2018 Compensation Decisions
Base Salary Decisions.
Base salary decisions in 2018 were intended to represent a number of shares with an aggregate value atdetermined by the time of grant approximately equal toCompensation Committee based on the following percentages of base salary: (i) Mr. Haight—200%, (ii) Mr. Burleigh—150% (iii) Mr. Hebertson—200%, and (iii) Mr. Newstrom—200%. While afactors:
· Recommendations from the Chief Executive Officer (for Named Executive Officer holds unvested restricted shares, he is entitledOfficers other than himself);
· Performance achievement (both Company and individual) relative to all the rightsgoals and objectives;
· Scope and impact of ownershipeach role and changes in job responsibility (in particular with respect to the shares, including the right to vote the sharespromotional increases);
· Internal pay equity considerations; and to receive dividends thereon, which dividends must be paid within 30 days of the date dividends are distributed to our stockholders generally.
· Competitive Peer Group and survey data.
Dr. Hill also received a grant of 25,000 restricted shares in February of 2014, but this award was made to him for services performed by him in his capacity as a director, prior to his assumption of the role of Interim President and Chief Executive Officer on March 31, 2014. This award vested in full on the first anniversary of the date of grant.
In addition to the annual grants described above, our Compensation Committee made a Promotion Grant of 48,000 shares of restricted stock to Mr. Haight in January of 2014 in connection with his promotion. His award will vest over three years, and is subject to the same accelerated vesting provisions described above for the annual restricted stock grants.25
Messrs. Crum and Mitchell were not awarded any shares under the LTIP during 2014. In connection with Mr. Crum's separation from the Company in April 2014, the Compensation Committee accelerated the vesting of 150,000 of Mr. Crum's restricted shares that remained unvested pursuant to the terms of the applicable award agreement and the terms of the LTIP. All the unvested restricted stock held by each of Messrs. Mitchell, Hebertson, and Newstrom was forfeited at the time of their separation from the Company. In connection with Mr. Burleigh's termination of employment on January 1, 2015 and pursuant to the terms of his separation agreement, the vesting of 173,608 restricted shares, representing all of the unvested restricted shares held by Mr. Burleigh on the date of his termination, was accelerated.
Loyalty and Retention Awards. On June 6, 2014,Having considered these factors, the Compensation Committee approved the awardfollowing base salary increases for 2018:
Named Executive Officer | | 2017 Base
Salary | | 2018 Base
Salary | | %
Change | | Rationale For Change | |
David. J. Sambrooks | | $ | 600,000 | | $ | 600,000 | | 0.00 | % | No change | |
| | | | | | | | | |
Richard W. McCullough | | $ | 280,000 | | $ | 288,400 | | 3.00 | % | Merit | |
| | | | | | | | | |
Scott C. Weatherholt | | $ | 300,000 | | $ | 350,000 | | 16.67 | % | Salary increase for expanded scope of the Executive’s role in 2018 | |
| | | | | | | | | |
Amelia K. Harding | | $ | 235,000 | | $ | 235,000 | | 0.00 | % | No change | |
Short-Term Incentive Plan KPIs
For 2018, the Compensation Committee approved the following KPIs with their respective weighting shown in parenthesis: Production Volumes (BOEPD) (20%); Total Program IRR (15%); Free Cash Flow (15%); Relative 2018 Total Stockholder Return (15%); Lease Operating Expense ($/BOE) (10%); Adjusted Cash G&A ($/BOE) (10%); and Strategic Initiatives (15%). Pursuant to his employment agreement, Mr. Sambrooks’ annual incentive target is 100% of cash and equity retention awardshis base salary. For 2018, the Compensation Committee increased Mr. Weatherholt’s annual incentive target from 60% of his base salary to Messrs. Haight, Burleigh, and Hebertson. The cash retention awards granted were in the amounts75% of $90,000, $87,000, and $94,500 for Messrs. Haight, Burleigh, and Hebertson respectively, and are designed to pay out in three equal installments on each of July 1, 2014, January 2, 2015 and July 1, 2015, provided that the executive remains continuously employed (and not provide notice of intent to terminate employment) through each such date. The
executives may be eligible to receive payment of the cash loyalty and retention awardshis base salary in connection with a terminationhis expanded role. The annual cash incentive targets for our other Named Executive Officers did not change.
Long-Term Incentive Awards
In March 2018, the Compensation Committee approved long-term incentive grants for each of employment by us without cause or byour Named Executive Officers, other than our Chief Executive Officer, in the executive for good reason.
The equity retention awards granted on June 6, 2014 included 48,216, 46,608,form of time-based and 50,625 shares of time-vestedperformance-based restricted stock for Messrs. Haight, Burleigh, and Hebertson, respectively, and will vest asunits. Time-based restricted stock units are subject to three-year ratable vesting, with one-third of the awardawards vesting on each of the first three anniversaries of the dategrant date. The performance-based restricted stock units are subject to three-year cliff vesting, based on TSR relative to the Compensation Peer Group during the applicable performance period (2018 — 2020). The details of grant,the 2018 long-term incentive grants are set forth below.
Named Executive
Officer | | Date of
Grant | | Total Grant Date
Value | | Time-Based % | | Performance-
Based % | |
Scott C. Weatherholt | | March 1, 2018 | | $ | 958,734 | | 40.00 | % | 60.00 | % |
Richard W. McCullough | | March 1, 2018 | | $ | 511,946 | | 50.00 | % | 50.00 | % |
Amelia K. Harding | | March 1, 2018 | | $ | 537,068 | | 50.00 | % | 50.00 | % |
Following the completion of an assessment of the competitive market place in 2018, the Compensation Committee approved long-term incentive grants for our Named Executive Officers who remain employed with the Company, other than our Chief Executive Officer. The Compensation Committee further intends to make long-term incentive grants annually, in support of this philosophy. Following the long-term incentive grants reflected above, 75.86% (on average) of the 2018 total target direct compensation of the Named Executive Officers (other than our Chief Executive Officer) who remain employed with the Company was dependent upon our stock price and/or our performance.
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Additional Executive Compensation Information
Stock Ownership Guidelines and Anti-Hedging and Pledging
Executive Stock Ownership Guidelines.
In February 2018, the Compensation Committee recommended, and the Board adopted, the Executive Stock Ownership Guidelines for the Company as shown below.
POSITION |
| OWNERSHIP GUIDELINE |
CEO | | 5.0X Base Salary |
Direct Reports To The CEO | | 3.0X Base Salary |
Other Officers | | 1.5X Base Salary |
Each of our executives is subject to the same conditionsCompany’s Executive Stock Ownership Guidelines is expected to achieve the level of vesting and acceleration describedownership set forth above within five years of the later of (1) the implementation of the ownership guidelines or (2) first being appointed as an executive with the Company. Additionally, for executives promoted subsequent to their initial participation in the sub-section above entitled "Long-Term Equity-Based Incentives."Company’s equity program, the Compensation Committee may extend such executive’s time to meet the ownership guidelines. Failure to meet the ownership guidelines may result in a reduction in future long-term incentive equity grants; payment of future annual incentive payouts in the form of equity; and/or the imposition of individual holding requirements, all at the sole discretion of the Compensation Committee.
Mr. Hebertson's separation agreement provided that he would
For purposes of satisfying the Company’s Executive Stock Ownership Guidelines, the following forms of equity are included in the stock ownership calculation:
· Shares owned by the executive, his or her spouse and/or minor children, whether owned outright or in trust;
· Any time-based restricted stock or time-based restricted stock units awarded (whether or not vested);
· Any vested, in-the-money stock options; and
· Any stock held for the executive’s benefit in any pension or 401(k) plans.
For clarity, unvested performance-based restricted stock or unvested performance-based restricted stock units; unvested stock options; and vested, out-of-the money stock options will not count towards satisfaction of the Company’s Executive Stock Ownership Guidelines.
The value of an executive’s stock ownership guideline will be paidbased on his or her then current base salary or annual cash retainer (as and if applicable). The value of the two-thirdsexecutive’s holdings will be based on the number of his cash loyalty and retention award not yet paidshares owned or held as of his date of termination, in connection with his separation from service, which occurred in December of 2014. Mr. Burleigh received paymentthe first trading day of the second tranchecalendar year multiplied by the average closing price of a share of the cash loyaltyCompany’s common stock for the prior 90 calendar days.
Anti-Hedging and retention awardPledging.
Because the Company believes it is improper and inappropriate for its insiders to engage in Januaryshort-term or speculative transactions involving certain securities, under the terms of 2015the Company’s Insider Trading Policy the Company prohibits its insiders from engaging in transactions in the Company’s debt securities (if any), hedging transactions and his separation agreement provided that he would be paidother transactions involving Company derivative securities, purchases of Company stock on margin, short term trading, and standing and limit orders. The Company’s Insider Trading Policy is available online at: https://ir.midstatespetroleum.com/governance-docs.
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Other Benefits
As previously discussed, the final one-thirdCompensation Committee strives to make our executive compensation program primarily performance-based and, as such, has eliminated all perquisites for our executive officers. Currently, the Company offers the benefits described below which the Compensation Committee believes are competitive with the level of his cash loyaltybenefits offered by the companies with which we compete for executive and retention award not yet paidmanagerial talent, and as such serve to meet our stated objective of his date of termination, in connection with his separation from service, which occurred in January of 2015.attracting, motivating and retaining executive talent.
Other Employee Benefits.
All of our full-time employees, including our Named Executive Officers, receive the same health and welfare benefits. The benefits include a 401(k) retirement program with a company match of up to 8% of base salary,an employee’s pay with immediate vesting, health insurance, dental insurance, life and accidental death and dismemberment insurance, as well as short term and long term disability insurance. We do not currently offer any other retirement or pension program as we feel that the compensation package offered to our Named Executive Officers provides compensation and incentives sufficient to attract and retain excellent talent without the addition of this benefit.
The aggregate incremental cost of providing these benefits to the Named Executive Officers is included in the “Summary Compensation Table” under the “All Other Compensation” column and related footnotes.
Employment Agreements
Employment Agreement with Mr. Sambrooks
In connection with the appointment of Mr. Sambrooks as President and Chief Executive Officer, Mr. Sambrooks and the Company entered into an employment agreement (the “Sambrooks Employment Agreement”) outlining the terms of his employment as President and Chief Executive Officer of the Company. Pursuant to the Sambrooks Employment Agreement, Mr. Sambrooks’ annual salary will be $600,000 (the “Base Salary”) while serving as President and Chief Executive Officer and Mr. Sambrooks will be entitled to participate in any Incentive Plans (as defined in the Sambrooks Employment Agreement) applicable to similarly situated employees of the Company. Additionally, Mr. Sambrooks will be entitled to an annual bonus earned based on performance against objective, reasonably attainable performance criteria determined in good faith by the Board of Directors, after consultation with Mr. Sambrooks. The target annual bonus is one hundred percent (100%) of Mr. Sambrooks’ Base Salary and the maximum annual bonus is two hundred percent (200%) of Mr. Sambrooks’ Base Salary (each to be prorated for the number of days Mr. Sambrooks is employed with the Company during the applicable bonus period).
The Sambrooks Employment Agreement was effective as of November 1, 2017, and contains an initial term ending on the third anniversary of the effective date (the “Initial Term”). If sixty (60) days’ notice of intent to terminate the Sambrooks Employment Agreement is not given prior to the expiration of the Initial Term, the Sambrooks Employment Agreement will continue past the Initial Term for successive one year terms until either party gives sixty (60) days’ notice that the party intends for the Sambrooks Employment Agreement to terminate at the end of any such one year period.
If Mr. Sambrooks’ employment is terminated by the Company for cause (as defined below) or by Mr. Sambrooks without Good Reason (as defined below) and the termination of Mr. Sambrooks is not due to his death or disability during the term of the Sambrooks Employment Agreement, Mr. Sambrooks will be entitled to a lump-sum cash payment which will consist of the following items: (i) the portion of Mr. Sambrooks’ base salary accrued through the termination to the extent not previously paid, any expense reimbursement accrued and unpaid, any employee benefits pursuant to the terms of the applicable employee benefit plan, and any accrued but unused vacation (the “Accrued Obligations”), (ii) to the extent Mr. Sambrooks’ employment terminates after the end of the applicable fiscal year but before the payment of Mr. Sambrooks’ Annual Bonus for such fiscal year, the full payment of Mr. Sambrooks’ Annual Bonus for such fiscal year that would have otherwise been payable, and (iii) any accrued or vested amount arising from Mr. Sambrooks’ participation in, or benefits under, any incentive plans (the “Accrued Incentives”),
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If Mr. Sambrooks’ employment is terminated by the Company without Cause (as defined below) or by Mr. Sambrooks for Good Reason (as defined below) during the term of the Sambrooks Employment Agreement, Mr. Sambrooks will be entitled to a lump-sum cash payment, which will consist of the following items: (i) the portion of the executive’s base salary accrued through the termination to the extent not previously paid, any expense reimbursement accrued and unpaid, any employee benefits pursuant to the terms of the applicable employee benefit plan, and any accrued but unused vacation (the “Accrued Obligations”), payable within thirty (30) days after the date of termination, (ii) any accrued or vested amount arising from the executive’s participation in, or benefits under, any incentive plans (the “Accrued Incentives”), and (iii) a cash payment equal the sum of two times his base salary plus the target bonus. Additionally, Mr. Sambrooks will be entitled to continued monthly payment for eighteen (18) months of an amount equal to the cost of medical, dental and vision coverage for him and his family, to vest in the next tranche of time-vested equity incentive awards that would otherwise vest if not for his termination and to vest in a pro rata portion of any performance-based equity incentive awards outstanding on the date of termination.
If Mr. Sambrooks’ employment is terminated by the Company without Cause (as defined below) or by Mr. Sambrooks for Good Reason (as defined below) and within 12 months of change of control, during the term of the Sambrooks Employment Agreement, Mr. Sambrooks will be entitled to a lump-sum cash payment, which will consist of the following items: (i) the portion of the executive’s base salary accrued through the termination to the extent not previously paid, any expense reimbursement accrued and unpaid, any employee benefits pursuant to the terms of the applicable employee benefit plan, and any accrued but unused vacation (the “Accrued Obligations”), payable within thirty (30) days after the date of termination, (ii) any accrued or vested amount arising from the executive’s participation in, or benefits under, any incentive plans (the “Accrued Incentives”), (iii) a cash payment equal the sum of two times his base salary plus the target bonus and (iv) a cash payment equal to a pro rata portion of Mr. Sambrooks Target Bonus for the year of termination, which will be prorated based on the number of days between the beginning of the applicable performance period through the date of termination. Mr. Sambrooks will also be entitled to continued monthly payment for eighteen (18) months of an amount equal to the cost of medical, dental and vision coverage for him and his family. Additionally, all of Mr. Sambrooks’ unvested awards granted to Mr. Sambrooks under the 2016 Long Term Incentive Plan, will vest.
For purposes of the Sambrooks Employment Agreement, “Cause,” in all material respects, means: (i) a breach by Mr. Sambrooks of his obligations under the Sambrooks Employment Agreement, which constitutes nonperformance by him of his obligations and duties thereunder, as determined by us, that is not cured within 15 days of Mr. Sambrooks’ receipt of written notice thereof from us, (ii) commission by Mr. Sambrooks of an act of fraud, embezzlement, misappropriation, willful misconduct or breach of fiduciary duty against us, (iii) a material breach by Mr. Sambrooks of any restrictive covenants contained within the Sambrooks Employment Agreement that is not cured within 15 days of Mr. Sambrooks’ receipt of written notice thereof, (iv) Mr. Sambrooks’ conviction, plea of no content or nolo contendere, deferred adjudication or unadjudicated probation for any felony or any crime involving fraud, dishonesty, or moral turpitude or causing material harm, financial or otherwise, to us, (v) the willful refusal or intentional failure of Mr. Sambrooks to carry out, or comply with, in any material respect, any lawful and material written directive of us, (vi) Mr. Sambrooks’ unlawful use (including being under the influence) or possession of illegal drugs, or (vii) Mr. Sambrooks willful and material violation of any federal, state, or local law or regulation applicable to us or its business which adversely affects us that is not cured after written notice from us.
For purposes of the Sambrooks Employment Agreement, “Good Reason” means any of the following, but only if occurring without Mr. Sambrooks’ consent: (i) a diminution in Mr. Sambrooks’ base salary or target bonus opportunity not otherwise consented to by Mr. Sambrooks, (ii) a material diminution in Mr. Sambrooks’ titles, positions, authority, duties, or responsibilities, (iii) the relocation of Mr. Sambrooks’ principal office to an area more than 50 miles from its location immediately prior to such relocation, or (iv) our failure to comply with any material provision of the Sambrooks Employment Agreement or equity agreement(s).
Employment Agreement with Mr. Brace
Effective upon our emergence from the Chapter 11 Cases, we entered into a new employment agreement with Mr. Brace (the “Brace Employment Agreement”). The initial term of the Brace Employment Agreement was one year with automatic extensions for additional one-year periods unless either party provided at least sixty (60) days advance written notice of the intent to terminate the Brace Employment Agreement. Under the Brace Employment Agreement, Mr. Brace received an annual base salary of $700,000, which could have been increased,
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but not decreased, at any time at the discretion of the Board of Directors. Mr. Brace was also eligible to receive an annual cash bonus and to participate in all other bonus, incentive, retirement and similar plans applicable generally to other similarly situated employees of ours. Mr. Brace’s annual cash bonus was not to be less than 100% of his annual base salary. Mr. Brace was entitled to five weeks of vacation each year during the term of the Brace Employment Agreement. The Brace Employment Agreement contained a confidentiality obligation on the part of Mr. Brace of indefinite duration but did not contain any non-competition or non-solicitation obligations on the part of Mr. Brace following the termination of his employment with us.
On and effective as of August 22, 2017, we entered into an amendment to the Brace Employment Agreement, where we amended the agreement to (i) extend the term of the agreement until April 21, 2018 (the “Termination Date”), (ii) revise the duties of Mr. Brace to include service in a transitional capacity following the appointment by the Company of a replacement President and Chief Executive Officer, (iii) remove the obligation of the Company to pay an annual bonus to Mr. Brace from and after October 21, 2017 and (iv) limit the Company’s severance obligations to Mr. Brace following October 21, 2017, in the event of a qualifying termination of employment to (a) a cash amount equal to the remaining base salary payable to Mr. Brace through the Termination Date, (b) continuation of welfare benefits through the Termination Date and (c) certain post-termination welfare benefits. In addition, the amendment provided that on October 21, 2017, the conclusion of the original term of the Brace Employment Agreement, Mr. Brace was entitled to receive a pro-rata portion of his target bonus in respect of 2017 and all of his outstanding equity-based awards vested.
Upon a termination of his employment by the Company with or without Cause or by Mr. Brace with or without Good Reason (as each term is defined below), in each case, during the first year of the agreement, Mr. Brace would have been entitled to: (i) any accrued but unpaid base salary; (ii) payment of any accrued but unpaid expense reimbursements; (iii) payment for any accrued but unused vacation; (iv) any employee benefits pursuant to the terms of the applicable employee benefit plan; (v) his target bonus, payable in a lump sum; (vi) continuation of his base salary until the end of the initial term (terminable earlier upon his commencement of full-time employment with another entity); and (vii) a monthly cash payment equal to the cost of continued medical, dental and vision coverage for him and his spouse and any eligible dependents for the 24-month period following his termination date (terminable earlier upon his commencement of full-time employment with another entity that provides comparable health and welfare benefits). Additionally, if the termination of employment was by the Company without Cause or by Mr. Brace for Good Reason, all unvested awards granted to him under the 2016 Long Term Incentive Plan would vest.
For purposes of the Brace Employment Agreement, “Cause”, in all material respects, meant: (i) a breach by Mr. Brace of his obligations under the Brace Employment Agreement, which would have constituted nonperformance by him of his obligations and duties thereunder, as determined by us, that was not cured within 15 days of Mr. Brace’s receipt of written notice thereof from us, (ii) commission by Mr. Brace of an act of fraud, embezzlement, misappropriation, willful misconduct or breach of fiduciary duty against us, (iii) a material breach by Mr. Brace of any restrictive covenants contained within the Brace Employment Agreement that was not cured within 15 days of Mr. Brace’s receipt of written notice thereof, (iv) Mr. Brace’s conviction, plea of no content or nolo contendere, deferred adjudication or unadjudicated probation for any felony or any crime involving fraud, dishonesty, or moral turpitude or causing material harm, financial or otherwise, to us, (v) the willful refusal or intentional failure of Mr. Brace to carry out, or comply with, in any material respect, any lawful and material written directive of us, (vi) Mr. Brace’s unlawful use (including being under the influence) or possession of illegal drugs, or (vii) Mr. Brace’s willful and material violation of any federal, state, or local law or regulation applicable to us or our business which would have adversely affected us that was not cured after written notice from us.
For purposes of the Brace Employment Agreement, “Good Reason” meant any of the following, but only if occurring without Mr. Brace’s consent: (i) a material diminution in Mr. Brace’s base salary or target bonus opportunity, (ii) a material diminution in Mr. Brace’s titles, positions, authority, duties, or responsibilities, (iii) the relocation of Mr. Brace’s principal office to an area more than 50 miles from its location immediately prior to such relocation, or (iv) our failure to comply with any material provision of the Brace Employment Agreement or agreement pursuant to which Mr. Brace received a grant of equity-based awards in connection with our emergence from bankruptcy.
In the event that Section 280G of the Code applies to any compensation payable to Mr. Brace, the Brace Employment Agreement provides for a Section 280G Best Net Cutback. The Brace Employment Agreement does
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not provide any obligation for us to pay a “gross-up” or make the executive whole for any excise or regular income taxes, including the excise taxes that may be due under Section 4999 of the Code.
Employment Agreements with Other Named Executive Officer Employment AgreementsOfficers
Effective as ofupon our emergence from the completion of our initial public offering in April 2012,Chapter 11 Cases, we entered into new employment agreements with certain of our executive officers, including all of our Named Executive Officers other than Dr. HillScott C. Weatherholt, Amelia K. Harding, Nelson Haight and Mitchell G. Elkins (the "Employment Agreements"“Employment Agreements”). Mr. Haight's employment agreement was amended at the time of his promotion to Senior Vice President and Chief Financial Officer. Other than the provisions of the agreements that survive termination, the employment agreements for Messrs. Crum, Mitchell, Burleigh, Hebertson, and Newstrom are no longer in effect. The material terms of the Employment Agreements are outlined below.
The initial term of the Employment Agreements is twothree years with automatic extensions for additional one-year periods unless either party provides at least sixty (60) days advance written notice of the intent to terminate the Employment Agreement. Under the Employment Agreements, Mr. Weatherholt receives an annual base salary of $350,000, Ms. Harding receives an annual base salary of $235,000, Mr. Haight received an annual base salary of $375,000 and Mr. Elkins received an annual base salary of $400,000, which, in each case, may be increased, but not decreased, at any time at the discretion of the Board of Directors. Each of the foregoing officers who remains employed with the Company is also eligible to receive an annual cash bonus and to participate in all other bonus, incentive, retirement and similar plans applicable generally to other similarly situated employees of us. The target annual cash bonus of Mr. Weatherholt is 75% of his annual base salary while Ms. Harding’s is 60% of her annual base salary and Mr. Haight and Mr. Elkins were 80% of their respective annual base salaries. Each executive is entitled to fourfive weeks of vacation each year during the term of the Employment Agreement. The Employment Agreement contains a confidentiality obligation on the part of the executive of indefinite duration and non-competition and non-solicitation obligations on the part of the executive for a period of one-year following histheir termination of employment with us for any reason other than death or disability.reason.
Upon a termination of the executive'sexecutive’s employment by us for Cause, by the executive without Good Reason, or due to death or disability during the term of the Employment Agreement, the executive is entitled to:to (i) the portion of the executive'sexecutive’s base salary accrued through the termination to the extent not previously paid, any expense reimbursement accrued and unpaid, any employee benefits pursuant to the terms of the applicable employee benefit plan, and any accrued but unused vacation (the "Accrued Obligations"“Accrued Obligations”), and (ii) any accrued or vested amount arising from the executive'sexecutive’s participation in, or benefits under, any incentive plans (the "Accrued Incentives"“Accrued Incentives”), which amounts areamount was payable in accordance with the terms and conditions of such incentive plans.
Upon a termination of the executive'sexecutive’s employment by us without Cause or by the executive for Good Reason during the term of the Employment Agreement, the executive is entitled to: (i) the Accrued Obligations, (ii) the Accrued Incentives, (iii) a lump-sumlump sum cash payment equal to 1.5 times (in the averagecase of Mr. Haight) or 1.0 times (in the case of Mr. Weatherholt, Ms. Harding and Mr. Elkins) of the applicable officer’s base salary plus annual target bonus paidand (iv) monthly payments equal to the monthly COBRA premium for Executive and their spouse and any eligible dependents for up to 18 months (for Mr. Haight) or 12 months (for Mr. Weatherholt, Ms. Harding and Mr. Elkins) following the executive’s termination of employment. Additionally, if the termination of employment is by the Company without Cause or by the executive for Good Reason, all unvested awards granted to the executive forunder the three immediately preceding completed fiscal years, and (iv) continued payment of the executive's base salary for a period of 18 months for Mr. Haight and 12 months for Messrs. Burleigh, Hebertson and Newstrom.2016 Long Term Incentive Plan shall vest.
Upon a termination of the executive'sexecutive’s employment by us without Cause or by the executive for Good Reason during the term of the Employment Agreement and within twelve months offollowing a change in control of us, the executive is entitled to: (i) the Accrued Obligations, (ii) the Accrued Incentives, (iii) accelerated vesting for all equity or equity based awards granted under the new long-term incentive plan that are not intended to be "qualified performance based compensation" within the meaning of Section 162(m) of the Internal Revenue Code (the "Code"), and (iv) a lump-sum cash payment equal to the product of (x) the highestexecutive’s annual target bonus paid to the executive for the three immediately preceding completed fiscal years plus the highest base salary paid to the executive during the three years immediately preceding the change in control, multiplied by (y) 2.0.2.0, and (iv) monthly payments equal to the monthly COBRA premium for executive and any eligible dependents for up to 18 months (for Mr. Haight) or 12 months (for Mr. Weatherholt, Ms. Harding and Mr. Elkins) following the executive’s termination of employment. Additionally, if the termination of employment is by the Company without Cause or by the executive for Good Reason, all unvested awards granted to the executive under the 2016 Long Term Incentive Plan shall vest.
For purposes of the Employment Agreement, "Cause"Agreements “Cause”, in all material respects, means: (i) a breach by the executive of the executive’s obligations under the executive’s Employment Agreement, which constitutes nonperformance by the executive of histheir obligations and duties thereunder, as determined by us, that is not cured within 15 days of Mr. Brace’s receipt of written notice thereof from us, (ii) commission by the executive of an act of fraud, embezzlement, misappropriation, willful misconduct or breach of fiduciary duty against us, or other conduct harmful or potentially harmful to our best interest, (iii) a material breach by the executive of any restrictive covenants contained within the non-competition, non-solicitation, or confidentiality obligations under theexecutive’s Employment Agreement that is
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not cured within 15 days of the executive’s receipt of written notice thereof, (iv) the executive'sexecutive’s conviction, plea of no contestcontent or nolo contendere, deferred adjudication or unadjudicated probation for any felony or any crime involving fraud, dishonesty, or moral turpitude or causing material harm, financial or otherwise, to us, (v) the willful refusal or intentional failure of the executive to carry out, or comply with, in any material respect, any lawful and material written directive of our Board of Directors,us, (vi) the executive'sexecutive’s unlawful use (including being under the influence) or possession of illegal drugs, or (vii) the executive'sexecutive’s willful and material violation of any federal, state, or local law or regulation applicable to us or our business which adversely affects us that is not cured after written notice from us.
For purposes of the Employment Agreement, "Good Reason"Agreements, “Good Reason” means any of the following, but only if occurring without the executive'sexecutive’s consent: (i) a material diminution in the executive'sexecutive’s base salary or target bonus opportunity, (ii) a material diminution in the executive'sexecutive’s titles, positions, authority, duties, or responsibilities, (iii) the relocation of the executive'sexecutive’s principal office to an area more than 50 miles from its location immediately prior to such relocation, or (iv) our failure to comply with any material provision of the Employment Agreement.Agreement or agreement pursuant to which the executive received a grant of equity-based awards in connection with our emergence from the Chapter 11 Cases.
Severance payments made under the Employment Agreement are contingent upon the executive'sexecutive’s execution of a valid release of claims. Further, severance payments may be stopped and any payments already made must be repaid in the event the executive violates the confidentiality, non-competition or non-solicitation provisions of the Employment Agreement.
Section 280G of the Code prevents a corporate payor from deducting certain large payments contingent upon a change in control ("parachute payments") from the corporation's gross income for federal tax purposes. In addition, Section 4999 of the Code imposes an excise tax on the recipient of an excess parachute payment equal to 20% of the amount of the excess parachute payment.
In the event that Section 280G of the Code applies to any compensationCompensation payable to the executives, the Employment Agreement provides that we will either (x) reduce the payment(s) to an amount that is one dollar less than the amount that would trigger the application ofAgreements provide for a Section 280G of the Code, or (y) make the full payment owed to the executive, whichever of (x) or (y) results in the best net after tax position for the executive.Best Net Cutback. The Employment Agreements do not provide any obligation for us to pay a "gross-up"“gross-up” or make the executive whole for any excise or regular income taxes, including the excise taxes that may be due under Section 4999 of the Code.
In connection with the appointment of Mr. Brace as interim President and Chief Executive Officer, we entered into an employment agreement with Mr. Brace outlining the terms of his employment (the "Brace Employment Agreement"). The material terms of the Brace Employment Agreement are outlined below. Except as noted otherwise below, capitalized terms used but not defined shall have the same meanings as described above with respect to the Employment Agreements.
Pursuant to the Brace Employment Agreement, Mr. Brace will serve as our interim President and Chief Executive Officer for an initial term commencing on March 9, 2015 and ending on September 9, 2016, with automatic six-month term extensions following the expiration of the initial term or any subsequent six-month extension term, provided that neither party provides a notice of non-renewal at least 60 days prior to September 9, 2016 or the end of the applicable extension term. Under the Brace Employment Agreement, Mr. Brace will receive a monthly base salary of $100,000, which may be increased, but not decreased, at any time at the discretion of the Board of Directors. Mr. Brace is also eligible to receive an annual cash bonus and to participate in all other bonus, incentive, retirement and similar plans applicable generally to other similarly situated employees of us. Mr. Brace's target annual cash bonus is equal to 100 percent of his annual base salary, with the maximum annual cash bonus equal to 200 percent of his annual base salary and the minimum annual cash bonus equal to 50 percent of his annual base salary. Under the terms of the Brace Employment Agreement, Mr. Brace and/or his family, as the case may be, is also eligible to participate in other welfare benefit plans, in accordance with the terms and conditions of applicable policies as may be in effect and/or amended from time to time. Additionally, under the Brace Employment Agreement, Mr. Brace is eligible to receive other fringe benefits and limited perquisites appertaining to his position.
Upon a termination of Mr. Brace's employment by us with Cause (as defined below), by Mr. Brace without Good Reason (as defined below), or due to death or disability during the term of the Brace Employment Agreement, Mr. Brace (or, in the case of death, Mr. Brace's legal representative) will be eligible to receive the Accrued Obligations and the Accrued Incentives.
Upon a termination of Mr. Brace's employment by us without Cause or by Mr. Brace for Good Reason, in either case, during the term of the Brace Employment Agreement, Mr. Brace would receive the following: (i) the Accrued Obligations, (ii) the Accrued Incentives, (iii) a lump-sum cash payment equal to the greater of (x) the average of the annual cash bonuses paid to Mr. Brace for the period employed with us or (y) the target annual cash bonus (i.e., 100 percent of Mr. Brace's annual base salary), and (iv) the continued payment of Mr. Brace's base salary for the remainder of the term of the Brace Employment Agreement.
For purposes of the Brace Employment Agreement, "Cause", in all material respects, means: (i) nonperformance by Mr. Brace of his obligations and duties that is not cured after written notice from the Board of Directors, (ii) commission by Mr. Brace of an act of fraud, embezzlement, misappropriation, willful misconduct or breach of fiduciary duty against us or other conduct harmful or potentially harmful to our best interest, (iii) a material breach by Mr. Brace of the non-competition, non-solicitation, or confidentiality obligations under the Brace Employment Agreement that is not cured after written notice from the Board of Directors, (iv) Mr. Brace's conviction, plea of no contest or nolo contendere, deferred adjudication or unadjudicated probation for any felony or any crime involving fraud, dishonesty, or moral turpitude or causing material harm, financial or otherwise, to us, (v) the refusal or failure of Mr. Brace to carry out, or comply with, in any material respect, any lawful directive of our Board of Directors that is not cured after written notice from the Board of Directors, (vi) Mr. Brace's unlawful use (including being under the influence) or possession of illegal drugs, or (vii) Mr. Brace's willful violation of any federal, state, or local law or regulation applicable to us or our business which adversely affects us that is not cured after written notice from the Board of Directors.
For purposes of the Brace Employment Agreement, "Good Reason" means any of the following, but only if occurring without Mr. Brace's consent: (i) a material diminution in Mr. Brace's base salary or target annual cash bonus opportunity, (ii) a material diminution in Mr. Brace's authority, duties, or responsibilities, (iii) the relocation of Mr. Brace's principal office to an area more than 50 miles from its location immediately prior to such relocation, or (iv) our failure to comply with any material provision of the Brace Employment Agreement.
Severance payments made under the Brace Employment Agreement are contingent upon Mr. Brace's execution of a valid release of claims. Further, severance payments may be stopped and any payments already made must be repaid in the event Mr. Brace violates the confidentiality, non-competition or non-solicitation provisions of the Brace Employment Agreement.
In the event that Section 280G of the Code applies to any compensation payable to Mr. Brace, the Brace Employment Agreement provides that we will either (x) reduce the payment(s) to an amount that is one dollar less than the amount that would trigger the application of Section 280G of the Code, or (y) make the full payment owed to Mr. Brace, whichever of (x) or (y) results in the best net after tax position for Mr. Brace. The Brace Employment Agreement does not provide any obligation for us to pay a "gross-up" or make Mr. Brace whole for any excise or regular income taxes, including the excise taxes that may be due under Section 4999 of the Code.
Severance Arrangements
Nelson Haight
On March 20, 2014,June 7, 2017, we announced that Mr. CrumHaight would resign from his position effective June 15, 2017 to pursue other opportunities. In connection with his resignation, Mr. Haight entered into an agreement (the “Haight Separation Agreement”) with the Company pursuant to which Mr. Haight resigned as an officer of the Company effective June 15, 2017. Pursuant to the Haight Separation Agreement, Mr. Haight received a lump sum payment for his Accrued Obligations and Accrued Incentives. Pursuant to the terms of Company’s 2016 Long-Term Incentive Plan, any unvested shares of restricted stock or unvested stock options which were previously awarded to Mr. Haight expired on June 15, 2017. The Haight Separation Agreement also contains confidentiality and non-disparagement provisions and a waiver and release.
Frederic F. Brace
On October 25, 2017, we announced that Mr. Brace would resign from his position as President and Chief Executive Officer and Chairman of the Company effective November 1, 2017, but would continue to serve as a member of our Board effective as of March 31, 2014.Directors. Under the terms of the Amendment to his Employment Agreement with the Company, Mr. Brace received a lump sum payment for his Accrued Obligations, Accrued Incentives, and the remainder of his base salary which would have been earned through the remainder of his Term of April 21, 2018. Additionally, Mr. Brace’s monthly COBRA premiums for he and his spouse, are paid for by the Company for twenty-four months following the end of his Term, and all unvested awards granted to Mr. Brace under the 2016 Long Term Incentive Plan fully vested.
Mitchell G. Elkins
Effective January 23, 2018, Mr. Elkins’ employment ended with the Company. In connection with his departure, Mr. Crum's resignation, weElkins entered into a separation agreement with Mr. CrumSeparation Agreement (the "Crum“Elkins Separation Agreement"Agreement”).
, dated January 24, 2018. Pursuant to the CrumElkins Separation Agreement, Mr. Crum was entitled to receiveElkins received, under the following paymentsterms of his Employment Agreement with the Company, a lump sum payment for his Accrued Obligations and benefits following his separation: (i) salary continuation payments for a period of 24 months following separation, in an aggregate amount of $1,200,000, the right to which arose from Mr. Crum's employment agreement; (ii)Accrued Incentives, a lump sum cash payment of $320,000, or the average of theequal to 1.0 times his base salary plus annual bonuses paid to Mr. Crum for the years in which he was employed by us, the right to which also arose from Mr. Crum's employment agreement; (iii)target bonus, a lump sum cash payment of $540,000, oramount equal to the amount to be paid
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monthly COBRA premium for he and his spouse for twelve months and all unvested awards granted to Mr. CrumElkins under our annual cash bonus program for 2013; (iv) accelerated vesting of Mr. Crum's outstanding unvested restricted stock awards, or 150,000 shares of restricted stock and (v) the Accrued Obligations as defined in Mr. Crum's employment agreement.
Under the Crum2016 Long Term Incentive Plan fully vested. The Elkins Separation Agreement Mr. Crum has agreed to continue to abide by thealso contains confidentiality non-competition and non-solicitation covenants in the employment agreement that we entered into with Mr. Crum to the extent applicable following his separation. As a condition to receipt of the consideration described in the preceding paragraph, Mr. Crum has agreed to execute a waiver and release of claims in favor of us.
Effective January 6, 2014, Mr. Mitchell resigned from employment with the Company and Mr. Haight was promoted to the position of Senior Vice President and Chief Financial Officer. We did not enter into a separation agreement with Mr. Mitchell in connection with his termination of employment.
Effective July 3, 2014 Mr. Newstrom resigned from employment with the Company. We did not enter into a separation agreement with Mr. Newstrom in connection with his termination of employment.
On December 16, 2014 Gregory F. Hebertson entered into a separation agreement with us (the "Hebertson Separation Agreement"). Pursuant to the Hebertson Separation Agreement, Mr. Hebertson was entitled to receive the following payments and benefits following his separation: (i) salary continuation payments for a period of 12 months following separation, in an aggregate amount of $315,000, (ii) a lump sum cash payment of $116,000, which represents the average of the annual bonuses paid to Mr. Hebertson for the preceding three fiscal years, (iii) a lump sum cash payment of $187,360, which represents the accrued amount arising from Mr. Hebertson's participation in our annual bonus program, (iv) a lump sum payment in the amount of $63,000, which represents the unvested amount arising from Mr. Hebertson's loyalty and retention award, and (v) reimbursement for any COBRA expenses incurred in the first three months following Mr. Heberston's termination of employment.
Under the Hebertson Separation Agreement, Mr. Hebertson has agreed to continue to abide by the confidentiality, non-competition and non-solicitation covenants in the employment agreement that we entered into with Mr. Hebertson to the extent applicable following his separation. As a condition to receipt of the consideration described in the preceding paragraph, Mr. Hebertson has agreed to execute a waiver and release of claims in favor of us.
On December 19, 2014, Dexter Burleigh, who was serving as our Senior Vice President—Strategic Planning and Treasury, notified us of his intent to retire from his current position, effective January 1, 2015. In connection with Mr. Burleigh's retirement, Mr. Burleigh entered into an agreement (the "Burleigh Separation Agreement") with us pursuant to which Mr. Burleigh resigned as an officer, effective January 1, 2015. Following his execution of a waiver and release, Mr. Burleigh received (i) his target bonus for 2014 in the amount of $188,500, (ii) a lump sum severance payment of $456,761, representing 12 months of his annual base salary plus his average annual bonus for the prior three years, (iii) a lump sum payment of $29,000, which represents the unvested amount arising from Mr. Burleigh's loyalty and retention award, and (iv) reimbursement for any COBRA expenses incurred in the first three months following Mr. Burleigh's retirement. With respect to Mr. Burleigh's outstanding awards under the LTIP, the Burleigh Separation Agreement provides that so long as a release of claims is timely executed and not revoked, all 173,608 unvested shares of restricted common stock held by him at his retirement will vest as of the date of the Burleigh Separation Agreement. The Burleigh Separation Agreement contains non-competition, non-solicitation and non-disparagement provisions provisions regarding reimbursement for continued health insurance coverage and a waiver and release. The non-competition and non-solicitation restrictions continue for one year following Mr. Burleigh's date of departure.
On March 4, 2015, Dr. Peter J. Hill notified the Board of his intent to resign from his current position as interim President and Chief Executive Officer immediately following the filing of the Company's annual report on Form 10-K, which occurred on March 16, 2014. Furthermore, Dr. Hill has resigned from the Board effective as of March 9, 2015. Dr. Hill will continue to provide transition
services to us until April 30, 2015. To date, we have not entered into a separation agreement with Dr. Hill in connection with his resignation or impending separation from service.
Accounting and Tax Considerations
Under Section 162(m) of the Internal Revenue Code a limitation is placed on tax deductions of any publicly-held corporation for individual compensationCompensation to "covered employees"“covered employees” (within the meaning of Section 162(m) of the Internal Revenue Code) of such corporation exceeding $1,000,000 in any taxable year, unless the compensationCompensation meets certain requirements for qualified "performance-based compensation." Newly public companies generally are not subject to the deduction limitations of Section 162(m) of the Internal Revenue Code until the first stockholder meeting that occurs after the close of the third calendar year following the calendar year in which the initial public offering occurs, or at the time of a material amendment to the plan, whichever occurs first. We became subject to the limitations and requirements of Section 162(m) as of the 2014 Annual Meeting.“performance-based Compensation.”
Our policy is to have compensation programs that recognize and reward performance that increases stockholder value and, to the extent consistent with this policy, to seek to maintain the favorable tax treatment of that compensation. We believe, however, that under some circumstances, such as to attract or retain key executives or to recognize outstanding performance, it is in our best interest and in the best interest of our stockholders to provide compensation to selected executives even if it is not fully deductible.
Section 280G of the Code prevents a corporate payor of certain types of payments made to executives in connection with a change of control from deducting portions of such payments from the corporation's gross income for federal income tax purposes, to the extent they exceed certain monetary thresholds (the excess over those thresholds is referred to as the "excess parachute payment"). In addition, Section 4999 of the Code imposes an excise tax on the recipient of these payments equal to 20% of the amount of the excess parachute payment. Some companies provide "gross-ups" to their executives to cover any excise tax that may become due under Section 4999 of the Code. The Employment Agreements do not provide any obligation for us to pay a "gross-up" or make the executive whole for any excise or regular income taxes, including any excise taxes that may be due under Section 4999 of the Code.
All equity awards to our employees, including our Named Executive Officers, and to our directors will be granted and reflected in our consolidated financial statements, based upon the applicable accounting guidance, at fair market value on the grant date in accordance with Financial Accounting Standards Board ("FASB"(“FASB”) Accounting Standards Codification ("ASC"(“ASC”), Topic 718, "Compensation—“Compensation—Stock Compensation."”
Impact of Section 162(m) on Compensation
Prior to the Tax Cuts and Jobs Act (“Tax Reform”) that was signed into law December 22, 2017, Section 162(m) of the Code generally limited to $1 million the U.S. federal income tax deductibility of compensation paid in one year to a company’s Chief Executive Officer or any of its three next-highest-paid executive officers (other than its Chief Financial Officer). Compensation that qualified as “performance-based” under Section 162(m) of the Internal Revenue Code was exempt from this $1 million limitation. As part of Tax Reform, the ability to rely on this “qualified performance-based compensation” exception was eliminated, and the limitation on deductibility was generally expanded to include all named executive officers. Although we maintain compensation arrangements that were intended to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code prior to Tax Reform, subject to certain transition relief rules, we may no longer take a deduction for any compensation paid to our covered employees in excess of $1 million. Furthermore, although the Compensation Committee may have taken action intended to limit the impact of Section 162(m) of the Internal Revenue Code, it also believes that the tax deduction is only one of several relevant considerations in setting compensation. The Committee believes that stockholder interests are best served by not restricting the Committee’s discretion and flexibility in structuring compensation programs, even though such programs may result in non-deductible compensation expenses. Accordingly, achieving the desired flexibility in the design and delivery of compensation may have resulted (and may continue to result, in light of the recent changes in law) in compensation that in certain cases is not deductible for federal income tax purposes.
Compensation Practices as They Relate to Risk Management
We believe our compensationCompensation programs do not encourage excessive and unnecessary risk taking by executive officers (or other employees). Our annual performance-based cash incentive program is based upon several different performance metrics that are both quantitative and qualitative, thus emphasizing well rounded company performance and growth rather than encouraging our executives to focus on achieving a single performance goal and the exclusion of others. Further, because our Compensation Committee retains the ability to apply discretion when determining the actual amount to be paid to executives pursuant to our annual performance-based cash incentive program, our Compensation Committee is able to assess the actual behavior of our executives as it relates to risk taking in awarding bonus amounts. Further, our use of long-term equity-based compensation serves our compensation program'sprogram’s goal of aligning the interests of executives and stockholders over the long-term, thereby reducing the incentives to take unnecessary short-term risk.
33
COMPENSATION COMMITTEE REPORT
The information contained in this Compensation Committee Report shall not be deemed to be "soliciting material"“soliciting material” or to be "filed"“filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended (the "Securities Act"“Securities Act”), or the Securities Exchange Act of 1934, as amended (the "Exchange Act"“Exchange Act”), except to the extent that the Company specifically incorporates such information.
The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.
| | |
| | Compensation Committee of the Board of Directors |
|
|
|
Bruce Stover, Chairman
George A. DeMontrond, Member
Neal P. Goldman (Chairman) |
| Alan J. Carr Member
|
| Michael S. Reddin |
34
Executive Compensation
Summary Compensation Table
The following table sets forth information regarding the compensationCompensation awarded to, earned by, or paid to our Named Executive Officers during the fiscal years ended December 31, 2012, 2013,2017, 2016 and 2014.2015.
Name and Principal
Position | | Year | | Salary
($)(1) | | Bonus
($)(2) | | Stock
Awards
($)(3) | | Non-
Equity
Incentive
Plan
Compensation
($)(4) | | All Other
Compensation
($)(5) | | Total ($) | |
David J. Sambrooks | | 2017 | | 100,000 | | — | | 2,564,850 | | 54,200 | | 8,000 | | 2,727,050 | |
President and Chief Executive Officer | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Frederic F. Brace | | 2017 | | 586,362 | | — | | — | | 563,836 | | 447,097 | | 1,597,295 | |
Former President and Chief Executive Officer | | 2016 | | 1,105,448 | | — | | 4,026,313 | | 1,438,188 | | 22,414 | | 6,592,363 | |
| 2015 | | 973,076 | | — | | — | | 1,362,598 | | 21,200 | | 2,356,874 | |
| | | | | | | | | | | | | | | |
Richard W. McCullough | | 2017 | | 272,260 | | — | | — | | 104,956 | | 2,313 | | 379,529 | |
Vice President—Chief Accounting Officer | | 2016 | | 255,000 | | — | | 858,266 | | 147,964 | | 14,708 | | 1,275,938 | |
| 2015 | | 182,853 | | 125,000 | | 121,800 | | 109,118 | | — | | 538,771 | |
| | | | | | | | | | | | | | | |
Nelson M. Haight | | 2017 | | 171,875 | | — | | — | | — | | 64,868 | | 236,743 | |
Former Executive Vice President and Chief Financial Officer | | 2016 | | 375,000 | | — | | 2,910,229 | | 390,300 | | 22,414 | | 3,697,943 | |
| 2015 | | 375,033 | | 810,000 | | 716,766 | | 420,126 | | 21,200 | | 2,343,125 | |
| | | | | | | | | | | | | | | |
Scott C. Weatherholt | | 2017 | | 300,000 | | — | | — | | 97,560 | | 18,000 | | 415,560 | |
Executive Vice President—General Counsel & Corporate Secretary | | 2016 | | 300,000 | | — | | 1,453,032 | | 234,180 | | 19,214 | | 2,006,426 | |
| 2015 | | 268,269 | | 180,000 | | 127,200 | | 225,394 | | — | | 800,863 | |
| | | | | | | | | | | | | | | |
Amelia K. Harding | | 2017 | | 235,000 | | — | | — | | 76,422 | | 18,000 | | 329,422 | |
Vice President — Human Resources & Administration | | 2016 | | 235,000 | | 53,334 | | 1,137,523 | | 183,441 | | 19,214 | | 1,628,512 | |
| 2015 | | 70,349 | | 26,667 | | — | | 53,733 | | — | | 150,749 | |
| | | | | | | | | | | | | | | |
Mitchell G. Elkins (6) | | 2017 | | 400,000 | | — | | — | | 173,440 | | 21,600 | | 595,040 | |
Former Executive Vice President—Operations | | 2016 | | 400,000 | | 216,667 | | 3,103,394 | | 416,320 | | 22,414 | | 4,158,795 | |
| 2015 | | 350,000 | | 208,333 | | 179,828 | | 338,618 | | 21,200 | | 1,097,979 | |
| | | | | | | | | | | | | | | | | | | | | | |
Name and Principal Position | | Year | | Salary
($)(1) | | Bonus(2) | | Stock
Awards
($)(3) | | Non-Equity
Incentive Plan
Compensation
($)(5) | | All Other
Compensation
($)(6) | | Total ($) | |
|---|
Peter J. Hill | | | 2014 | | | 963,625 | | | — | | | 115,000 | | | 750,000 | | | — | | | 1,828,625 | |
Former Interim President and | | | | | | | | | | | | | | | | | | | | | | |
Chief Executive Officer(7) | | | | | | | | | | | | | | | | | | | | | | |
John A. Crum | | |
2014 | | |
219,228 | | |
— | | |
753,000 |
(4) | |
— | | |
787,539 | | |
1,759,767 | |
Former President and Chief | | | 2013 | | | 600,000 | | | — | | | 1,698,750 | | | 540,000 | | | 20,400 | | | 2,859,150 | |
Executive Officer(7) | | | 2012 | | | 600,000 | | | — | | | — | | | — | | | 21,000 | | | 621,000 | |
Nelson M. Haight | | |
2014 | | |
299,615 | | |
30,000 | | |
1,168,699 | | |
239,693 | | |
17,500 | | |
1,755,507 | |
Executive Vice President | | | 2013 | | | 220,667 | | | — | | | 324,830 | | | 158,000 | | | 17,500 | | | 720,997 | |
and Chief Financial Officer | | | | | | | | | | | | | | | | | | | | | | |
Thomas L. Mitchell | | |
2014 | | |
6,923 | | |
— | | |
— | | |
— | | |
415 | | |
7,338 | |
Former Executive Vice President | | | 2013 | | | 450,000 | | | — | | | 1,275,950 | | | — | | | 15,300 | | | 1,741,250 | |
and Chief Financial Officer(7) | | | 2012 | | | 450,000 | | | — | | | 2,699,996 | | | 175,000 | | | — | | | 3,324,996 | |
Dexter Burleigh | | |
2014 | | |
288,333 | | |
29,000 | | |
996,456 |
(4) | |
— | | |
17,500 | | |
1,331,289 | |
Senior Vice President—Strategic | | | 2013 | | | 268,333 | | | — | | | 407,880 | | | 158,000 | | | 17,500 | | | 851,713 | |
Planning and Treasury(7) | | | | | | | | | | | | | | | | | | | | | | |
Gregory Hebertson | | |
2014 | | |
299,305 | | |
31,500 | | |
755,475 | | |
— | | |
405,610 | | |
1,491,890 | |
Former Senior Vice President— | | | | | | | | | | | | | | | | | | | | | | |
Business Development(7) | | | | | | | | | | | | | | | | | | | | | | |
Curtis Newstrom | | |
2014 | | |
162,026 | | |
— | | |
593,400 | | |
— | | |
17,500 | | |
772,926 | |
Former Senior Vice President— | | | 2013 | | | 302,500 | | | — | | | 562,700 | | | 209,000 | | | 17,500 | | | 1,091,700 | |
Business Development(7) | | | | | | | | | | | | | | | | | | | | | | |
(1)
- This column reflects the base salary earned by each Named Executive Officer during the
20142017, 2016 and 2015 fiscal year. Effectiveyears.(2) This amount represents the payment of cash retention awards for Messrs. Elkins and Haight. For 2015, Messrs. Elkins and Haight received two separate cash loyalty awards of $50,000 for each cash loyalty award paid to Mr. Elkins and $30,000 for each cash loyalty award paid to Mr. Haight, on January 6, 2014,2, 2015 and July 1, 2015. In February 2015, the Compensation Committee increased the annual base salary forapproved a cash retention award to Mr. Haight from $250,000Elkins. The cash retention award granted to $300,000. In March of 2014 the Committee increased the annual base salary of (i) Mr. Burleigh from $280,000 to $290,000; (ii) Mr. Hebertson from $300,000 to $315,000, and Mr. Newstrom from $310,000 to $320,000. The value reflected for Dr. Hill includes paymentsElkins was in the amount of $900,000 for his service as our Interim President and Chief Executive Officer and $63,625 for his service as a member of our board of directors, including his annual retainer and meeting fees.$325,000. The value reflected for Mr. Crum reflects $150,000award was paid in base salary and $69,228 paid for accrued but unused vacation in connection with his termination of employment. The value reflected for Mr. Hebertson reflects $287,462 paid in base salary and $11,843 paid for accrued but unused vacation in connection with his termination of employment.
(2)These amounts represent the payment of the first installment of the cash loyalty and retention awards, which pay out in three equal installments on each of JulyJune 1, 2015, January 1, 2016, and May 2016, and required that Mr. Elkins remain continuously employed through each such date. Additionally, in December 2014, the Compensation Committee approved a cash retention award to Mr. Haight. The cash retention award granted to Mr. Haight was in the amount of $750,000. The award was paid out in three equal installments on each of January 2,1, 2015, June 1, 2015, and JulyDecember 1, 2015.
- 2015, and required that Mr. Haight remain continuously employed through each such date. This amount also represents the hiring bonus payments for Messrs. McCullough, Weatherholt and Ms. Harding. The hiring bonus paid to Ms. Harding was payable in three equal installments on each of September 30, 2015, March 31, 2016, and October 31, 2016, and required that Ms. Harding remain continuously employed through each such date.
(3)
- These amounts do not necessarily correspond to the actual value that may be realized by our Named Executive Officers. For 2017, this amount represents Mr. Sambrooks’ award of time-based and performance-based RSUs upon his hire of November 1, 2017. The amount shown for 2017 represents the grant date fair value of such awards. The face value of the awards granted to Mr. Sambrooks on November 1, 2017 was $2,000,000 for the performance-based RSUs and $1,000,000 for the time-based RSUs. For 2016, amounts reflected in the table above are for awards of
35
restricted stock units and stock options. Also, for 2016, included in the table above are amounts for 100 shares of unrestricted common stock awarded to each Named Executive Officer and the payment for the related taxes. For 2015, amounts reflected in the table above are for awards of restricted stock. On the Effective Date, all equity interests of the Company issued and outstanding immediately prior, including outstanding restricted stock and restricted stock units shown in this column for 2015, were deemed cancelled, discharged and of no force or effect. All awards are reported based upon the grant date fair value computed in accordance with Financial Accounting Standards Board ("FASB") Accounting Standard Codification ("ASC")FASB ASC Topic 718, excluding the effect of estimated forfeitures. See Note 11 to our consolidated financial statements on Form 10-K for the year ended December 31, 2014 for additional detail regarding assumptions underlying the value of these equity awards. The restricted stock granted to Dr. Hill was granted as compensation for his services as a member of our board of directors. All the unvested restricted stock held by each of Messrs. Mitchell, Hebertson, and Newstrom was forfeited at the time of their separation from the Company, including the awards reported in the this column for Messrs. Hebertson and Newstrom.
(4)
The value reported in the "Stock Awards" column for Mr. Crum in 2014 reflects the incremental fair value of the 150,000 unvested shares of restricted stock the terms of which were modified by the Crum Separation Agreement, computed as of March 26, 2014, the date the Crum Separation Agreement was executed, and calculated in accordance with FASB ASC Topic 718. The value reported for Mr. Burleigh represents both (i) the grant date fair
value of the award of 133,608 shares of restricted stock granted to him in 2014 and (ii) the incremental fair value of 173,608 unvested shares of restricted stock (including all awards granted during 2014) the terms of which were modified by the Burleigh Separation Agreement, computed as of December 19, 2014, the date of the Burleigh Separation Agreement, in each case calculated in accordance with FASB ASC Topic 718. The incremental fair value attributable to the modification of these awards is calculated by subtracting the fair value of the modified award on the date of modification from the fair value of the award if it had not been modified, on the same date. Absent the Crum Separation Agreement and the Burleigh Separation Agreement, Messrs. Crum and Burleigh would have forfeited 100% of the unvested portion of their 2013 and, in the case of Mr. Burleigh, also 2014 restricted stock awards on their termination of employment. As such, the fair value of the unmodified award on the date of modification was $0, resulting in the fair value of the modification reported above reflecting the full value of the portions of those awards that were amended to allow vesting upon termination of employment.
(5)- The amounts reported in this column reflect the aggregate amount paid in total to each
executive in March of 2015Named Executive Officer with respect to performance in 20142015, 2016 and 2017 under our then applicable annual cashshort-term incentive bonus program. Our employment relationship with each of Messrs. Crum, Mitchell, Hebertson, Newstrom, and Burleigh terminated prior to the payment of the 2014 annual bonus. As such, Messrs. Crum, Mitchell and Newstrom did not receive payment of their 2014 annual bonus. Pursuant to the terms of their separation agreements with the Company, Messrs. Burleigh and Hebertson received annual bonus payments for 2014, which are reported in the "All Other Compensation" column.
(6)Theprograms.(5) These amounts presented for Messrs. Mitchell, Haight, Burleigh, and Newstrom represent a companyCompany match of 401(k) contributions made in 2014. The amounts presented in this column2015, 2016 and 2017 including a year-end 401(k) true-up amount of $21,200 for Mr. Crum representBrace for 2014: (A) cash payments2015, paid in the aggregate amountfourth quarter of $770,000, which includes salary continuation payments2016, $5,200 for Mr. Brace, $16,106 for Mr. Haight, $14,000 for Mr. Weatherholt, $2,250 for Ms. Harding for 2016, paid in the first quarter of 2017, and $400 for Mr. Brace, $400 for Mr. Haight and $400 for Mr. Elkins for 2017, paid in March 2018. These amounts also represent a grossed-up payment of taxes in the amount of $450,000$1,214 for the 100 shares of unrestricted common stock awarded to for Messrs. Brace, McCullough, Haight, Weatherholt, Elkins and Ms. Harding in 2016. This amount also represents a payment of $331,266 in severance and $94,231 of accrued and unused vacation for Mr. Crum's average annualBrace upon his termination on November 1, 2017 in accordance with the terms of his Employment Agreement. This amount also represents a payment of $43,268 of accrued and unused vacation for Mr. Haight upon his termination of June 15, 2017.
(6) Mr. Elkins retention bonus in the amount of $320,000$216,667 was mis-recorded in last year’s Summary Compensation Table as $21,667, which resulted in his total direct compensation being recorded as $3,963,795. We have made the correction and (B) a company match of 401(k) contributions made in 2014 in an amount of $17,539. The amounts presentedrecorded it properly in this columnyear’s Summary Compensation Table as $216,667 as well as his total direct compensation for Mr. Hebertson represent for 2014: (i) cash severance payments earned in 20142016 being $4,158,795 as reflected in the aggregate amount of $392,610, which includes salary continuation payments in the amount of $26,250, Mr. Hebertson's average annual bonus in the amount of $116,000, Mr. Hebertson's 2014 accrued annual bonus in the amount of $187,360, and Mr. Hebertson's loyalty and retention award in the amount of $63,000, and (ii) a company match of 401(k) contributions made in 2014 in an amount of $13,000.
(7)Mr. Crum's employment as our President, Chief Executive Officer and Chairman of the Board of Directors of the Company terminated effective March 31, 2014. Mr. Mitchell's employment as our Executive Vice President, Chief Financial Officer terminated effective January 6, 2014. Mr. Newstrom's employment as our Senior Vice President, Business Development terminated on July 3, 2014. Mr. Hebertson's employment as our Senior Vice President, Exploration terminated as of December 1, 2014. Mr. Burleigh's employment as our Senior Vice President, Strategic Planning and Treasury terminated on January 1, 2015. Dr. Hill resigned from his position as our Interim President and Chief Executive Officer in March of 2015 but will continue to provide transition services to us through April 30, 2015.
table above.Grants of Plan-Based Awards for 20142017
The table sets forth the threshold, target, and maximum awards for each of our Named Executive Officers under our annual cash bonus program as well as the number of shares of restricted stock awarded during 20142017 to the Company'sCompany’s Named Executive Officers under the LTIP.
| | | | | | | | | | | | | | | | | | | |
| |
| | Estimated Future Payouts Under
Non-Equity Incentive Plan Awards(1) | | All Other
Stock Awards:
Number of
Shares of
Stock(2)(#) | |
| |
|---|
| |
| | Grant Date Fair
Value of Stock
Awards(3)($) | |
|---|
Name | | Grant Date | | Threshold ($) | | Target ($) | | Maximum ($) | |
|---|
Peter J. Hill | | | | | | | | | 540,000 | | | | | | | | | | |
| | | 2/21/2014 | | | | | | | | | | | | 25,000 | | | 115,000 | |
John A. Crum | | | | | |
300,000 | | |
600,000 | | |
1,200,000 | | | | | | | |
| | | | | | | | | | | | | | | 150,000 | (5) | | 753,000 | (5) |
Nelson M. Haight | | | | | |
112,500 | | |
225,000 | | |
450,000 | | | | | | | |
| | | 1/1/2014 | | | | | | | | | | | | 48,000 | | | 317,760 | |
| | | 2/21/2014 | | | | | | | | | | | | 120,000 | | | 552,000 | |
| | | 6/6/2014 | | | | | | | | | | | | 48,216 | | | 298,939 | |
Thomas L. Mitchell | | | — | | |
— | | |
— | | |
— | | |
— | | |
— | |
Dexter Burleigh | | | | | |
94,250 | | |
188,500 | | |
377,000 | | | | | | | |
| | | 2/21/2014 | | | | | | | | | | | | 87,000 | | | 400,200 | |
| | | 6/6/2014 | | | | | | | | | | | | 46,608 | | | 288,970 | |
| | | | | | | | | | | | | | | 173,608 | (5) | | 307,286 | (5) |
Gregory Hebertson | | | | | |
102,375 | | |
204,750 | | |
409,500 | | | | | | | |
| | | 2/21/2014 | | | | | | | | | | | | 96,000 | | | 441,600 | |
| | | 6/6/2014 | | | | | | | | | | | | 50,625 | | | 313,875 | |
Curtis Newstrom | | | | | |
112,000 | | |
224,000 | | |
448,000 | | | | | | | |
| | | 2/21/2014 | (4) | | | | | | | | | | | 129,000 | | | 593,400 | |
(1)These columns reflect the threshold, target, and maximum levels established for each Named Executive Officer, except Dr. Hill, under our annual cash bonus program, calculated based on each Named Executive Officer's base salary in effect as of December 31, 2014 and utilizing the final threshold, target and maximum levels established by the Compensation Committee in 2014. No target bonus amount was established for 2014 by our Compensation Committee for Dr. Hill. As such, the amount included as his target amount above is a representative amount based on the 2013 annual bonus received by Mr. Crum, our predecessor Chief Executive Officer. Our employment relationship with each of Messrs. Crum, Mitchell, Hebertson, Newstrom, and Burleigh terminated prior to the payment of the 2014 annual bonus. As such, Messrs. Crum, Mitchell and Newstrom did not receive payment of their 2014 annual bonus. Pursuant to the terms of their separation agreements with the Company, Messrs. Burleigh and Hebertson received annual bonus payments for 2014 in the following amounts: $188,500 for Mr. Burleigh; and $187,360 for Mr. Hebertson. For more information about our annual cash bonus program or the Named Executive Officer's targets levels under that program, please see the "Compensation Discussion and Analysis—Elements of our Compensation and Why we Pay Each Element—Annual Performance-Based Cash Incentive Awards" section of this Proxy Statement.
(2)The amounts in this column represent the restricted stock granted to the Named Executive Officers on the respectively noted dates. These shares of restricted stock vest in three equal annual installments beginning one year from the date of grant, except for the award granted to Dr. Hill,
| | | | Estimated Future Payouts Under
Non-Equity Incentive Plan Awards | | Stock Awards | |
Name and
Principal Position | | Grant Date | | Threshold ($) | | Target ($) | | Maximum ($) | | All Other
Stock��Awards:
Number of
Shares of
Stock(#) | | Grant Date
Fair Value of
Stock
Awards($) | |
David J. Sambrooks | | 11/01/2017 | | 300,000 | | 600,000 | | 1,200,000 | | 203,667 | | 2,564,850 | |
Richard W. McCullough | | | | 70,000 | | 140,000 | | 210,000 | | — | | — | |
Frederic F. Brace | | | | N/A | | N/A | | N/A | | — | | — | |
Nelson M. Haight | | | | N/A | | N/A | | N/A | | — | | — | |
Scott C. Weatherholt | | | | 90,000 | | 180,000 | | 270,000 | | — | | — | |
Amelia K. Harding | | | | 70,500 | | 141,000 | | 211,500 | | — | | — | |
Mitchell G. Elkins | | | | 160,000 | | 320,000 | | 480,000 | | — | | — | |
which vests in full on the one-year anniversary of the date of grant. The restricted stock award granted to Dr. Hill was granted to him as compensation for his membership on our board of directors and not as compensation for his role as our Interim President and Chief Executive Officer. All the unvested restricted stock held by each of Messrs. Mitchell, Hebertson, and Newstrom was forfeited at the time of their separation from the Company, including the awards reported in the this column for Messrs. Hebertson and Newstrom.
(3)The amounts reflected in the table above for restricted stock are reported based upon the grant date fair value computed in accordance FASB ASC Topic 718, excluding the effect of estimated forfeitures. See Note 11 to our consolidated financial statements on Form 10-K for the year ended December 31, 2014 for additional detail regarding assumptions underlying the value of these equity awards.
(4)These restricted shares were forfeited on July 3, 2014, the date Mr. Newstom departed the Company, as was Mr. Newstrom's annual bonus award.
(5)For Mr. Crum, this amount reflects the incremental fair value of the 150,000 unvested shares of restricted stock, the terms of which were modified by the Crum Separation Agreement, computed as of March 26, 2014, the date the Crum Separation Agreement was executed, and calculated in accordance with FASB ASC Topic 718. The value reported for Mr. Burleigh represents the incremental fair value of 173,608 unvested shares of restricted stock, the terms of which were modified by the Burleigh Separation Agreement, computed as of December 19, 2014, the date of the Burleigh Separation Agreement, in accordance with FASB ASC Topic 718. The incremental fair value attributable to the modification of these awards is calculated by subtracting the fair value of the modified award on the date of modification from the fair value of the award if it had not been modified, on the same date. Absent the Crum Separation Agreement and the Burleigh Separation Agreement, Messrs. Crum and Burleigh would have forfeited 100% of the unvested portion of their 2013 and, in the case of Mr. Burleigh, also 2014 restricted stock awards on their termination of employment. As such, the fair value of the unmodified award on the date of modification was $0, resulting in the fair value of the modification reported above reflecting the full value of the portions of those awards that were amended to allow vesting upon termination of employment.
N/A – Not Applicable
Outstanding Equity Awards at Fiscal Year End
The following table sets forth information concerning outstanding equity awards held by each of our Named Executive Officers as of December 31, 2014.2017.
| | Option Awards | | Stock Awards | |
Name and
Principal Position | | Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable | | Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
(1) | | Option
Exercise
Price ($) | | Option
Expiration
Date | | Number of
Shares or
Units of
Stock That
Have Not
Vested (#)
(2) | | Market
Value of
Shares or
Units of
Stock That
Have Not
Vested ($)(3) | |
David J. Sambrooks | | — | | — | | | | | | 203,667 | | 2,251,199 | |
Richard W. McCullough | | 9,367 | | 18,736 | | 19.66 | | 10/21/2026 | | 18,736 | | 310,643 | |
Frederic F. Brace | | 131,773 | | — | | 19.66 | | 10/21/2026 | | — | | — | |
Nelson M. Haight | | — | | — | | | | | | — | | — | |
Scott C. Weatherholt | | 15,858 | | 31,720 | | 19.66 | | 10/21/2026 | | 31,720 | | 525,918 | |
Amelia K. Harding | | 12,414 | | 24,833 | | 19.66 | | 10/21/2026 | | 24,833 | | 411,731 | |
Mitchell G. Elkins | | 33,848 | | 67,705 | | 19.66 | | 10/21/2026 | | 67,705 | | 1,122,549 | |
36
| | | | | | | | | | | | | | | | | | | |
| | Option Awards | | Stock Awards | |
|---|
Name | | Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable(1) | | Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable | | Option
Exercise
Price ($) | | 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 ($)(10) | |
|---|
Peter J. Hill | | | | | | | | | | | | | | | 25,000 | (2) | | 37,750 | |
John A. Crum | | |
| | |
| | |
| | |
| | |
| | |
| |
Nelson M. Haight | | | | | | | | | | | | | | |
10,257 |
(3) | |
15,488 | |
| | | | | | | | | | | | | | | 16,667 | (4) | | 25,167 | |
| | | | | | | | | | | | | | | 16,000 | (6) | | 24,160 | |
| | | | | | | | | | | | | | | 48,000 | (7) | | 72,480 | |
| | | | | | | | | | | | | | | 120,000 | (8) | | 181,200 | |
| | | | | | | | | | | | | | | 48,216 | (9) | | 72,806 | |
Thomas L. Mitchell(11) | | |
| | |
| | |
| | |
| | |
| | |
| |
Dexter Burleigh | | |
66.67 | | |
— | | |
n/a | | |
n/a | | | | | | | |
| | | | | | | | | | | | | | | 24,000 | (4) | | 36,240 | |
| | | | | | | | | | | | | | | 16,000 | (5) | | 24,160 | |
| | | | | | | | | | | | | | | 87,000 | (8) | | 131,370 | |
| | | | | | | | | | | | | | | 46,608 | (9) | | 70,378 | |
Gregory Hebertson(11) | | |
| | |
| | |
| | |
| | |
| | |
| |
Curtis Newstrom(11) | | |
| | |
| | |
| | |
| | |
| | |
| |
(1)
The number of incentive unit awards reflected in this column does not correlate to the Company's common shares because the incentive units are interests in one of our affiliates. Incentive units represent actual equity interests in us or one of our affiliates that have no value for tax purposes on the date of grant and are designed to gain value only after we or one of our affiliates has realized a certain level of growth and return to those individuals who hold certain other classes of our equity. We believe these interests are most similar economically to stock appreciation rights. The definition of "option" in the regulations governing this disclosure includes stock options, stock appreciation rights, and "similar instruments." Because we believe that incentive units are most similar to stock appreciation rights we think they are properly classified as "options" under the definition in the regulations governing this disclosure. As such, the incentive units granted to our Named Executive Officers are disclosed in the table above under the columns required by the regulations governing this disclosure for options (as defined in those regulations). The economics of incentive units are borne entirely by our investor, First Reserve Management, L.P. ("First Reserve"); however, due to the accounting treatment of the incentive units, we will record a non-cash compensation charge in the period any payment is made with respect to the incentive units. No options to purchase our stock, in the traditional sense of the term, have been granted to our Named Executive Officers.
(2)- Amounts reported in this column represent time-vested
restricted stock awardsoptions granted on FebruaryOctober 21, 2014. The2016. Unless provided for otherwise under the terms of any applicable employment agreement with the Company, the awards vest in full on the one-year anniversaryvested as to 1/6 of the dateaward on April 21, 2017, an additional 1/6 of grant.
(3)- the award vested on October 21, 2017, an additional 1/3 of the award will vest on October 21, 2018, and the final 1/3 of the award will vest on October 21, 2019.
(2) For Mr. Sambrooks’ awards were granted on November 1, 2017 and the amount represents 67,889 time-based RSUs which vest ratably over three years and 135,778 performance-based RSUs which cliff vest at the end of the three years, subject to performance achievement based on absolute and relative Total Stockholder Return. Amounts reported in this column for all other Named Executive Officers other than Mr. Sambrooks represent time-vested restricted stock awardstime-based RSUs granted on April 25, 2012. The awards vest in one-third increments over a three-year period onOctober 21, 2016. Unless provided for otherwise under the anniversaryterms of any applicable employment agreement with the Company, the time-based RSUs vested as to 1/6 of the dateaward on April 21, 2017, an additional 1/6 of grant.
(4)Amounts reportedthe award vested on October 21, 2017, an additional 1/3 of the award will vest on October 21, 2018, and the final 1/3 of the award will vest on October 21, 2019. For Mr. Elkins, the amount represents 67,705 time-based RSUs that immediately vested upon his termination from the Company.(3) For purposes of determining the amount shown for Mr. Sambrooks, the value of Mr. Sambrooks’ unvested performance-based RSUs was calculated based upon the number of performance-based RSUs awarded to him at threshold performance (50%), multiplied by closing share price of the common stock of the Company on December 29, 2017 of $16.58 per share. The amount attributable to Mr. Sambrooks’ unvested time-based RSUs was calculated by multiplying the number of time-based RSUs by the closing share price of the common stock of the Company on December 29, 2017 of $16.58 per share. The amounts reflected in this column for the Named Executive Officers other than Mr. Sambrooks represent time-vestedthe market value of restricted stock unit awards granted on February 21, 2013. The awards vest in one-third increments over a three-year periodto the Named Executive Officers, calculated based on the anniversaryclosing share price of the date of grant.
(5)Amounts reported in this column represent time-vested restrictedcommon stock awards granted on May 16, 2013. The awards vest in one-third increments over a three-year period on the anniversary of the date of grant.
(6)Amounts reported in this column represent time-vested restricted stock awards granted on August 23, 2013. The awards vest in one-third increments over a three-year period on the anniversary of the date of grant.
(7)Amounts reported in this column represent time-vested restricted stock awards granted on January 1, 2014. The awards vest in one-third increments over a three-year period on the anniversary of the date of grant.
(8)Amounts reported in this column represent time-vested restricted stock awards granted on February 21, 2014. The awards vest in one-third increments over a three-year period on the anniversary of the date of grant.
(9)Amounts reported in this column represent time-vested restricted stock awards granted on June 6, 2014. The awards vest in one-third increments over a three-year period on the anniversary of the date of grant.
(10)For purposes of calculating the amounts in this column, the closing price of our shares on the NYSECompany on December 31, 201429, 2017 of $1.51 was used.
(11)All the unvested restricted stock held by each of Messrs. Mitchell, Hebertson, and Newstrom was forfeited at the time of their separation from the Company.
Option Exercises and Stock Vested
The table below sets forth, for each Named Executive Officer, information about exercises of stock options and lapses of restrictions on restricted stock awards during the year ended December 31, 2014. Our Named Executive Officers have not been granted any stock option awards.2017.
| | Option Awards | | Stock Awards | |
Name and
Principal Position | | Number of
Shares
Acquired on
Exercise | | Value
Realized on
Exercise ($) | | Number of
Shares
Acquired on
Vesting (1)(#) | | Value
Realized on
Vesting (2)($) | |
David J. Sambrooks | | — | | — | | — | | — | |
Frederic F. Brace | | — | | — | | 131,773 | | 2,031,464 | |
Richard W. McCullough | | — | | — | | 9,367 | | 156,891 | |
Nelson M. Haight | | — | | — | | 15,865 | | 297,469 | |
Scott C. Weatherholt | | — | | — | | 15,858 | | 265,610 | |
Amelia K. Harding | | — | | — | | 12,414 | | 207,927 | |
Mitchell G. Elkins | | — | | — | | 33,848 | | 566,934 | |
| | | | | | | |
| | Stock Awards | |
|---|
Named Executive Officer | | Number of Shares
Acquired on
Vesting (#) | | Value Realized on
Vesting(1)($) | |
|---|
Peter J. Hill | | | 16,000 | | | 81,760 | |
John A. Crum | | | 225,000 | | | 1,149,000 | |
Nelson M. Haight | | | 26,589 | | | 149,253 | |
Thomas L. Mitchell | | | — | | | — | |
Dexter Burleigh | | | 20,000 | | | 102,560 | |
Gregory Hebertson | | | 30,000 | | | 177,600 | |
Curtis Newstrom | | | 37,589 | | | 195,853 | |
(1)
- Represents the total number of shares acquired on vesting before the sale of vested shares traded for taxes in connection with the vesting of the underlying equity award.
(2)The value realized with respect to vesting of restricted stock awards is based on the closing price per share of the Company'sCompany’s Common Stock on the date of vesting of the awards.
Potential Payments Upon Termination and Change in Control
Terminations of Employment
Terminations of Employment During 20142017
Mr. Mitchell'sHaight’s employment with us terminated effective January 6, 2014 and Curtis Newstrom's employment with us terminated effective July 3, 2014.June 15, 2017. We did not enterentered into a separation agreement with either of Messrs. Mitchell or Newstrom and they did not receive any payments or benefits in connection with their termination of employment in excess of the Accrued Obligations.
Mr. Crum's employment with us terminated effective March 31, 2014 and Mr. Hebertson's employment with us terminated effective December 1, 2014. We entered into separation agreements with each of Messrs. Crum and Hebertson,Haight, described in more detail above in the section entitled "Severance“Severance Arrangements."” The table below reflects the full value of all amounts paid to each of Messrs. Crum and HebertsonMr. Haight in connection with theirhis termination of employment.
37
Named
Executive
Officer | | Salary
Continuation
($) | | Annual
Bonus ($) | | Accrued
Vacation ($) | | Stock
Options ($) | | Restricted
Stock ($)(1) | | COBRA
Premium
Reimbursement ($) | | Total
($) | |
Nelson M. Haight | | 0 | | N/A | | 43,268 | | 0 | | N/A | | N/A | | 43,268 | |
Mr. Brace resigned from his position as the Company’s President and Chief Executive Officer effective November 1, 2017. The terms of Mr. Brace’s resignation and the payments associated therewith are described in more detail above in the section entitled “Severance Arrangements.” The table below reflects the full value of all amounts paid to Mr. Brace in connection with his termination of employment under the terms of the Brace Employment Agreement.
Named Executive
Officer | | Salary
Continuation ($) | | Annual
Bonus at
STIP
Target ($) | | Accrued
Vacation
($) | | Stock Options
($) (1) | | Restricted
Stock ($)
(2) | | COBRA
Premium
($) | | Total ($) | |
Frederic F. Brace | | 331,266 | | 563,836 | | 94,231 | | 0 | | 1,619,845 | | 4,160 | | 2,613,338 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Named Executive
Officer | | Salary
Continuation
($) | | Average
Annual
Bonus ($) | | 2013
Annual
Bonus ($) | | 2014
Annual
Bonus ($) | | Loyalty
and
Retention
Award ($) | | Accrued
Vacation
($) | | Restricted
Stock
($)(1) | | COBRA
Premium
Reimbursement
($) | | Total ($) | |
|---|
John A. Crum | | | 1,200,000 | | | 320,000 | | | 540,000 | | | 0 | | | 0 | | | 69,228 | | | 804,000 | | | 0 | | | 2,933,228 | |
Gregory Hebertson | | | 315,000 | | | 116,000 | | | n/a | | | 187,360 | | | 63,000 | | | 11,843 | | | 0 | | | 5,812 | | | 699,015 | |
(1)
- Mr. Brace had until April 27, 2018 (which is 180 days from his termination date) to exercise his vested stock options.
(2)The value reported above for the acceleration of unvested restricted stock is calculated based on closing market price of our common shares on the date of the executive'sexecutive’s termination of employment.
Terminations of Employment During 20152018
Dexter Burleigh retired
Mr. Elkins’ employment with us ended on January 1, 2015 and Dr. Peter J. Hill resigned as our Interim President and Chief Executive Officer in March of 2015 but will continue providing transition services to us until April 30, 2015.23, 2018. We entered into a separation agreement with Mr. BurleighElkins, described in more detail above in the section entitled "Severance“Severance Arrangements."” The table below reflects the full value of all amounts paid to Mr. BurleighElkins in connection with his termination of employment. We did not enter into a separation agreement with Dr. Hill and he will not receive any payments or benefits in connection with
Named Executive
Officer | | Salary
Continuation
($) | | Annual
Bonus
at STIP
Target
($) | | 2017
Annual
Bonus
($) | | Accrued
Vacation
($) | | Stock
Options
($) (1) | | Restricted
Stock ($)
(2) | | COBRA
Premium
Reimbursement
($) | | Total ($) | |
Mitchell G. Elkins | | 400,000 | | 320,000 | | 173,440 | | 53,846 | | 0 | | 1,106,300 | | 26,295 | | 2,079,881 | |
(1) Mr. Elkins has until August 1, 2018 (which is 180 days from his separation from service in excess of the Accrued Obligations.termination date) to exercise his vested stock options.
| | | | | | | | | | | | | | | | | | | | | | | | | |
Named Executive Officer | | Salary
Continuation
($) | | Average
Annual
Bonus ($) | | 2014
Annual
Bonus ($) | | Loyalty
and
Retention
Award ($) | | Accrued
Vacation
($) | | Restricted
Stock
($)(1) | | COBRA
Premium
Reimbursement
($) | | Total ($) | |
|---|
Dexter Burleigh | | | 290,000 | | | 166,761 | | | 188,500 | | | 29,000 | | | 33,460 | | | 262,148 | | | 6,964 | | | 928,223 | |
(1)(2)The value reported above for the acceleration of unvested restricted stock is calculated based on closing market price of our common shares on December 31, 2014, the last trading day preceding the date of the executive'sexecutive’s termination of employment.
Estimated Payments Due Pursuant to Existing Agreements
As discussed in "Compensation“Compensation Discussion and Analysis—Employment Agreements,"” the Company maintains employment agreements with each of its Named Executive Officers, other than Dr. Hill,certain Messrs. Sambrooks and Weatherholt, as well as with Ms. Harding that provide for potential severance payments upon a termination of the executive'sexecutive’s employment under various circumstances.
Upon a termination by us for Cause,
If Mr. Sambrooks’ employment is terminated by the executiveCompany without Cause or by Mr. Sambrooks for Good Reason or due to the death or disability of the executive during the term of the employment agreement, eachSambrooks Employment Agreement, Mr. Sambrooks will be entitled to a lump-sum cash payment which will consist of the Named Executive Officers is entitled tofollowing items: (i) the Accrued Obligations, and (ii) the Accrued Incentives, payableand (iii) a cash payment equal to the sum of two times his base salary plus the target bonus. Additionally, Mr. Sambrooks will be entitled to continued monthly payment for eighteen (18) months of an amount equal to the cost of medical, dental and vision coverage for him and his family, to vest in accordance withthe next tranche of time-vested equity incentive awards that would otherwise vest if not for his termination and to vest in a pro rata portion of any performance-based equity incentive awards outstanding on the date of termination. The following table displays the value of the severance payments described in the preceding sentence for Mr. Sambrooks, assuming that an eligible termination of employment occurred on December 31, 2017.
38
Name and
Principal Position | | Lump-Sum
Payment based
on Annual Bonus
at STIP Target ($) | | Continued
Base Salary ($) | | COBRA
Premium
Reimbursement
($) | | Total ($) | |
David J. Sambrooks | | 1,200,000 | | 1,200,000 | | 44,517 | | 2,444,517 | |
If Mr. Sambrooks’ employment is terminated by the Company without Cause (as defined previously) or by Mr. Sambrooks for Good Reason and within 12 months of change of control, during the term of the Sambrooks Employment Agreement, Mr. Sambrooks will be entitled to a lump-sum cash payment, which will consist of the following items: (i) the portion of the executive’s base salary accrued through the termination to the extent not previously paid, any expense reimbursement accrued and unpaid, any employee benefits pursuant to the terms of the applicable employee benefit plan, and conditionsany accrued but unused vacation (the “Accrued Obligations”), payable within thirty (30) days after the date of suchtermination, (ii) any accrued or vested amount arising from the executive’s participation in, or benefits under, any incentive plans.
Uponplans (the “Accrued Incentives”), (iii) a cash payment equal the sum of two times his base salary plus the target bonus and (iv) a cash payment equal to a pro rata portion of Mr. Sambrooks Target Bonus for the year of termination, which will be prorated based on the number of days between the beginning of the applicable performance period through the date of termination. Mr. Sambrooks will also be entitled to continued monthly payment for eighteen (18) months of an amount equal to the cost of medical, dental and vision coverage for him and his family, to vest in the next tranche of time-vested equity incentive awards that would otherwise vest if not for his termination and to vest in a pro rata portion of any performance-based equity incentive awards outstanding on the date of termination. Additionally, all of Mr. Sambrooks’ unvested awards granted to Mr. Sambrooks under the 2016 Long Term Incentive Plan, will vest. The following table displays the value of the severance payments described in the preceding sentence for Mr. Sambrooks, assuming that an eligible termination of a Named Executive Officer's employment occurred on December 31, 2017 and within 12 months of change of control.
Name and
Principal Position | | Lump-Sum
Payment based
on Annual Bonus
at STIP Target ($) | | Continued
Base Salary ($) | | COBRA
Premium
Reimbursement
($) | | Total ($) | |
David J. Sambrooks | | 1,200,000 | | 1,200,000 | | 44,517 | | 2,444,517 | |
If Mr. Weatherholt or Ms. Harding is terminated by usthe Company without Cause or by the executive for Good Reason during the term of the Employment Agreement, Mr. Weatherholt and Ms. Harding will be entitled to to: (i) the Accrued Obligations, (ii) the Accrued Incentives, (iii) a lump sum cash payment equal to 1.0 times their base salary plus their annual target bonus and (iv) monthly payments equal to the monthly COBRA premium for Executive and his spouse and any eligible dependents for up to 12 months following their termination of employment. Additionally, if the termination of employment agreement, eachis by the Company without Cause or by the executive for Good Reason, all unvested awards granted to the executive under the 2016 Long Term Incentive Plan shall vest. The following table displays the value of Named Executive Officers isthe severance payments described in the preceding sentence for Mr. Weatherholt and Ms. Harding, assuming that an eligible termination of employment occurred on December 31, 2017.
Name and
Principal Position | | Lump-Sum
Payment based
on Annual Bonus
at STIP Target ($) | | Continued
Base Salary ($) | | COBRA
Premium
Reimbursement
($) | | Total ($) | |
Scott C. Weatherholt | | 262,500 | | 350,000 | | 42,867 | | 655,367 | |
Amelia K. Harding | | 141,000 | | 235,000 | | 25,139 | | 401,139 | |
Upon a termination of Mr. Weatherholt or Ms. Harding’s employment by the Company without Cause or by the executive for Good Reason during the term of their respective Employment Agreements and within twelve months following a change in control of us, Mr. Weatherholt and/or Ms. Harding will be entitled to: (i) the Accrued Obligations, (ii) the Accrued Incentives, (iii) a lump-sum cash payment equal to the averageproduct of (x) the annual target bonus plus the highest base salary paid to the executive forduring the three years immediately preceding completed fiscal years,the change in control, multiplied by (y) 2.0, and (iv) continued payment ofmonthly payments equal to the executive's base salarymonthly COBRA premium for a period of 18 monthsexecutive and
39
any eligible dependents for Mr. Haight andup to 12 months following the executive’s termination of employment. Additionally, if the termination of employment is by the Company without Cause or by the executive for Mr. Burleigh.Good Reason, all unvested awards granted to the executive under the 2016 Long Term Incentive Plan shall vest. The following table displays the value of the severance payments described in the preceding sentence for each of our Named Executive Officers,Mr. Weatherholt and Ms. Harding, assuming that an eligible termination of employment occurred on December 31, 2014.
| | | | | | | | | | |
Named Executive Officer | | Lump-Sum Payment based
on Average Annual Bonus
($) | | Continued
Base Salary ($) | | Total ($) | |
|---|
Nelson M. Haight | | | 111,500 | | | 450,000 | | | 561,500 | |
Dexter Burleigh* | | | 166,761 | | | 290,000 | | | 456,761 | |
*Indicates a Named Executive Officer whose employment with us has terminated since the end of the 2014 fiscal year.
Upon a termination of a Named Executive Officer's employment by us without Cause or by the executive for Good Reason during the term of the employment agreement2017 and within twelve12 months of a change in control of us, the executive is entitled to: (i) the Accrued Obligations, (ii) the Accrued Incentives, (iii) accelerated vesting for all equity or equity based awards granted under the LTIP that are not intended to be "qualified performance based compensation" within the meaning of Section 162(m) of the Code, and (iv) a lump-sum cash payment equal to the product of (x) the highest
annual bonus paid to the Named Executive Officer for the three immediately preceding completed fiscal years plus the highest base salary paid to the Named Executive Officer during the three years immediately preceding the change in control, multiplied by (y) 2 for Messrs. Haight and Burleigh. The following table displays the value of the severance payments described in the preceding sentence for each of our Named Executive Officers, assuming that an eligible termination of employment occurred on December 31, 2014.
| | | | | | | | | | |
Named Executive Officer | | Accelerated
Vesting of Awards
($)(1) | | Lump-Sum Payment
based on Highest
Bonus and Salary ($) | | Total ($) | |
|---|
Nelson M. Haight | | | 391,301 | | | 916,000 | | | 1,307,301 | |
Dexter Burleigh* | | | 262,148 | | | 1,114,570 | | | 1,376,718 | |
*Indicates a Named Executive Officer whose employment with us has terminated since the end of the 2014 fiscal year.
(1)The value reported above for the acceleration of unvested restricted stock is calculated based on closing market price of our common shares on December 31, 2014.
Severance payments made under the employment agreements are contingent upon the Named Executive Officer's execution of a valid release of claims. Further, severance payments may be stopped and any payments already made must be repaid in the event the Named Executive Officer violates the confidentiality, non-competition and non-solicitation provisions of their employment agreement. Our Board of Directors felt that this provision was particularly important in order to dissuade the executive from violating the confidentiality, non-competition, and non-solicitation provisions of their employment agreement and to make such provisions easier to enforce in the event of breach, thus better protecting our business interests and confidential information.control.
In the event that Section 280G of the Code applies to any compensation payable to the Named Executive Officers, the employment agreements provide that we will either (x) reduce the payment(s) to an amount that is one dollar less than the amount that would trigger the application of Section 280G of the Code, or (y) make the full payment owed to the Named Executive Officer, whichever of (x) or (y) results in the best net after tax position for the Named Executive Officer. The employment agreements do not provide any obligation for us to pay a "gross-up" or make the executive whole for any excise or regular income taxes, including excise taxes that may be due under Section 4999 of the Code.
Name and
Principal Position | | Lump-Sum
Payment based
on Annual Bonus
at STIP Target ($) | | Continued
Base Salary ($) | | COBRA
Premium
Reimbursement
($) | | Total ($) | |
Scott C. Weatherholt | | 525,000 | | 700,000 | | 42,867 | | 1,267,867 | |
Amelia K. Harding | | 282,000 | | 470,000 | | 25,139 | | 777,139 | |
Rule 10b5-1 Sales Plans
Our directors and executive officers may adopt written plans, known as Rule 10b5-1 plans, in which they will contract with a broker to buy or sell shares of our Common Stock on a periodic basis. Under a Rule 10b5-1 plan, a broker executes trades pursuant to parameters established by the director or officer when entering into the plan, without further direction from them. The director or officer may amend or terminate the plan in some circumstances. Our directors and executive officers may also buy or sell additional shares outside of a Rule 10b5-1 plan when they are not in possession of material, nonpublic information pursuant to the Company'sCompany’s insider trading plan.
Director Compensation
We believe that attracting and retaining qualified non-employee directors is critical to our future value growth and governance, and that providing a total compensation package between the 50th percentile and 75th percentile of our peer group is necessary to accomplish that objective. For 2014, our Board of Directors believed that the compensation package for our non-employee directors
should require a significant portion of the total compensation package to be equity-based to align the interests of our directorsIn conjunction with our stockholders.
Ouremergence from Chapter 11 cases, our Compensation Committee reviews(in consultation with LB&Co.) reviewed the compensation of our non-employee directors and determined that it was appropriate to revise their compensation to provide the following compensation package:
· Chairman of the Board annual cash retainer: $112,500; and annual equity retainer in RSUs equivalent to $210,000;
· Regular Director annual cash retainer: $75,000, and annual equity retainer in RSUs equivalent to $140,000;
· The equity retainers for all non-employee directors will vest on the first to occur of (i) December 31, 2017, (ii) the non-employee director’s termination of directorship (other than for “Cause”), (iii) the non-employee director’s death, or (iv) the non-employee director’s disability, which our Compensation Committee believes will align our non-employee directors’ interests with those of our stockholders on an annual basis. For 2014,basis;
· Audit Committee Chair additional retainer: $25,000, and Audit Committee member additional service retainer: $12,500;
· Compensation Committee Chair additional retainer: $15,000, and Compensation Committee member additional service retainer: $7,500;
· Nominating Chair additional retainer: $10,000, and Nominating member additional service retainer: $5,000;
Additionally, in November 2016, all non-employee directors received a one-time grant of RSUs with a grant-date value equal to $250,000, and vesting on the first business day following the date on which the Adjusted Share Price of our compensation program forcommon stock is equal to or greater than $30 (the “Director LTIP” award). Our Compensation Committee believes that an additional grant of equity-based awards was necessary to immediately align our non-employee directors’ interests with those of our stockholders generally, as our non-employee directors did not hold equity as of our emergence from the Chapter 11 Cases. The Director LTIP award will vest only if our share price
40
materially increases from its price on the date the Director LTIP was granted. The Director LTIP award is subject to accelerated vesting in the event a Change in Control (as defined in our 2016 Long Term Incentive Plan) is effectuated and any unvested Director LTIP is subject to forfeiture on the first to occur of (i) the fifth anniversary of the grant date or (ii) a recipient’s termination of directorship for any reason (except for a termination as follows:
•an annual cash retainer feepart of $50,000a change in control).For purposes of the Director LTIP award, “Adjusted Share Price” means the sum of (a) the average of the closing prices of our common stock during the 60 consecutive trading days ending on the specified measurement date (or if such measurement date does not fall on a trading day, the immediately preceding trading day); and an additional cash retainer fee(b) the aggregate value of $30,000 forany dividends paid on shares of common stock over the lead director;
•$1,500 in cash for each in-person Boardperiod beginning on the grant date and ending on the measurement date.Non-employee directors of Directors' meeting attended and $750 in cash for each telephonic Board of Directors' meeting attended;
•$1,000 in cash for each in-person committee meeting attended and $500 in cash for each telephonic committee meeting attended;
•committee chairpersons receive the following annual cash retainers: (a) Audit Committee chair—$15,000, (b) Compensation Committee chair—$10,000, and (c) Nominating & Governance Committee chair—$10,000;
•committee members receive the following annual cash retainers: (a) Audit Committee member—$7,500, (b) Compensation Committee member—$5,000, (c) Nominating & Governance Committee member—$5,000; and
•an annual equity award for each non-employee director equalCompany are permitted to a numberdefer receipt of shares of restrictedcommon stock havingissued in respect of equity-based awards until a valuefuture date chosen in the director’s discretion. If a non-employee director elects to make a deferral under the director deferral plan, the deferral election must be for a minimum of approximately $125,000 onthree years and may provide for a maximum deferral of five years. In addition, subject to the datenon-employee director’s election, any deferred shares may be settled upon any of grant. For fiscal 2013, the restricted stock awards were grantednon-employee director’s separation from service, death, disability, or upon a change of control of the Company.On January 30, 2017, the Board of Directors established a CEO Search Committee to assist the Board in a search for the Company’s next Chief Executive Officer. The Compensation Committee convened on February 21, 2014. The restricted stock vests on8, 2017, and with input from its independent compensation consultant, established the one-year anniversarycompensation to be paid to the members of the dateCEO Search Committee. Due to its potential limited duration, the CEO Search Committee had quarterly cash retainers of grant$35,000 for the Committee Chairman and is conditioned on$25,000 for the director's continued service on the Board.
Additional quarterly and/or per meeting payments may also be made to the extent any directors are asked to serve on a special committee. Directors other than Dr. Hill who are also our employees doCommittee members. Because Mr. Brace served in an ex-officio capacity, he did not receive any additional compensation for their service on our Board of Directors. In 2014, the only directors who were also our employees were Dr. Hill and Messrs. Crum and Mitchell. The compensation paid to Dr. Hillretainers for his service on the Board during 2014 is reflected in the Summary Compensation Table, above. Directors who are employees of First Reserve or Riverstone Holdings or their affiliates do not receive any additional compensation from us for their service on our Board of Directors and have entered into other compensation arrangements with First Reserve or Riverstone, respectively, for the services they provide to us on behalf of those entities. In 2014, Ms. Deulina and Messrs. Mogford, DeMontrond, and Tichio were each employed with either First Reserve or Riverstone and, as such, received no compensation from us for their service on our Board of Directors.Committee.
Each director is reimbursed for travel and miscellaneous expenses (i) to attend meetings and activities of our Board of Directors or its committees; and (ii) related to such director'sdirector’s participation in our general education and orientation program for directors.
Our
In November 2016, following our emergence from the Chapter 11 Cases, each non-employee director compensation program for 2015 was revisedgranted (i) a proportionate amount of RSUs attributable to eliminate equity awardsthe fourth quarter of 2016, (ii) a grant of RSUs pursuant to our directors. In 2015,the Director LTIP described above, and (iii) a grant of RSUs attributable to the applicable non-employee directors will receive a $150,000 annual cash retainer; $1,500 in cash for each in-person meeting of thedirector’s service on our Board of Directors attended and $750 in cash for each telephonic meeting of the Board of Directors attended; a fee of $15,000 for the chairman of the Audit Committee and $10,000 for all other committees; and a cash retainer of $7,500 for Audit Committee members and $5,000 for all other committees.2017.
The following table provides information concerning the compensation of our non-employee directors for the fiscal year ended December 31, 2014.2017.
Name | | Fees Earned or
Paid in Cash
($)(1) | | Stock Awards
($)(2) | | Director
LTIP Award
($)(3) | | Total ($) | |
Alan J. Carr | | 125,000 | | 262,481 | | 146,743 | | 534,224 | |
Patrice D. Douglas | | 127,120 | | 174,994 | | 146,743 | | 448,857 | |
Todd R. Snyder | | 197,626 | | 174,994 | | 146,743 | | 519,363 | |
Neal P. Goldman | | 165,091 | | 174,994 | | 146,743 | | 486,828 | |
Michael S. Reddin | | 87,500 | | 174,994 | | 146,743 | | 409,237 | |
Bruce H. Vincent | | 133,334 | | 174,994 | | 146,743 | | 455,071 | |
Frederic F. Brace (4) | | 12,432 | | N/A | | N/A | | 12,432 | |
| | | | | | | | | | |
Name | | Fees Earned
or Paid in Cash
($)(1) | | Stock Awards
($)(2) | | Total
($) | |
|---|
Anastasia Deulina | | | — | | | — | | | — | |
George DeMontrond | | | — | | | — | | | — | |
Thomas C. Knudson | | $ | 137,875 | | $ | 115,000 | | $ | 252,875 | |
Loren M. Leiker | | $ | 110,000 | | $ | 115,000 | | $ | 225,000 | |
Stephen J. McDaniel | | $ | 56,750 | | $ | 115,000 | | $ | 171,750 | |
John Mogford | | | — | | | — | | | — | |
Mary Ricciardello | | $ | 113,000 | | $ | 115,000 | | $ | 228,000 | |
Robert M. Tichio | | | — | | | — | | | — | |
(1)
- Includes annual cash retainer fee, board and committee meeting fees, and committee chair
and member fees for each non-employee director during fiscal year 20142017 as more fully explained in the preceding paragraphs.
(2)
- The amounts reported in the
"Stock Awards"‘‘Stock Awards’’ column reflect the aggregate grant date fair value of restricted stock unit awards granted under our LTIP2016 Long Term Incentive Plan on FebruaryOctober 21, 2014,2016, computed in accordance with FASB ASC Topic 718. See Note 11The Stock Awards include (i) a pro-rata portion of the non-employee director’s annual equity award in respect of 2016, and (ii) the full amount of the non-employee director’s annual equity award in respect of 2017. Also included are the award of 100 unrestricted shares of common stock. An additional grant was awarded in January 2018 but are not included in the amount shown in the table.(3) The amounts reported in “Director LTIP Award” reflect the amount of common stock to be awarded to the applicable non-employee director pursuant Director LTIP award, as more fully explained in the preceding paragraphs, and are valued as of December 31, 2017.
(4) Mr. Brace became a non-employee director on November 1, 2017 and was entitled to a prorated payment for his services as a non-employee director for the balance of the year.
41
Chief Executive Officer Pay Ratio Disclosure
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, we are providing the following information about the relationship of the annual total compensation of our consolidated financial statementsemployees and the annual total compensation of Mr. David J. Sambrooks, our Chief Executive Officer (our “Chief Executive Officer”):
For 2017, our last completed fiscal year:
· the median of the annual total compensation of all employees of our Company (other than our Chief Executive Officer) was $93,489; and
· the annual total compensation of our Chief Executive Officer, as reported in the Summary Compensation Table included elsewhere in this Proxy Statement, was $2,727,050.
To identify the median of the annual total compensation of all our employees, as well as to determine the annual total compensation of our median employee and our Chief Executive Officer, we took the following steps:
1. We determined that, as of December 31, 2017, our employee population consisted of approximately 129 individuals with all of these individuals located in the United States (as reported in Item 1, Business, in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2018 (our “Annual Report”)). This population consisted of our full-time, part-time, and temporary employees.
(a) We selected December 31, 2017, which is within the last three months of 2017, as the date upon which we would identify the “median employee” because it enabled us to make such identification in a reasonably efficient and economical manner.
2. To identify the “median employee” from our employee population, we compared the amount of salary, wages, and tips of our employees as reflected in our payroll records as reported to the Internal Revenue Service on Form W-2 for 2017.
(a) In making this determination, we annualized the compensation of approximately 25 full-time employees who were hired in 2017 but did not work for us for the year ended December 31, 2014 for additional detail regarding assumptions underlying the value of theseentire fiscal year. Since we do not widely distribute annual equity awards.awards to our employees, such awards were excluded from our compensation measure. As of December 31, 2014, Ms. Ricciardello2017, approximately 25% of our employees had received annual equity awards.
3. We identified our median employee using this compensation measure, which was consistently applied to all our employees included in the calculation. Since all our employees are located in the United States, as is our Chief Executive Officer, we did not make any cost-of-living adjustments in identifying the “median employee.”
4. Once we identified our median employee, we combined all of the elements of such employee’s compensation for 2017 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual total compensation of $118,621. The difference between such employee’s salary, wages, tips, and Messrs. Leikerovertime pay and McDaniel each held 28,205 outstanding sharesthe employee’s annual total compensation represents the estimated value of unvested restricted stocksuch employee’s health care benefits and company matching contributions in our Section 401(k) employee savings plan (estimated for the employee and such employee’s eligible dependents at $25,132). Since we do not maintain a defined benefit or other actuarial plan for our employees, and do not otherwise provide a plan for payments the median employee’s annual total compensation did not include amounts attributable to these arrangements.
With respect to the annual total compensation of our Chief Executive Officer, we used the amount reported in the “Total” column of our 2017 Summary Compensation Table included in this Proxy Statement and incorporated by reference under Item 11 of Part III of our Annual Report.
Based on this information, for 2017 the ratio of the annual total compensation of Mr. Knudson held 25,000 outstanding sharesSambrooks, our Chief Executive Officer, to the median of unvested restricted stock.
the annual total compensation of all employees was 23 to 1.42
PROPOSAL TWO
NON-BINDING ADVISORY VOTE ON EXECUTIVE COMPENSATION
OF OUR NAMED
EXECUTIVE OFFICERS
Introduction
Section 14A of the Securities Exchange Act requires public companies to conduct a separate stockholder advisory vote to approve the compensation of Named Executive Officers, commonly known as a "Say-on-Pay"“Say-on-Pay” proposal. Accordingly, we are asking our stockholders to approve, on an advisory, non-binding basis, the compensation paid to our Named Executive Officers, as described in the "Executive“Executive Compensation and Other Information"Information” section of this Proxy Statement, beginning on page 27.Statement. Our Board of Directors recognizes that executive compensation is an important matter for our stockholders. As described in detail in the "Executive“Executive Compensation and Other Information—Compensation Discussion & Analysis"Analysis” (the "CD&A"“CD&A”) section of this Proxy Statement, the Compensation Committee is tasked with the implementation of our executive compensation philosophy and the core of that philosophy is to pay our Named Executive Officers based on performance. In particular, the Compensation Committee strives to attract, retain and motivate exceptional executives, to properly incentivize future performance by rewarding the achievement of established goals, and to align executives'executives’ long-term interests with the interests of our stockholders. To do so, the Compensation Committee uses a combination of short-short and long-term incentive compensation to reward near-term excellent performance and to encourage our Named Executive Officers'Officers’ commitment to our long-range, strategic business goals. It is the intention of the Compensation Committee that our Named Executive Officers be compensated competitively as compared to other companies in the same and closely related industries while ensuring that our compensation programs are consistent with our strategy, sound corporate governance principles, and stockholder interests and concerns.
As described in the CD&A, we believe our compensation program is effective, appropriate and strongly aligned with the long-term interests of our stockholders and that the total compensation package provided to our Named Executive Officers (including potential payouts upon a termination of employment or change of control) are reasonable and not excessive. As you consider this Proposal TWO, we urge you to read the CD&A for additional details on the compensation of our Named Executive Officers, including information about our compensation philosophy and objectives and the past compensation of our Named Executive Officers, and to review the tabular disclosures regarding Named Executive Officer compensation together with the accompanying narrative disclosures in the "Executive Compensation and Other Information" section of this Proxy Statement. Among the program features incorporated by the Compensation Committee to align the compensation program for our Named Executive Officers with our executive compensation philosophy are the following:disclosures.
•equity-based awards generally incorporate a three-year vesting period to emphasize long-term performance and executive retention;
•our annual performance-based cash awards (i) incorporate numerous financial and/or strategic performance metrics to eliminate the possibility of an executive focusing on one short-term performance goal at the exclusion of others and to ensure that our Named Executive Officers are motivated to achieve excellence in a wide range of performance metrics and (ii) impose maximum payout levels to eliminate the possibility of excessive payments;
•the grant of equity-based awards and the adoption of stock ownership guidelines align the interests of our Named Executive Officers with those of our stockholders and focus our executives on long-term stockholder value creation; and
•cash payments under the Named Executive Officers' employment agreements require a double trigger (i.e., a termination of employment in connection with a change in control) rather than a single trigger (a change in control alone) to initiate payment.
As an advisory vote, Proposal TWO is not binding on our Board of Directors or the Compensation Committee and will not require our Board of Directors or the Compensation Committee to take any specific action. Although the vote is non-binding, our Board of Directors and the Compensation Committee value the opinions of our stockholders, and will carefully consider the outcome of the vote when making future compensation decisions for our Named Executive Officers.
Text of the Resolution to be Adopted
We are asking stockholders to vote "For"“For” the following resolution:
"RESOLVED,
“RESOLVED, that the compensation paid to the company'sCompany’s Named Executive Officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and& Analysis, compensation tables and narrative discussion is hereby APPROVED."”
Vote Required
Approval of Proposal TWO requires the affirmative vote of the holders of a majority of the shares of capitalcommon stock of the Company, voting together as a single class, present in person or by proxy at the Annual Meeting and entitled to vote on the matter. Votes cast FOR or AGAINST and ABSTENTIONS with respect to this Proposal TWO will be counted as shares entitled to vote on the Proposal. For these purposes, broker non-votes are not treated as entitled to vote. A vote to ABSTAIN will have the effect of a vote AGAINST the Proposal.
43
Recommendation of our Board of Directors
The Board of Directors unanimously recommends that stockholders vote FOR the approval of the compensation paid to the company'sCompany’s Named Executive Officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and& Analysis, compensation tables and narrative discussion.
PROPOSAL THREE
APPROVAL OF AMENDMENT TO OUR AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION TO EFFECT REVERSE STOCK SPLIT AND REDUCTION IN AUTHORIZED
SHARES OF COMMON STOCK
We are asking that stockholders approve an amendment to our amended and restated certificate of incorporation to effect, at the discretion of our Board of Directors:
•a reverse split of our Common Stock, whereby each outstanding five, six, seven, eight, nine or ten shares would be combined, converted and changed into one share of Common Stock; and44
•a reduction in the number of authorized shares of our Common Stock from 300,000,000 to 175,000,000, 150,000,000, 125,000,000, 125,000,000, 100,000,000 or 100,000,000, respectively. The form of proposed amendment to our amended and restated certificate of incorporation was approved by our Board of Directors, subject to stockholder approval, on April 14, 2015 and is set forth in Appendix A to this proxy statement. Our Board of Directors believes that stockholder approval of these six alternative reverse stock split ratios and reductions in the number of authorized shares of our Common Stock provides our Board of Directors with maximum flexibility to act in our best interest and in the best interest of our stockholders.
The reductions in authorized Common Stock described above are not proportional to the corresponding reverse stock split ratios and represent an effective increase in authorized Common Stock after giving effect to the reverse stock split. We do not have any current plans, proposals or understandings that would require the use of any additional shares of our Common Stock which would be authorized, but not issued or reserved for issuance, following any reverse stock split.
Upon stockholder approval of the proposed amendment, our Board of Directors will have the authority to effect a reverse stock split and the corresponding reduction in authorized Common Stock in its sole discretion until our 2016 annual meeting of stockholders and without further stockholder action. The actual reverse stock split ratio and corresponding reduction in the number of authorized shares of our Common Stock will be selected among the above alternatives by our Board of Directors. Even if approved by our stockholders, our Board of Directors reserves the right to not effect any reverse stock split and corresponding reduction in authorized Common Stock if it does not deem it to be in our best interest or in the best interest of our stockholders. Our Board of Directors' decision as to whether, when and pursuant to which of the above alternatives to effect a reverse stock split and corresponding reduction in authorized Common Stock will be based on a number of factors, including prevailing market conditions, the existing market price of our Common Stock, the likely effect of a reverse stock split on the market price of our Common Stock, the listing standards of New York Stock Exchange ("NYSE") and the number of shares of our Common Stock which would be authorized but not issued or reserved for issuance.
If our Board of Directors elects to effect a reverse stock split and the corresponding reduction in authorized Common Stock following stockholder approval, the number of issued and reserved shares of our Common Stock would be reduced in accordance with the reverse stock split ratio selected by our Board of Directors from among the above alternatives. Except for any adjustments for fractional shares as described below, our stockholders will hold the same percentage of our outstanding Common Stock immediately following the reverse stock split as such stockholders held immediately prior to the reverse stock split. Any reverse stock split will not change the relative voting power of our stockholders and will affect all of our stockholders uniformly.
The alternative reverse stock splits are not being proposed in response to any effort of which we are aware to accumulate shares of our Common Stock or obtain control of our company, nor does it
represent a plan by our management to recommend a series of similar actions to our Board of Directors or our stockholders.
Our Board of Directors believes that, should the appropriate circumstances arise, effecting a reverse stock split will provide benefits to us and our stockholders in a number of ways by increasing the per share market price of our Common Stock, including:
Meeting Continued NYSE Listing Requirements. Our Common Stock trades on the NYSE, which has qualitative and quantitative listing criteria, including a requirement that our Common Stock maintain an average closing price of at least $1.00 per share over a consecutive 30-trading day period. On April 1, 2015, we received notification from the NYSE that our Common Stock failed to satisfy an average closing price of at least $1.00 per share for a period of 30 consecutive trading days. We believe that a higher per share market price resulting from a reverse stock split will bring us back into compliance with the NYSE listing requirements.
Improving the Perception of Our Common Stock as an Investment Security. We have been advised that lower-priced stocks have a perception in the investment community as being risky and speculative, which may negatively impact not only the price of our Common Stock, but also our market liquidity. Per share market price is frequently used as a proxy for "quality" and lower-priced stocks are often considered to be of lower investing quality and less desirable relative to stocks with higher share prices. We believe that a higher per share market price will increase the perceived quality and appeal of our Common Stock for investment purposes.
Appealing to a Broader Range of Investors. Many institutional investors have policies prohibiting them from holding lower-priced stocks in their portfolios. Many brokerage firms also have policies discouraging individual brokers from recommending lower-priced stocks to their customers or restricting or limiting the ability to purchase such stocks on margin. Investors may also be dissuaded from purchasing lower-priced stocks because the brokerage commissions, as a percentage of the total transaction value, tend to be higher for such lower-priced stocks. Each of these market dynamics has the effect of reducing the number of potential purchasers of our Common Stock, and we believe that a higher per share market price will increase the number of such potential purchasers.
Reasons for Reduction in Authorized Common Stock
As a matter of Delaware law, effecting a reverse stock split does not require a change in the number of authorized shares of our Common Stock. However, our Board of Directors believes that effecting the reductions in authorized Common Stock described above in connection with any reverse stock split will provide benefits to us and our stockholders in a number of ways, including:
Providing Greater Flexibility in Effecting Future Financings and Acquisitions. The reductions in authorized Common Stock described above are not proportional to the corresponding reverse stock split ratios and represent an effective increase in authorized Common Stock after giving effect to the reverse stock split. These non-proportional reductions are designed to provide us with greater flexibility in effecting possible future financings and acquisitions without the delay and expense associated with obtaining the approval or consent of our stockholders at the same time the shares are needed. We expect that our future planned operations may require the use of our Common Stock from time to time either as consideration for acquisitions or as part of a financing, either through the use of our Common Stock or securities convertible into our Common Stock. Such shares may be issued in conjunction with both public offerings and private placements of shares of our Common Stock, which issuance, depending on the circumstances, may or may not require future stockholder approval under the rules of the NYSE. Such shares could also be used for our stock-based compensation plans, subject to appropriate stockholder approval.
Maintaining Alignment with Market Expectations. The reductions in authorized Common Stock described above are also designed to maintain alignment with market expectations regarding the number of authorized shares of our Common Stock in comparison to the number of shares issued or reserved for issuance following any reverse stock split and ensure that we do not have what certain stockholders might view as an unreasonably high number of authorized shares which are not issued or reserved for issuance.
Effects of a Reverse Stock Split and Reduction in Authorized Common Stock
Upon stockholder approval of the proposed amendment and the election by our Board of Directors to effect a reverse stock split and the corresponding reduction in authorized Common Stock, our issued and outstanding shares of Common Stock would decrease in accordance with the applicable reverse stock split ratio and the market value per share of our Common Stock would be expected to increase. The reverse stock split would be effected simultaneously for all of our Common Stock, and the reverse stock split ratio would be the same for all shares of Common Stock. The reverse stock split would affect all of our stockholders uniformly and would not affect any stockholder's percentage ownership interests in our company, except to the extent that it results in a stockholder receiving cash in lieu of fractional shares. A reverse stock split would not affect the relative voting or other rights that accompany the shares of our Common Stock, except to the extent that it results in a stockholder receiving cash in lieu of fractional shares. Shares of Common Stock issued pursuant to a reverse stock split would remain fully paid and non-assessable. The reverse stock split would not affect our securities law reporting and disclosure obligations, and we would continue to be subject to the periodic reporting requirements of the Exchange Act.
In addition to the decrease in the number of shares of our Common Stock issued and outstanding and the expected increase in the market value per share of our Common Stock, a reverse stock split and the corresponding reduction in authorized Common Stock would have the following additional effects:
Effective Increase in the Number of Authorized Shares of Common Stock. The reductions in authorized Common Stock described above are not proportional to the reverse stock split ratios and represent effective increases in authorized Common Stock of between 192% to233% after giving effect to the reverse stock split. As of April 16, 2015, of the 300,000,000 shares of our Common Stock authorized by our amended and restated certificate of incorporation, 71,672,519 shares were outstanding and an aggregate of 37,384,425 shares were reserved for issuance.
We do not have any current plans, proposals or understandings that would require the use of any additional shares of our Common Stock which would be authorized, but not issued or reserved for issuance, following any reverse stock split. However, our Board of Directors may from time to time deem it to be in our best interest and in the best interest of our stockholders to enter into transactions or other arrangements that may include the issuance of shares of our Common Stock. If our Board of Directors authorizes the issuances of additional shares of Common Stock subsequent to a reverse stock split and corresponding reduction in authorized Common Stock described above, the dilution to the ownership interest of our existing stockholders may be greater than would occur had the reverse stock split and corresponding reduction in authorized Common Stock not been effected.
Adjustment to Number of Shares of Common Stock Issuable upon Preferred Stock. A reverse stock split would reduce the number of shares of Common Stock issuable upon conversion of our Preferred Stock in proportion to the applicable reverse stock split ratio. As of April 16, 2015, there were 37,384,425 shares of Common Stock reserved for issuance upon conversion of the Preferred Stock.
Adjustment to Number of Shares of Common Stock Issuable under Equity Incentive Plans. Pursuant to the Certificate of Designations of the Preferred Stock, a reverse stock split would reduce the number of shares of Common Stock issuable under our LTIP in proportion to the applicable reverse stock split ratio. As of April 16, 2015, there were 1,810,711 shares of Common Stock authorized but unissued under the LTIP.
Under the terms of our restricted stock agreements and the LTIP, a reverse stock split would effect a reduction in the number of shares of Common Stock issuable upon the vesting of such restricted stock units in proportion to the applicable reverse stock split ratio. A reverse stock split will also effect a proportionate increase in the exercise price applicable to such outstanding stock options.
Effect on Par Value. The proposed amendment to our amended and restated certificate of incorporation will not affect the par value of our Common Stock, which will remain at $0.01, or the par value of our Preferred Stock, which will also remain at $0.01.
Reduction in Stated Capital. As a result of the contemplated reverse stock split, the stated capital on our balance sheet attributable to our Common Stock, which consists of the par value per share of our Common Stock multiplied by the aggregate number of shares of our Common Stock issued and outstanding, will be reduced in proportion to the size of the reverse stock split. Correspondingly, our additional paid-in capital account, which consists of the difference between our stated capital and the aggregate amount paid to us upon issuance of all currently outstanding shares of our Common Stock, shall be credited with the amount by which the stated capital is reduced. Our stockholders' equity, in the aggregate, will remain unchanged.
The following table contains information relating to our Common Stock under each of the five alternative reverse stock split ratios and reductions in the number of authorized shares of our Common Stock, as of April 16, 2015:
| | | | | | | | | | | | | | | | | | | | | | |
| | Pre-Reverse
Stock Split | | 5:1 | | 6:1 | | 7:1 | | 8:1 | | 9:1 | | 10:1 | |
|---|
Authorized | | | 300,000,000 | | | 175,000,000 | | | 150,000,000 | | | 125,000,000 | | | 125,000,000 | | | 100,000,000 | | | 100,000,000 | |
Issued | | | 72,462,077 | | | 14,492,415 | | | 12,077,012 | | | 10,351,725 | | | 9,057,759 | | | 8,051,341 | | | 7,246,207 | |
Reserved for issuance upon conversion of Preferred Stock | | | 37,384,425 | | | 7,476,885 | | | 6,330,737 | | | 5,340,632 | | | 4,673,053 | | | 4,153,825 | | | 3,738,442 | |
Authorized, but unissued and unreserved | | | 190,153,498 | | | 153,030,700 | | | 131,692,250 | | | 109,307,643 | | | 111,269,188 | | | 87,794,833 | | | 89,015,350 | |
Risks Associated with a Reverse Stock Split and Reduction in Authorized Common Stock
Even if a reverse stock split and the corresponding reduction in authorized Common Stock is effected, some or all of the expected benefits of a reverse stock split described above may not be realized or maintained.
The market price of our Common Stock will continue to be based, in part, on our performance, prevailing market conditions and other factors unrelated to the number of shares of Common Stock outstanding. The effect of a reverse stock split on the market price for our Common Stock cannot be accurately predicted, and the history of reverse stock splits for companies in similar circumstances is varied. We cannot assure you that the market price of our Common Stock after a reverse stock split will rise in exact proportion to the reduction in the number of shares of Common Stock outstanding as a result of the reverse stock split. Furthermore, there can be no assurance that the market price of our Common Stock immediately after the proposed reverse stock split will be maintained for any period of time. Moreover, because some investors may view a reverse stock split negatively, we cannot assure you that approval of the reverse stock split will not adversely impact the market price per share of our Common Stock or, alternatively, that the market price per share following the reverse stock split will either exceed or remain in excess of the current market price per share.
In addition, a reverse stock split may result in some stockholders owning "odd lots" of less than 100 shares of our Common Stock, which may be more difficult to sell and may cause those holders to incur greater brokerage commissions and other costs upon sale.
Any future issuance of additional authorized shares of our Common Stock could dilute future earnings per share, book value per share and voting power of existing stockholders. Depending upon the circumstances under which such shares are issued, such issuance may reduce stockholders equity per share and may reduce the percentage ownership of Common Stock of existing stockholders.
Any future issuance of additional authorized shares also may have an anti-takeover effect by making it more difficult to engage in a merger, tender offer, proxy contest or assumption of control of a large voting block of our Common Stock. Our Board of Directors could impede a takeover attempt by issuing additional shares and thereby diluting the voting power of other outstanding shares and increasing the cost of a takeover. A future issuance of additional shares of Common Stock could render more difficult an attempt to obtain control of us, even if it appears to be desirable to a majority of stockholders, and it may be more difficult for our stockholders to obtain an acquisition premium for their shares or to remove incumbent management. However, our Board of Directors has no present intention to use any additional authorized shares of Common Stock as a measure aimed at discouraging takeover efforts.
Effectiveness of Amendment
Upon stockholder approval of the proposed amendment and the election by our Board of Directors to effect a reverse stock split and the corresponding reduction in authorized Common Stock, such reverse stock split and the corresponding reduction in authorized Common Stock would become effective as of the filing of a certificate of amendment to our amended and restated certificate of incorporation, in substantially the form attached as Appendix A to this proxy statement, with the Secretary of State of the State of Delaware. Upon filing of the certificate of amendment, and without any further action by us or our stockholders, the issued shares of Common Stock held by stockholders of record as of the effective date of the reverse stock split would be converted into a lesser number of shares of Common Stock calculated in accordance with the reverse stock split ratio selected from among the above six alternatives by our Board of Directors and set forth in the certificate of amendment.
Beginning on the effective date of the reverse stock split, each stock certificate representing pre-split shares of our Common Stock will be deemed for all corporate purposes to evidence ownership of post-split shares of our Common Stock. Stockholders will be notified that the reverse stock split had been effected as soon as practicable after the effective date of the reverse stock split.
Reservation of Right to Abandon Reverse Stock Split and Reduction in Authorized Common Stock
Even if approved by our stockholders, our Board of Directors reserves the right to not effect any reverse stock split and corresponding reduction in authorized Common Stock if it does not deem it to be in our best interest or in the best interest of our stockholders. By voting in favor of the amendment, you are expressly also authorizing our Board of Directors to delay, not to proceed with, and abandon a reverse stock split and corresponding reduction in authorized Common Stock if it should so decide, in its sole discretion, that such action is in the best interest of our company and our stockholders.
If our Board of Directors fails to effect a reverse stock split and corresponding reduction in authorized Common Stock prior to our 2016 annual meeting of stockholders, then further stockholder approval would be required prior to effecting any reverse stock split or corresponding reduction in authorized Common Stock.
Effect on Beneficial Holders
Common Stock held by stockholders in "street name," through a bank, broker or other nominee, will be treated in the same manner as Common Stock held by stockholders whose shares are registered in their own names. Banks, brokers or other nominees will be instructed to effect the reverse stock split for their customers holding Common Stock in "street name." However, these banks, brokers or other nominees may have different procedures than registered stockholders for processing the reverse stock split. If you hold shares of Common Stock with a bank, broker or other nominee and have any questions in this regard, you are encouraged to contact your bank, broker or other nominee.
Effect on Registered Holders
Some of our registered holders of Common Stock may hold some or all of their shares electronically in book-entry form with our transfer agent, American Stock Transfer & Trust Company, LLC. These stockholders do not hold physical stock certificates evidencing their ownership of our Common Stock. However, they are provided with a statement reflecting the number of shares of our Common Stock registered in their accounts. If a stockholder holds registered shares in book-entry form with our transfer agent, no action needs to be taken to receive post-reverse stock split shares or payment in lieu of fractional shares, if applicable. If a stockholder is entitled to post-reverse stock split shares, a transaction statement will automatically be sent to the stockholder's address of record indicating the number of shares of our Common Stock held following the reverse stock split.
Effect on Holders of Stock Certificates
American Stock Transfer & Trust Company, LLC will act as our exchange agent for purposes of implementing the exchange of stock certificates. Stockholders holding shares of Common Stock in certificated form will be asked to surrender to the exchange agent the stock certificates representing such shares in exchange for stock certificates representing post-split shares in accordance with the procedures to be set forth in a letter of transmittal that will be delivered to our stockholders at such time. No new certificates will be issued to a stockholder until the stockholder has surrendered such outstanding stock certificates, together with the properly completed and executed letter of transmittal, to our exchange agent. STOCKHOLDERS SHOULD NOT DESTROY ANY STOCK CERTIFICATES AND SHOULD NOT SUBMIT THEIR STOCK CERTIFICATES UNTIL THEY RECEIVE A TRANSMITTAL FORM FROM OUR EXCHANGE AGENT. STOCKHOLDERS ARE ENCOURAGED TO PROMPTLY SURRENDER CERTIFICATES TO OUR EXCHANGE AGENT PROMPTLY FOLLOWING RECEIPT OF A TRANSMITTAL FORM IN ORDER TO AVOID THE APPLICABILITY OF ESCHEAT LAWS TO SUCH SHARES.
Fractional Shares
No fractional shares of Common Stock will be issued as a result of a reverse stock split. In lieu of any fractional shares to which a stockholder would otherwise be entitled as a result of a reverse stock split, we will make cash payments equal to such fraction multiplied by the closing sales price of our Common Stock as reported on the NYSE on the last trading day immediately preceding the effective date of the reverse stock split. As of April 16, 2015, there were 22 holders of record of our Common Stock. We do not expect that such number will be reduced as a result of any such cash payments made in connection with the reverse stock split.
No Appraisal Rights
As a matter of Delaware law, our stockholders do not have a right to dissent and are not entitled to appraisal rights with respect to the proposed amendment to effect a reverse stock split and
corresponding reduction in authorized Common Stock, and we will not independently provide our stockholders with any such rights.
Interests of Directors and Executive Officers
Our directors and executive officers have no substantial interests, directly or indirectly, in the matters set forth in this proposed amendment, except to the extent of their ownership in shares of our Common Stock.
Accounting Consequences
The par value of our Common Stock will remain unchanged at $0.01 per share following a reverse stock split. The capital account of our company will also remain unchanged, and we do not anticipate that any other accounting consequences will arise as a result of a reverse stock split and corresponding reduction in authorized Common Stock.
Material Federal Income Tax Consequences
The following discussion is a summary of certain United States federal income tax consequences of a reverse stock split to our company and to stockholders that hold shares of our Common Stock as capital assets for United States federal income tax purposes. This discussion is based upon current United States tax law, which is subject to change, possibly with retroactive effect, and differing interpretations. Any such change may cause the United States federal income tax consequences of a reverse stock split to vary substantially from the consequences summarized below.
This summary does not address all aspects of United States federal income taxation that may be relevant to stockholders in light of their particular circumstances or to stockholders who may be subject to special tax treatment under the Internal Revenue Code of 1986, as amended, including, without limitation, dealers in securities, commodities or foreign currency, persons who are treated as non-U.S. persons for United States federal income tax purposes, certain former citizens or long-term residents of the United States, insurance companies, tax-exempt organizations, banks, financial institutions, small business investment companies, regulated investment companies, real estate investment trusts, retirement plans, persons that are partnerships or other pass-through entities for United States federal income tax purposes, persons whose functional currency is not the United States dollar, traders that mark-to-market their securities, persons subject to the alternative minimum tax, persons who hold their shares of our Common Stock as part of a hedge, straddle, conversion or other risk reduction transaction, or who acquired their shares of our Common Stock pursuant to the exercise of compensatory stock options, the vesting of previously restricted shares of stock or otherwise as compensation. If a partnership or other entity classified as a partnership for United States federal income tax purposes holds shares of our Common Stock, the tax treatment of a partner thereof will generally depend upon the status of the partner and upon the activities of the partnership. If you are a partner in a partnership holding shares of our Common Stock, you should consult your tax advisor regarding the tax consequences of a reverse stock split.
We have not sought and will not seek an opinion of counsel or a ruling from the Internal Revenue Service regarding the federal income tax consequences of a reverse stock split. The state and local tax consequences of a reverse split may vary as to each stockholder, depending on the jurisdiction in which such stockholder resides. This discussion should not be considered as tax or investment advice, and the tax consequences of a reverse stock split may not be the same for all stockholders. Stockholders should consult their own tax advisors to understand their individual federal, state, local and foreign tax consequences.
Tax Consequences to our Company. We believe that a reverse stock split will constitute a reorganization under Section 368(a)(1)(E) of the Internal Revenue Code of 1986, as amended.
Accordingly, we should not recognize taxable income, gain or loss in connection with a reverse stock split. In addition, we do not expect a reverse stock split to affect our ability to utilize our net operating loss carryforwards.
Tax Consequences to Stockholders. Stockholders should not recognize any gain or loss for United States federal income tax purposes as a result of a reverse stock split, except to the extent of any cash received in lieu of a fractional share of our Common Stock (which fractional share will be treated as received and then exchanged for cash). Each stockholder's aggregate tax basis in shares of Common Stock received in a reverse stock split, including any fractional share treated as received and then exchanged for cash, should equal the stockholder's aggregate tax basis in the shares of Common Stock exchanged in the reverse stock split. In addition, each stockholder's holding period for the shares of Common Stock it receives in a reverse stock split should include the stockholder's holding period for the shares of Common Stock exchanged in the reverse stock split.
In general, a stockholder who receives cash in lieu of a fractional share of Common Stock pursuant to a reverse stock split should be treated for United States federal income tax purposes as having received a fractional share pursuant to the reverse stock split and then as having received cash in exchange for the fractional share and should generally recognize capital gain or loss equal to the difference between the amount of cash received and the stockholder's tax basis allocable to the fractional share. Any capital gain or loss will generally be treated as long term capital gain or loss if the stockholder's holding period in the fractional share is greater than one year as of the effective date of the reverse stock split. Special rules may apply to cause all or a portion of the cash received in lieu of a fractional share to be treated as dividend income with respect to certain stockholders who own more than a minimal amount of Common Stock (generally more than 1%) or who exercise some control over the affairs of our company. Stockholders should consult their own tax advisors regarding the tax effects to them of receiving cash in lieu of fractional shares based on their particular circumstances.
Vote Required
Approval of Proposal THREE requires the affirmative vote of the holders of a majority in voting power of all of the capital stock of the Company, voting together as a single class, entitled to vote on the matter. Votes cast FOR or AGAINST and ABSTENTIONS with respect to this Proposal THREE will be counted as shares entitled to vote on the Proposal. Broker non-votes and abstentions will count as votes AGAINST the Proposal.
Recommendation of our Board of Directors
The Board of Directors recommends that stockholders vote "FOR" the approval of an amendment to our amended and restated certificate of incorporation to effect, at the discretion of our Board of Directors, a reverse split of our Common Stock and a reduction in the number of authorized shares of our Common Stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2014,2017, no member of the Compensation Committee served as an executive officer of the Company. During 2014,2017, there were no Compensation Committee interlocks with other companies.
45
AUDIT COMMITTEE REPORT
The information contained in this Audit Committee Report and references in this Proxy Statement to the independence of the Audit Committee members shall not be deemed to be "soliciting material"“soliciting material” or to be "filed"“filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates such information by reference in such filing.
The Board of Directors has determined that all current Audit Committee members are (i) independent, as defined in Section 10A of the Exchange Act, (ii) independent under the standards set forth by the NYSE and (iii) financially literate. In addition, Mr. OgleVincent qualifies as an audit committee financial expert under the applicable rules promulgated pursuant to the Exchange Act. The Audit Committee is a separately designated standing committee of the Board established in accordance with Section 3(a)(58)(A) of the Exchange Act and operates under a written charter initially approved by the Board on April 19, 2012,October 21, 2016, which is reviewed annually.
Management is responsible for our system of internal controls and the financial reporting process. The independent accountants are responsible for performing an independent audit of our consolidated financial statements in accordance with auditing standards generally accepted in the United States of America and issuing a report thereon. The Audit Committee is responsible for monitoring (i) the integrity of our financial statements, (ii) our compliance with legal and regulatory requirements, and (iii) the independence and performance of our auditors.independent registered public accounting firm.
The Audit Committee has reviewed and discussed with our management and the independent accountants the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2014,2017, including a discussion of the quality, not just the acceptability, of the accounting principles applied, the reasonableness of significant judgments and the clarity of disclosures in the consolidated financial statements. Management represented to the Audit Committee that our consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America. The Audit Committee discussed with the independent accountants matters required to be discussed by Statement of Auditing Standards No. 16, Communications with Audit Committees.
Our independent accountants also provided to the Audit Committee the written disclosure required by applicable requirements of the Public Company Accounting Oversight Board regarding independent accountant'saccountant’s communications with the Audit Committee concerning independence. The Audit Committee discussed with the independent accountants that firm'sfirm’s independence.
Based on the Audit Committee'sCommittee’s discussions with management and the independent accountants, and the Audit Committee'sCommittee’s review of the representations of management and the report of the independent accountants to the Audit Committee, the Audit Committee recommended that the Board include the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 20142017 filed with the SEC.
| | |
| | Audit Committee of the Board of Directors |
|
|
|
Robert Ogle
Bruce Stover
Alan J. Carr
Thomas C. Knudson H. Vincent (Chairman) |
| Todd R. Snyder |
| Patrice D. Douglas |
46
CORPORATE GOVERNANCE
Corporate Governance Guidelines
The Board of Directors believes that sound governance practices and policies provide an important framework to assist it in fulfilling its duty to stockholders. The Company'sCompany’s Corporate Governance Guidelines cover the following principal subjects:
•·role and functions of the Board of Directors and its Chairman;
·
•- qualifications and independence of directors;
·
•- size of the Board of Directors and director selection process;
·
•- committee functions and independence of committee members;
·
•- meetings of non-employee directors;
· self-evaluation;
·
•self-evaluation;
•- ethics and conflicts of interest (a copy of the current
"Code“Code of Business Conduct and Ethics"Ethics” is posted on the Company'sCompany’s website atwww.midstatespetroleum.com);·
•compensation Compensation of the Board of Directors;·
•- succession planning;
·
•- access to senior management and to independent advisors;
·
•- new director orientation; and
·
•- continuing education.
The "Corporate“Corporate Governance Guidelines"Guidelines” are posted on the Company'sCompany’s website atwww.midstatespetroleum.comwww.midstatespetroleum.com.. The Corporate Governance Guidelines will be reviewed periodically and as necessary by the Company'sCompany’s Nominating and Governance Committee, and any proposed additions to or amendments of the Corporate Governance Guidelines will be presented to the Board of Directors for its review, consideration, and approval.
The NYSE has adopted rules that require listed companies to adopt governance guidelines covering certain matters. The Company believes that the Corporate Governance Guidelines comply with the NYSE rules.
Board Leadership
Mr. KnudsonCarr has served as Interim Chairman of the Board of Directors since March 2014. From February 2013 to March 2014, Mr. Crum served as Chairman of the Board of Directors in addition to his position as our President and Chief Executive Officer. Dr. Petersince October 21, 2016. David J. Hill served as our Interim President and Chief Executive Officer from March 2014 to March 18, 2015, and through March 9, 2015 also served as a director. Frederic F. BraceSambrooks was appointed as a director on March 9, 2015 and as Interimbecame our President and Chief Executive Officer on March 18, 2015.November 1, 2017.
The Board recognizes that one of its key responsibilities is to evaluate and determine its optimal leadership structure so as to provide independent oversight of management. The Board understands that the optimal Board leadership structure may vary as circumstances warrant. Consistent with this understanding, non-managementnon-employee directors consider the Board'sBoard’s leadership structure on an annual basis.
The Board previously determined that the optimal Board leadership structure for us was served by the role of Chairman of the Board being held by our former President and Chief Executive Officer, Mr. Crum. The Board determined that this leadership structure was optimal for us because it believed
that having one leader serving as both the Chairman and Chief Executive Officer provides decisive, consistent and effective leadership. The Board is currently searching for a new President and Chief Executive Officer and, depending on the results of that search and the ultimate candidate, may choose to have such individual also serve as Chairman of the Board. In the interim, the Mr. Knudson is acting as Interim Chairman of the Board and Frederic F. Brace is acting as Interim President and Chief Executive Officer and as a director.
Our non-management directors have also determined that it is optimal for the Board to have a "lead director," whose responsibilities include, among others, (i) presiding over executive sessions of the independent directors; (ii) establishing the agenda for each meeting of the independent directors; and (iii) serving as the Board of Directors' contact for employee and stockholder communications with the Board of Directors. In addition, all directors are encouraged to suggest the inclusion of agenda proposals or revisions to meeting materials, and any director is free to raise at any Board meeting proposals that are not on the agenda for that meeting. All of these principles are set forth in the Company's Corporate Governance Guidelines. Currently, Mr. Knudson, who is currently serving as our Interim Chairman of the Board, also serves as our lead director.
Additionally, the Board of Directors regularly meets in executive session without the presence of the President and Chief Executive Officer or other members of management. The lead director presides at these meetings and provides the Board of Directors' guidance and feedback to the President and Chief Executive Officer and the Company's management team. Further, the Board of Directors has complete access to the Company's management team.
Communications with the Board of Directors
Stockholders or other interested parties can contact any director (including Mr. Knudson,Carr, the Board's Interim Chairman and lead director)Board’s Chairman), any committee of the Board, or our non-managementnon-employee directors as a group, by writing to them c/o Corporate Secretary, Midstates Petroleum Company, Inc., 321 South Boston Avenue, Suite 1000, Tulsa, Oklahoma, 74103. Comments or complaints relating to the Company'sCompany’s accounting, internal accounting controls or auditing matters will
47
also be referred to members of the Audit Committee. All such communications will be forwarded to the appropriate member(s) of the Board.
Director Independence
The Company'sCompany’s standards for determining director independence require the assessment of directors'directors’ independence each year. A director cannot be considered independent unless the Board of Directors affirmatively determines that he or she does not have any relationship with management or the Company that may interfere with the exercise of his or her independent judgment, including any of the relationships that would disqualify the director from being independent under the rules of the NYSE.
The Board of Directors has assessed the independence of each non-employee director under the Company'sCompany’s guidelines and the independence standards of the NYSE. The Board of Directors affirmatively determined that Messrs. DeMontrond, Knudson, Mogford, Stover, OgleCarr, Goldman, Reddin, Snyder, Vincent and CarrMrs. Douglas are independent. Due to Mr. Brace previously serving in the role of President and Chief Executive Officer of the Company during 2017, Mr. Brace does not qualify as an independent director of the Company under the independence standards of the NYSE.
In connection with its assessment of the independence of each non-employee director, the Board of Directors also determined that (i) Messrs Stover, OgleMessrs. Vincent, Snyder and CarrMrs. Douglas are independent, as defined in Section 10A of the Exchange Act and under the standards set forth by the NYSE applicable to members of the Audit Committee and (ii) Messrs. Stover, DeMontrondCarr, Goldman and CarrReddin are independent under the standards set forth by the NYSE applicable to members of the Compensation Committee.
Financial Literacy of Audit Committee and Designation of Financial Experts
The Board of Directors evaluated each of the members of the Audit Committee for financial literacy and the attributes of a financial expert upon emergence in October 2016, again in February 2014.2017 and most recently in February 2018. The Board of Directors determined that each of the Audit Committee members is financially literate and that Mr. OgleVincent is an audit committee financial expert as defined by the SEC.
Oversight of Risk Management
Except as discussed below, the Board of Directors as a whole oversees the Company'sCompany’s assessment of major risks and the measures taken to manage such risks. For example, the Board of Directors:
•·oversees management of the Company'sCompany’s commodity price risk through regular review with executive management of the Company'sCompany’s derivatives strategy, and the oversight of the Company'sCompany’s policy that limits the Company'sCompany’s authority to enter into derivative commodity price instruments to a specified level of production, above which management must seek Board approval;
·
•- has established specific dollar limits on the commitment authority of members of senior management and requires Board approval of expenditures exceeding that authority and of other material contracts and transactions; and
·
•- reviews
management'smanagement’s capital spending plans, approves the Company'sCompany’s capital budget and requires that management present for Board review significant departures from those plans.
The Company'sCompany’s Audit Committee is responsible for overseeing the Company'sCompany’s assessment and management of financial reporting and internal control risks, as well as other financial risks, such as the credit risks associated with counterparty exposure. Management and the Company'sCompany’s independent registered public accountants report regularly to the Audit Committee on those subjects. The Board of Directors does not consider its role in oversight of the Company'sCompany’s risk management function to be relevant to its choice of leadership structure.
48
Attendance at Annual Meetings
The Board of Directors encourages all directors to attend the annual meetings of stockholders, if practicable. All of our directors attended our 20142017 Annual Meeting and weMeeting. We anticipate that all of our directors will attend the 20152018 Annual Meeting.
Hedging Policy
Because the Company believes that it is improper and inappropriate for its directors or executive officers to engage in short-term or speculative transactions involving the Company'sCompany’s securities, the Company'sCompany’s insider trading policy prohibits any of its directors or executive officers from engaging in hedging transactions or other transactions involving any derivative securities of the Company.
Stock Ownership Requirements
The Board of Directors believes that it is in the best interestdirectors should own and hold common stock of the Company to further align their interests and its stockholders to alignactions with the financial interests of the officers of the Company and non-employee members of the Board that receive an annual cash retainer with those of the Company'sCompany’s stockholders. In this regard, the Board has adopted minimum stock ownership guidelines.Director Stock Ownership Guidelines (the “Guidelines”). The Guidelines apply to the non-employee directors of the Company.
The guidelinesGuidelines require thatdirectors of the individuals coveredCompany to own 10,000 Qualifying Shares (as defined below) (the “Required Stock Holdings”). Absent certain instances of severe hardship (as determined by the policy must hold an interestCompensation Committee), non-employee directors are prohibited from selling any shares of Company stock unless such non-employee director is in compliance with the Company'sGuidelines. Notwithstanding the preceding sentence, non-employee directors may sell or otherwise dispose of shares equal to the following:
•the Chief Executive Officer—five times annual base salary;
•officers that report directly to the Chief Executive Officer—three times annual base salary;
•other officers—one time annual base salary; and
•covered directors—four times their annual cash retainer.
The forms of equity ownership that can be usedCompany stock to satisfy any applicable tax withholding obligations due in connection with the ownership requirement include: (i) shares owned directlyvesting or indirectly (e.g., by a spouse or a trust), (ii) time vestedpayment of any restricted stock units or deferred stock units.
Stock that counts toward satisfaction of these Guidelines includes each the following (each, the “Qualifying Shares”): (i) Company stock purchased on the open market, (ii) vested and unvested restricted stock units, (iii) restricted stock units deferred pursuant to the Company’s Directors Deferred Compensation Plan (“deferred stock units”) and (iv) Company stock beneficially owned in a trust, by a spouse and/or (iv) phantom stock. Unexercised options and unearned performanceminor children. Notwithstanding the foregoing, shares of Company stock that non-employee directors may receive pursuant to the Company’s Director Long Term Incentive Plan are not counted toward meeting the guidelines.included as Qualifying Shares for Guidelines purposes.
Officers
Non-employee directors are required to satisfy theirachieve ownership requirementsof the Required Stock Holdings within two (2) years after the earlierlater to occur of three years from (i) first appointment as an officer or (ii) the adoption of the guidelines and covered directors are required to satisfy theirGuidelines or after first becoming a non-employee director. Once achieved, ownership requirements within the earlier of three years from (i) first joining the Board or (ii) the adoption of the guidelines.Required Stock Holdings must be maintained for as long as the non-employee director is subject to the Guidelines.
Compliance with this policy by each officernon-employee director is reviewed by the Nominating and GovernanceCompensation Committee on an annual basis,basis. There may be instances where the Guidelines would place a severe hardship on a non-employee director. In such instances, the Compensation Committee will make the final decision as to developing an alternative stock ownership guideline for the non-employee director that reflects both the intention of the Guidelines and the Nominatingpersonal circumstances of the non-employee director. The Guidelines may be evaluated against Company needs and Governance Committeeprevailing market practices from time to time, and may exercise its discretion in response to any violationbe modified or terminated by the Board of this policy to limitDirectors of the eligibility for or reduce the size of any future awards to the officer.Company. The Nominating and GovernanceCompensation Committee has never found a violation of this policy, so the Nominating and GovernanceCompensation Committee has not exercised its discretion in this regard. The stock ownership requirements willGuidelines did not apply to Frederic F. Brace while he is servingserved as Interim President and Chief Executive Officer.Officer, and Mr. Sambrooks, who is our current President and Chief Executive Officer, does not have to comply with these Guidelines, but rather will be required to comply with the Company’s Executive Stock Ownership Guidelines.
49
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial ownership of Common Stockcommon stock as of April 16, 201530, 2018, by (i) each person who is known by the Company to own beneficially more than five percent of the outstanding shares of Common Stock,common stock, (ii) each Named Executive Officer of the Company, (iii) each director and director nominee of the Company and (iv) all directors and executive officers as a group. Unless otherwise noted, the mailing address of each person or entity named below is 321 South Boston Avenue, Suite 1000, Tulsa, Oklahoma 74103.
As of April 16, 2015, 71,672,519 shares of our Common Stock were outstanding.
| | | | | | | |
Name of Person or Identity of Group | | Number
of Shares | | Percentage
of Class(1) | |
|---|
5% Shareholders: | | | | | | | |
FR Midstates Interholding, LP(1) | | | 27,147,651 | | | 37.9 | % |
Aristeia Capital, L.L.C.(2) | | | 7,742,158 | | | 10.8 | % |
Point72 Asset Management, L.P.(3) | | | 5,000,000 | | | 7.0 | % |
Directors, Director Nominees and Named Executive Officers:(4) | | | | | | | |
Frederic F. Brace | | | — | | | — | |
Thomas C. Knudson | | | 42,000 | | | * | |
George A. DeMontrond(5) | | | — | | | — | |
Alan J. Carr | | | — | | | — | |
Bruce Stover | | | — | | | — | |
Robert E. Ogle | | | — | | | — | |
John Mogford | | | — | | | — | |
Dr. Peter J. Hill | | | 41,000 | | | * | |
John A. Crum | | | 1,325,465 | | | 1.8 | % |
Nelson M. Haight | | | 741,384 | | | 1.0 | % |
Thomas L. Mitchell | | | 430,375 | | | * | |
Dexter Burleigh | | | 493,198 | | | * | |
Gregory Hebertson | | | 21,795 | | | * | |
Curtis Newstrom | | | 540,877 | | | * | |
All directors and executive officers as a group (10 persons)(4) | | | 1,511,506 | | | 2.1 | % |
*Less than 1%.
(1)FR Midstates Interholding, L.P.'s general partner is FR XII Alternative GP, L.L.C. FR XII Alternative GP, L.L.C.'s managing member is First Reserve GP XII, L.P. The general partner of First Reserve GP XII, L.P. is First Reserve GP XII Limited. William E. Macaulay is a director of First Reserve GP XII LimitedWe have prepared the table and has the right to appoint the majority of the board of directors of First Reserve GP XII Limited.
(2)Basedrelated notes based on information obtained fromprovided in the most recent Section 16 filing, Schedule 13D or Schedule 13G filed by Aristeiasuch person. We have not sought to verify such information. The number of shares beneficially owned by a person includes shares of common stock underlying warrants, stock options, restricted stock units, and any other derivative securities to acquire common stock held by that person that are currently exercisable or convertible within 60 days after the date of this Proxy Statement. The shares issuable under any such securities are treated as outstanding for computing the percentage ownership of the person holding these securities, but are not treated as outstanding for the purposes of computing the percentage ownership of any other person.As of April 30, 2018, 25,153,181 shares of our common stock were outstanding.
Name of Person or Identity of Group | | Number of Shares | | Percentage of Class | |
5% Stockholders: | | | | | |
Fir Tree funds (1) | | 6,393,078 | | 25.3 | |
Avenue Capital funds (2) | | 3,494,914 | | 13.8 | |
Centerbridge funds (3) | | 2,741,947 | | 10.9 | |
Geode Capital funds (4) | | 1,984,295 | | 7.9 | |
Aristeia Capital LLC (5) | | 1,508,674 | | 5.1 | |
| | | | | |
Directors, Director Nominees and Named Executive Officers: | | | | | |
Alan J. Carr (6) | | 26,563 | | * | |
Frederic F. Brace (7) | | 92,641 | | * | |
Patrice D. Douglas (8) | | 17,742 | | * | |
Neal P. Goldman (9) | | 17,742 | | * | |
Michael S. Reddin (10) | | 17,742 | | * | |
Todd R. Snyder (11) | | 17,742 | | * | |
Bruce H. Vincent (12) | | 17,742 | | * | |
David J. Sambrooks (13) | | 67,889 | | * | |
Scott C. Weatherholt (14) | | 84,961 | | * | |
Richard W. McCullough (15) | | 50,347 | | * | |
Amelia K. Harding (16) | | 63,605 | | * | |
Nelson M. Haight (17) | | 11,626 | | * | |
Mitchell G. Elkins (18) | | 174,873 | | * | |
All directors and executive officers as a group | | 474,716 | | 1.8 | |
* Less than 1%.
(1) Comprised of 1,065,256 shares of common stock held directly by Fir Tree Capital L.L.C. ("Aristeia") withOpportunity (LN) Master Fund, L.P., 3,852,002 shares of common stock held directly by Fir Tree Value (LN) Master Fund, L.P., 109,494 shares of common stock held directly by FT SOF IV Holdings, LLC, 127,358 shares of common stock held directly by FT SOF V Holdings, LLC and 1,238,968 shares of common stock held directly by FT SOF VII AIV Holdings I, LLC. Fir Tree Inc., is the SEC on February 17, 2015. Accordinginvestment manager for the foregoing entities, has the shared power to this report, Aristeia's businessvote or direct the voting, and to dispose or direct the disposition of, the shares of our common stock beneficially owned by each of the foregoing entities. The principal address of these entities is 136 Madison Avenue, 3rd55 West 46th Street, 29th Floor, New York, NY 10016. Aristeia has sole voting power and sole dispositive power with respect to all10036.
(2) Comprised of these shares.
(3)Based on a Schedule 13G/A filed with3,494,914 shares of common stock held directly by Avenue Energy Opportunities Fund, L.P. (“Avenue Energy Opportunities Fund”). Avenue Energy Opportunities Partners, LLC is the SEC on January 9, 2015 by Point72 Asset Management, L.P., Point72 Capital Advisors, Inc., Rubricgeneral partner of Avenue Energy Opportunities Fund. GL Energy Opportunities Partners, LLC is the managing member of Avenue Energy Opportunities Partners, LLC. Avenue Capital Management II, L.P. is the investment adviser to Avenue Energy Opportunities Fund, L.P. Avenue Capital Management II GenPar, LLC is the general partner of Avenue Capital Management II, L.P. Marc Lasry is the managing member of GL Energy Opportunities Partners, LLC and Steven A. Cohen,Avenue Capital Management II GenPar,50
LLC. Each of the foregoing individuals and entities share the power to vote common stock held by Avenue Energy Opportunities Fund. The principal address of the foregoing individuals and entities is 399 Park Avenue, 6th Floor, New York, NY 10022.
(3) Includes 1,945,529 shares of common stock (including 205,232 shares of common stock issuable upon exercise of warrants) held by Centerbridge Credit Partners Master AIV IV, L.P. (“Master AIV IV”) and 796,418 shares of common stock (including 94,768 shares of common stock issuable upon exercise of warrants) held directly by Centerbridge Special Credit Partners II AIV III, L.P. (“SC II AIV III”). Centerbridge Credit Partners Offshore General Partner, L.P. (“Credit GP”) is the general partner of Master AIV IV. Centerbridge Credit Cayman GP, Ltd. (“Credit Cayman GP”), as the general partner of Credit GP, has the power to vote and invest the common stock held by Master AIV IV. Centerbridge Special Credit Partners General Partner II, L.P. (“SC II GP”) is the general partner of SC II AIV III. CSCP II Cayman GP Ltd. (“SC II Cayman GP”), as the general partner of SC II GP, has the power to vote and invest the common stock held by SC II AIV III. Mark T. Gallogly and Jeffrey H. Aronson, indirectly, through various intermediate entities, control each of Rubric Capital Management, LLCMaster AIV IV and SC II AIV III. Each of Credit GP, Credit Cayman GP, SC II GP, SC II Cayman GP, Mr. Gallogly and Mr. Cohen may be deemed to beneficially own 5,000,000 shares of Common Stock. Each of Point72 Asset Management, L.P., Point72 Capital Advisors, Inc., Rubric Capital Management, LLC and Mr. CohenAronson disclaims beneficial ownership of anysuch securities. The principal address of the securities coveredforegoing individuals and entities is 375 Park Avenue, 12th Floor, New York, NY 10152.
(4) Comprised of 1,984,295 shares of common stock owned or issuable upon exercise of warrants held by Geode Diversified Fund, a Segregated Account of Geode Capital Master Fund Ltd. Geode Capital Management LP is the
statement. investment manager for the foregoing entity, has the shared power to vote or direct the voting, and to dispose or direct the disposition of, the underlying shares of our common stock beneficially owned by the foregoing entity. The principal address of eachthese entities is One Post Office Square, 20th Floor, Boston, Massachusetts 02109.
(5) Includes 224,000 shares issuable upon exercise of Point72 Asset Management, L.P., Point72 Capital Advisors, Inc., Rubric Capital Management, LLCwarrants. The principal address of this entity is: One Greenwich Plaza, 3rd Floor, Greenwich, Connecticut 06830.
(6) Includes 100 shares of common stock and Mr. Cohen13,351 time-based RSUs granted upon the Emergence Date for 2016 and 2017, and an award of 13,112 time-based RSUs granted for 2018 on January 2, 2018.
(7) Includes 100 shares of common stock and 131,773 time-based RSUs that vested in full upon his termination as Chief Executive Officer effective as of November 1, 2017 less 47,973 shares traded for taxes in connection with the accelerated vesting. Also included is 72 Cummings Point Road, Stamford, Connecticut 06902.an award of 8,741 time-based RSUs granted on January 2, 2018 for service as a director during 2018.
(4)(8) Includes 100 shares of common stock and 8,901 time-based RSUs granted upon Emergence for 2016 and 2017, and an award of 8,741 time-based RSUs granted on January 2, 2018 for service as a director during 2018.
(9) Includes 100 shares of common stock and 8,901 time-based RSUs granted upon Emergence for 2016 and 2017, and an award of 8,741 time-based RSUs granted on January 2, 2018 for service as a director during 2018.
(10) Includes 100 shares of common stock and 8,901 time-based RSUs granted upon Emergence for 2016 and 2017, and an award of 8,741 time-based RSUs granted on January 2, 2018 for service as a director during 2018.
(11) Includes 100 shares of common stock and 8,901 time-based RSUs granted upon Emergence for 2016 and 2017, and an award of 8,741 time-based RSUs granted on January 2, 2018 for service as a director during 2018.
(12) Includes 100 shares of common stock and 8,901 time-based RSUs granted upon Emergence for 2016 and 2017, and an award of 8,741 time-based RSUs granted on January 2, 2018 for service as a director during 2018.
(13) Includes 67,889 time-based RSUs.
(14) Includes 100 shares of common stock and 15,958 time-based RSUs that vested less 7,185 shares traded for taxes in connection with vesting, 60,330 unvested time-based RSUs, and 15,858 vested stock options.
(15) Includes 100 shares of common stock, 9,367 time-based RSUs that vested less 2,995 shares traded for taxes in connection with vesting, 3,302 shares sold in May 2017, 37,810 unvested time-based RSUs, and 9,367 vested stock options.
(16) Includes 100 shares of common stock, 12,414 time-based RSUs that vested less 6,166 shares traded for taxes in connection with vesting, 44,843 unvested time-based RSUs, and 12,414 vested stock options.
(17) Includes 100 shares of common stock, 15,865 time-based RSUs that vested less 4,339 shares traded for taxes in connection with vesting. Number of shares beneficially owned is based upon the last Section 16 report filed with respect to a reporting person or information otherwise known to the company.
(5)- Because Mr.
DeMontrondHaight is no longer with the Company as of April 30, 2018, his shares beneficially owned were excluded from the calculation of all directors and officers as a vice presidentpercentage.(18) Includes 100 shares of First Reserve Management Limited, an affiliatecommon stock, 101,553 time-based RSUs that vested less 28,333 shares traded for taxes in connection with vesting, and 101,553 unvested stock options. Number of FR Midstates Interholding, L.P. ("FRMI").shares beneficially owned is based upon the last Section 16 report filed with respect to a reporting person or information otherwise known to the company. Because Mr. DeMontrond disclaims beneficial ownershipHaight is no longer with the Company as of April 30, 2018, his shares beneficially owned were excluded from the shares that relate tocalculation of all directors and are described in footnote one above. The address of Mr. DeMontrond is One Lafayette Place, Greenwich, Connecticut 06830.
officers as a percentage.51
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The executive officers and directors of the Company and persons who own more than 10% of the Company's Common StockCompany’s common stock are required to file reports with the SEC, disclosing the amount and nature of their beneficial ownership in Common Stock,common stock, as well as changes in that ownership. Based solely on its review of reports and written representations that the Company has received, the Company believes that all required reports were timely filed during 2014.2017.
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TRANSACTIONS WITH RELATED PERSONS
Procedures for Review, Approval and Ratification of Related Person Transactions
A "Related“Related Party Transaction"Transaction” is a transaction, arrangement or relationship in which the Company or any of its subsidiaries was, is or will be a participant, the amount of which involved exceeds $120,000, and in which any related person had, has or will have a direct or indirect material interest. A "Related Person"“Related Person” means:
•·any person who is, or at any time during the applicable period was, one of the Company'sCompany’s executive officers or one of its directors;
·
•- any person who is known by the Company to be the beneficial owner of more than 5% of the
Company's Common Stock;Company’s common stock;·
•- any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law of a director, executive officer or a beneficial owner of more than 5% of the
Company's Common Stock,Company’s common stock, and any person (other than a tenant or employee) sharing the household of such director, executive officer or beneficial owner of more than 5% of the Company's Common Stock;Company’s common stock; and·
•- any firm, corporation or other entity in which any of the foregoing persons is a partner or principal or in a similar position or in which such person has a 10% or greater beneficial ownership interest.
The Board of Directors has determined that the Audit Committee will periodically review all related person transactions that the rules of the SEC require be disclosed in the Company'sCompany’s proxy statement and make a determination regarding the initial authorization or ratification of any such transaction.
The Audit Committee is charged with reviewing the material facts of all related person transactions and either approving or disapproving of the Company'sCompany’s participation in such transactions under the Company'sCompany’s written Related Persons Transaction Policy adopted by the Board of Directors at the time of our initial public offering in April 2012 and ratified by the Board of Directors on October 21, 2016, which pre-approves or ratifies (as applicable) certain related person transactions, including:
•·any employment by the Company of an executive officer if his or her compensation is required to be reported in the Company'sCompany’s proxy statement under Item 402;
·
•- director compensation that is required to be reported in the
Company'sCompany’s proxy statement under Item 402;·
•- any transaction with another company
ator which a Related Person's onlyPerson’s relationship is as an employee (other than an executive officer), director or beneficial owner of less than 10% of that company'scompany’s shares if the aggregate amount involved for any particular service does not exceed the greater of $500,000 or 25% of that company'scompany’s total annual revenues; and
•·charitable contribution, grant or endowment by the Company to a charitable organization, foundation or university at which a Related Person'sPerson’s only relationship is as an employee (other than an executive officer) or a director if the aggregate amount involved does not exceed the lesser of $200,000 or 10% of the charitable organization'sorganization’s total annual receipts.
In determining whether to approve or disapprove entry into a Related Party Transaction, the Audit Committee shall take into account, among other factors, the following: (i) whether the Related Party Transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances and (ii) the extent of the Related Person'sPerson’s interest in the transaction. Further, the policy requires that
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all Related Party Transactions required to be disclosed in the Company'sCompany’s filings with the SEC be so disclosed in accordance with applicable laws, rules and regulations.
There were no related persons transactions since January 1, 20142017 which were required to be reported in "Transactions“Transactions with Related Persons,"” where the procedures described above did not require review, approval or ratification or where these procedures were not followed. In addition, since January 1, 2014,2017, there has not been any transaction or series of similar transactions to which the Company was or is a party in which the amount involved exceeded or exceeds $120,000 and in which any of the Company'sCompany’s directors, executive officers, holders of more than 5% of any class of its voting securities, or any member of the immediate family of any of the foregoing persons, had or will have a direct or indirect material interest, other than compensation arrangements with directors and executive officers, which are described in "Executive“Executive Compensation and Other Information,"” and the transactions described or referred to below.
Stockholders'Transactions with Related Persons
Registration Rights Agreement
In connection with
On the closing of our initial public offering, weOctober 21, 2016, the Company entered into a stockholders'registration rights agreement (the "Stockholders' Agreement"“Registration Rights Agreement”) with FRMI, Stephen J. McDaniel (former director and Chairmancertain of the Board), and certainpre-emergence creditors that received shares of our executive officerscommon stock (the “Holders”), as provided in the aforementioned plan of reorganization. The Registration Rights Agreement provides resale registration rights for the Holders’ Registrable Securities (as defined in the Registration Rights Agreement).
Pursuant to the Registration Rights Agreement, the Company is required to file a Shelf Registration Statement (as defined in the Registration Rights Agreement) with respect to the Registrable Securities within 90 days of the Effective Date. On January 18, 2017, the Company filed a Registration Statement on Form S-1, which went effective on February 10, 2017, and other memberson March 29, 2018, the Company converted the Registration Statement on Form S-1 to a Registration Statement on Form S-3. The Company is required to maintain the effectiveness of any such registration statement until the Registrable Securities covered by the registration statement are no longer Registrable Securities.
Additionally, holders have customary demand, underwritten offering and piggyback registration rights, subject to the limitations set forth in the Registration Rights Agreement. Under their demand registration rights, Qualified Holders (as defined in the Registration Rights Agreement) may request us to register all or a portion of their Registrable Securities, including on a delayed or continuous basis under Rule 415 of the Securities Act, provided that such offering is expected to yield aggregate gross proceeds of at least $25 million and we are not otherwise in violation of our management team.obligation to file a Shelf Registration Statement. Under their underwritten offering registration rights, Holders also have certain rights to demand that the Company effectuate the distribution of any or all of their Registrable Securities by means of an underwritten offering pursuant to an effective registration statement. The Stockholders' Agreement contains several provisions relatingCompany shall not be obligated to effect more than four underwritten offerings in any twelve-month period and the aggregate proceeds expected to be received from the sale of our Common Stock by the parties thereto, a summaryRegistrable Securities requested to be sold in such underwritten offering, in the good faith judgment of which is set forth below.
The Stockholders' Agreement grants FRMI the right to nominate three members of our Board of Directors so long as FRMI holdsmanaging underwriters, must be at least 25% of our outstanding shares of Common Stock. Upon the identification by our Board of Directors of an additional director nominee that our Board of Directors has affirmatively determined$25 million. The Company is independent pursuantnot obligated to the listing standards of the NYSE and Rule 10A-3 of the Exchange Act, FRMI has agreed to cause one of its director nominees to resign if so requested by the Board. In March 2013, the Board notified FRMI that it had identified Dr. Hill as an additional independent director and Mr. Krueger, an FRMI nominee, resigned from the Board, effective at the time of Dr. Hill's appointment in April 2013. At and as of such time that FRMI holds less than 25% of our outstanding shares of Common Stock, FRMI will have the right to nominate one member of our Board of Directors. The Stockholders' Agreement also requires the stockholders party thereto to take all necessary actions, including voting their shares of Common Stock, for the election of the FRMI nominees and the Board's other nominees.
In addition, the Stockholders' Agreement contains provisions restricting our ability to engage in certain transactions or take certain actions, including an actual or potential change in control or change in our management, without the consent of FRMI. Therefore, these provisions could adversely affect the price of our Common Stock.
The Stockholders' Agreement also provides that the following actions by us require the consent of FRMI:
•incurrence of debt that would result in a total net indebtedness to EBITDA ratio in excess of 2.50:1;
•authorization, creation or issuance of any equity securities (other than pursuant to compensation plans approved by the compensation committee or in connection with certain permitted acquisitions);
•redemption, acquisition or other purchase of any securities of the Company (other than certain repurchases from employees and directors);
•amendment, repeal or alteration of our amended and restated certificate of incorporation or amended and restated bylaws;
•any acquisition or disposition (where the amount of consideration exceeds $100 million in a single transaction or $200 million in any series of transactions during the calendar year);
•consummation of a "change in control" transaction;
•adoption, approval or issuance of any "poison pill" or similar rights plan; and
•entry into any plan of liquidation, dissolution or winding-up of the Company.
These actions by us require the consent of FRMI until the earlier of (i) receipt by our Board of Directors of FRMI's written election to waive its rights, (ii) the date FRMI ceases to hold at least 35% of our outstanding Common Stock, (iii) the third anniversary of the closing of our initial public offering or (iv) the date on which there are no directors nominated by FRMI serving as members of our Board of Directors. These rights will expire on April 25, 2015, the third anniversary of the closing of our initial public offering.
Eagle Registration Rights Agreement
On October 1, 2012, in connection with the closing of the Company's acquisition of the assets of Eagle Energy Production, LLC ("Eagle"), the Company, Eagle, FRMI and certain of our other stockholders entered into a Registration Rights Agreement (the "Eagle Registration Rights Agreement"), pursuant to which the Company has agreed to register the sale of shares of our Common Stock under the circumstances described below. The provisions relating to registration rights in the Eagle Registration Right Agreement supersede the provisions relating to registration rights contained in the Stockholders' Agreement that previously applied to FRMI only.
At any time after the conversion of the Preferred Stock into Common Stock (with respect to Eagle) or October 25, 2012 (with respect to FRMI), Eagle or FRMI, as applicable, has the right to require us by written notice to register the sale of any number of their shares of Common Stock. We are required to provide notice of the demand request within 30 days following receipt of such demand request to all stockholders party to the Eagle Registration Rights Agreement to allow for inclusion of such other stockholders' Common Stock. Eagle and FRMI each have the right to cause up to an aggregate of six such demand registrations. In no event shall more than one demand registration occur within six months after the effective date offile a registration statement filed pursuant to a demand requestnotice or conduct an underwritten offering pursuant to a demand notice within 6090 days prior to our good faith estimate of the date ofeither a demand registration or an offering and 180 days after the effective date of a registration statement we file.
If, at any time, we propose to register an offering of Common Stock (subject to certain exceptions) for our own account, then we must give prompt notice (subject to reduction to one business day's notice in connection with certain offerings) to all stockholders party to the Eagleunderwritten offering. The Registration Rights Agreement to allow them to include a specified number of their shares in thatalso provides customary piggyback registration statement.rights.
These registration rights are subject to certain conditions and limitations, including the right of the underwriters to limit the number of shares to be included in a registration statement and our right to delay or withdraw a registration statement under certain circumstances. The Company will generally pay all registration expenses in connection with our obligations under the Registration Rights Agreement, regardless of whether a registration statement is filed or becomes effective. The registration rights granted in the Registration Rights Agreement are subject to customary indemnification and contribution provisions, as well as customary restrictions such as blackout periods and, if an underwritten offering is contemplated, limitations on the number of shares to be included in the underwritten offering that may be imposed by the managing underwriter.
The obligations to register shares under the Eagle Registration Rights Agreement will terminate when no registrable shares (as defined in the Eagle Registration Rights Agreement) remain outstanding.
Certain Rights of the Holders of Preferred Stock
In connection with the Eagle Energy Acquisition, on September 28, 2012, the Company filed with the Secretary of State of the State of Delaware a Certificate of Designations (the "Certificate of Designations") to designate 325,000 shares of the Preferred Stock as Series A Mandatorily Convertible Preferred Stock.
The Preferred Stock have certain rights and terms set forth on the Certificate of Designations, including voting rights that are similar to those belonging to holders of our Common Stock on an as-converted basis (except with respect to the election of directorsCompany and each Holder on the approval of certain transactions wherefirst date upon which the holders ofHolder no longer owns any Registrable Securities.
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Drilling Operations.
Throughout 2017, the Preferred Stock would be entitledCompany has contracted with Elkins Drilling Solutions, LLC to consideration at least equal to the then applicable liquidation preference) until such time as holders of the Preferred Stock are permitted to convert their shares into Common Stock and the market price of the Company's Common Stock is above the conversion price then in effectprovide services for 15 consecutive trading days. The Preferred Stock rank senior to the Company's Common Stock with respect to dividend rights. In addition, the holders of the Preferred Stock have the right, subject to the terms and conditions set forthdrilling operations in the CertificateMississippian Lime basin. Elkins Drilling Solutions, LLC is a limited liability company of Designations, to elect one member of the Board of Directors (the "Preferred Director"). Currently, the Board of Directors does not include a Preferred Director, and as a result, the holders of the Preferred Stock may in the future elect a Preferred Director to the Board of Directors, at which time the size of the Board of Directors would be automatically increased, if necessary, to allow for the election of the Preferred Director. The holders of the Preferred Stock also have the right, and to approve certain corporate actions, including the following:
•the creation or issuance of any class of capital stock senior to or on parity with the Preferred Stock;
•the redemption, acquisition or purchase by the Company of any of its equity securities, other than a repurchase from an employee or director in connection with such person's termination or as provided in the agreement pursuant to which such equity securities were issued;
•any change to the Company's certificate of incorporation or bylaws that adversely affects the rights, preferences, privileges or voting rights of the holders of the Preferred Stock;
•acquisitions or dispositions for which the amountpresident, Chris Elkins, is the son of consideration exceeds 20% of the Company's market capitalization in any single transaction or 40% of the Company's market capitalization for any series of transactions during a calendar year;
•entering into certain transactions with affiliates, other than transactions that do not exceed, in the aggregate, $10 million in any calendar year;
•certain corporate transactions unless the holders of the Preferred Stock would receive consideration consisting solely of cash and/or marketable securities with an aggregate fair market value equal to or greater than the then applicable liquidation preference on such shares of Preferred Stock; and
•any increase or decrease in the size of the Company's Board of Directors.
Transactions with Related Persons
Mitchell Elkins, our former Executive Vice President - Operations. For the fiscal year 2017, the Company paid $0.3 million to Elkins Drilling Solutions, LLC for contracted services. The Audit Committee reviewed and approved the Company’s participation in these transactions, pursuant to the process described above.
Completion Operations.
During the year ended 2014, Scott McDaniel, whoDecember 31, 2017, the Company entered into an arrangement with EcoStim Energy Solutions, Inc. (“EcoStim”) for well stimulation and completion services. EcoStim is the brotheran affiliate of Stephen J. McDaniel (former director and ChairmanFir Tree Inc., an entity holding approximately 25.3% of the Board), received $207,996 in total cash compensation asCompany’s outstanding common stock. For the year ended December 31, 2017, the Company paid approximately $11.6 million to EcoStim for services provided and owed EcoStim an employee of the Company. In addition, Scott McDanieladditional $2.1 million which was eligiblepaid subsequent to participate in all benefit plans and programs available generally to the Company's employees, including his receipt of a grant of 19,200 shares of restricted stock under the LTIP. As of April 2014, Scott McDaniel was no longer an employee of the Company. In connection with his departure, all of his shares of restricted stock valued at approximately $151,567 vested in full.December 31, 2017.
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PROPOSAL FOUR
THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board of Directors has appointed Deloitte & ToucheGrant Thornton LLP as the independent registered public accounting firm of the Company for 2015.2018. The 20142017 audit of the Company'sCompany’s consolidated financial statements was completed on March 16, 2015.14, 2018.
The Board of Directors is submitting the appointment of Deloitte & ToucheGrant Thornton LLP for ratification at the Annual Meeting. The submission of this matter for approval by stockholders is not legally required, but the Board of Directors and the Audit Committee believe the submission provides an opportunity for stockholders through their vote to communicate with the Board of Directors and the Audit Committee about an important aspect of corporate governance. If the stockholders do not ratify the appointment of Deloitte & ToucheGrant Thornton LLP, the Audit Committee will reconsider the appointment of that firm as the Company's auditors.Company’s independent registered public accounting firm.
The Audit Committee has the sole authority and responsibility to retain, evaluate and replace the Company's auditors.Company’s independent registered public accounting firm. The stockholders'stockholders’ ratification of the appointment of Deloitte & ToucheGrant Thornton LLP does not limit the authority of the Audit Committee to change auditorsthe Company’s independent registered public accounting firm at any time.
Audit and Other Fees
The table below sets forth the aggregate fees billed by Deloitte & ToucheGrant Thornton LLP, the Company'sCompany’s independent registered public accounting firm, for the last two fiscal years (in thousands):
| | 2017 | | 2016 | |
Audit Fees (1) | | $ | 1,042,403 | | $ | 1,452,098 | |
Audit-related Fees (2) | | 0 | | 0 | |
Tax Fees (3) | | 138,136 | | 151,598 | |
All Other Fees | | 0 | | 0 | |
Total | | $ | 1,180,539 | | $ | 1,603,696 | |
| | | | | | | |
| | 2014 | | 2013 | |
|---|
Audit Fees(1) | | $ | 1,052,347 | | $ | 1,051,912 | |
Audit-related Fees(2) | | | 9,625 | | | 146,966 | |
Tax Fees(3) | | | 140,060 | | | 120,340 | |
All Other Fees | | | — | | | — | |
| | | | | | | | |
Total | | $ | 1,202,032 | | $ | 1,319,218 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
(1)
- Audit fees represent fees for professional services provided in connection with: (a) the annual audit of the
Company'sCompany’s consolidated financial statements; and (b) the review of the Company'sCompany’s quarterly consolidated financial statements.
(2)Audit-related fees represent fees (a) for assurancestatements; and related services that are reasonably related to(c) review the performance of the audit or review of the Company's financial statements not reported under "Audit Fees"; and (b) review of the Company'sCompany’s other filings with the SEC including review and preparation of registration statements, comfort letters, consents and research necessary to comply with generally accepted auditing standards for the years ended December 31, 20142017 and 2013.
(3)Tax2016.(2) Audit-related fees represent fees for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s financial statements not reported under “Audit Fees.”
(3) Includes fees for tax return preparationservices in connection with tax compliance, tax planning, and advice, and consultation on tax matters
The charter of the Audit Committee and its pre-approval policy require that the Audit Committee review and pre-approve the plan and scope of Deloitte & Touche LLP'sGrant Thornton LLP’s audit, audit-related, tax and other services. For the yearyears ended December 31, 2014,2016 and December 31, 2017, respectively, the Audit Committee pre-approved 100% of the services described above under the captions "Audit“Audit Fees," "Audit-related” “Audit-related Fees," "Tax Fees"” “Tax Fees” and "Other“All Other Fees."”
The Company expects that representatives of Deloitte & ToucheGrant Thornton LLP will be present at the Annual Meeting to respond to appropriate questions and to make a statement if they desire to do so.
The Board of Directors unanimously recommends that stockholders vote FOR the ratification of the appointment of Deloitte & ToucheGrant Thornton LLP as the auditorsindependent registered public accounting firm of the Company for 2015.2018.
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STOCKHOLDER PROPOSALS; IDENTIFICATION OF DIRECTOR CANDIDATES
Any stockholder of the Company who desires to submit a proposal for action at the 20162019 annual meeting of stockholders and wishes to have such proposal (a "Rule“Rule 14a-8 Proposal"Proposal”) included in the Company'sCompany’s proxy materials, must submit such Rule 14a-8 Proposal to the Company at its principal executive offices no later than January 1, 2016December 28, 2018 unless the Company notifies the stockholders otherwise. Only those Rule 14a-8 Proposals that are timely received by the Company and proper for stockholder action (and otherwise proper) will be included in the Company'sCompany’s proxy materials.
Any stockholder of the Company who desires to submit a proposal for action at the 20162019 annual meeting of stockholders, but does not wish to have such proposal (a "Non-Rule“Non-Rule 14a-8 Proposal"Proposal”) included in the Company'sCompany’s proxy materials, must submit such Non-Rule 14a-8 Proposal to the Company at its principal executive offices so that it is received between January 23, 2016February 1, 2019 and February 22, 2016,March 2, 2019, unless the Company notifies the stockholders otherwise. If a Non-Rule 14a-8 Proposal is not received by the Company on or before February 22, 2016,within a reasonable time, the Company intends to exercise its discretionary voting authority with respect to such Non-Rule 14a-8 Proposal.
"Discretionary
“Discretionary voting authority"authority” is the ability to vote proxies that stockholders have executed and submitted to the Company, on matters not specifically reflected in the Company'sCompany’s proxy materials, and on which stockholders have not had an opportunity to vote by proxy.
It is the responsibility of the Nominating and Governance Committee to identify, evaluate and recommend to the Board of Directors nominees for election at the annual meeting of stockholders, as well as to fill vacancies or additions on the Board of Directors that may occur between annual meetings. The Nominating and Governance Committee endeavors to recommend only director candidates who possess the highest personal values and integrity; who have experience and have exhibited achievements in one or more of the key professional, business, financial, legal and other challenges that face a U.S. independent oil and gas company; who exhibit sound judgment, intelligence, personal character, and the ability to make independent analytical inquiries; who demonstrate a willingness to devote adequate time to Board of Director duties; and who are likely to be able to serve on the Board of Directors for a sustained period.
The Nominating and Governance Committee'sCommittee’s charter requires consideration of the diversity of, and the optimal enhancement of the current mix of talent and experience on, the Board of Directors. In that regard, the Nominating and Governance Committee endeavors to achieve an overall balance of diversity of experiences, skills, attributes and viewpoints among our directors. The Nominating and Governance Committee believes it has achieved that balance through the representation on the Board of Directors of members having experience in the oil and gas industry, accounting and investment analysis, among other areas. The Nominating and Governance Committee does not discriminate based upon race, religion, sex, national origin, age, disability, citizenship or any other legally protected status.
In identifying potential director candidates, the Nominating and Governance Committee relies on any source available for the identification and recommendation of candidates, including current directors and officers. In addition, the Nominating and Governance Committee from time to time willmay engage a third party search firm to identify or evaluate, or assist in identifying or evaluating potential candidates, for which the third party search firm will be paid a fee.
The Nominating and Governance Committee will also consider any nominee recommended by stockholders for election at the annual meeting of stockholders to be held in 20162019 if that nomination is submitted in writing, and received between January 23, 2016February 1, 2019 and February 22, 2016,March 2, 2019, to Midstates Petroleum Company, Inc., 321 South Boston Avenue, Suite 1000, Tulsa, Oklahoma 74103, Attention: Corporate Secretary. The Company will evaluate director nominees proposed by stockholders on the
same basis as recommendations received from any other source. With respect to each such nominee, the following information must be provided to the Company with the written nomination:
•·the nominee'snominee’s name, address and other personal information;
·
•- the number of shares of each class and series of stock of the Company held by such nominee;
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·
•the nominating stockholder'sstockholder’s name, residential address and telephone number, and business address and telephone number; and·
•all other information required to be disclosed pursuant to the Company'sCompany’s bylaws and Regulation 14A of the Exchange Act.
Each submission must also include a statement of the qualifications of the nominee, a notarized consent signed by the nominee evidencing a willingness to serve as a director, if elected, and a written representation and agreement that such person (i) is not and will not become a party to any voting agreement or compensation agreement that has not been disclosed to the Company or that could limit or interfere with the nominee'snominee’s ability to comply with their fiduciary duties under applicable law and (ii) will comply with all of the Company'sCompany’s applicable corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines.
The Company suggests that any such proposal be sent by certified mail, return receipt requested.
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SOLICITATION OF PROXIES
Solicitation of Proxies may be made via the Internet, by mail, personal interview or telephone by officers, directors and regular employees of the Company. The Company may also request banking institutions, brokerage firms, custodians, nominees and fiduciaries to forward solicitation material to the beneficial owners of the Common Stockcommon stock that those companies or persons hold of record, and the Company will reimburse the forwarding expenses. In addition, the Company has retained Broadridge Financial Solutions to tabulate votes for a fee estimated not to exceed $20,000. The Company will bear all costs of solicitation.
STOCKHOLDER LIST
In accordance with the Delaware General Corporation Law, the Company will maintain at its corporate offices in Tulsa, Oklahoma, a list of the stockholders entitled to vote at the Annual Meeting. The list will be open to the examination of any stockholder, for purposes germane to the Annual Meeting, during ordinary business hours for ten days before the Annual Meeting.
STOCKHOLDERS SHARING AN ADDRESS
We will deliver only one Proxy Statement and Annual Report to Stockholders to multiple stockholders sharing an address unless we have received contrary instructions from one or more of the stockholder.stockholders. We undertake to deliver promptly, upon written or oral request, an additional copy of the Proxy Statement and Annual Report to Stockholders to a stockholder at a shared address to which a single copy has been delivered. A stockholder can notify us that the stockholder wishes to receive a separate copy of the Proxy Statement and Annual Report to Stockholders by contacting us at the following address or phone number: Midstates Petroleum Company, Inc., 321 South Boston Avenue, Suite 1000, Tulsa, Oklahoma 74103, Attention: Corporate Secretary. Conversely, if multiple stockholders sharing an address receive multiple Proxy Statements and Annual Reports to Stockholders and wish to receive only one, such stockholders can notify us at the address or phone number set forth above.
PROXY MATERIALS ANNUAL REPORT AND OTHER INFORMATION
The Company'sCompany’s Annual Report to Stockholders for the year ended December 31, 2014,2017, is being made available to stockholders concurrently with this Proxy Statement and does not form part of the proxy solicitation material.
Appendix A
FORM OF
CERTIFICATE OF AMENDMENT
TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
MIDSTATES PETROLEUM COMPANY, INC.
Midstates Petroleum Company, Inc. (the "Corporation"), a corporation organized 321 SOUTH BOSTON AVE. SUITE 1000 TULSA,OKLAHOMA 74103 VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and existing under and by virtuefor electronic delivery of the General Corporation Law of the State of Delaware ("DGCL"), hereby certifies as follows pursuant to Section 242 of the DGCL:
FIRST: That at a meeting of the Board of Directors of the Corporation, resolutions were duly adopted to amend the Corporation's Amended and Restated Certificate of Incorporation by deleting Article FOURTH thereof in its entirety and inserting in lieu thereof the following:
"FOURTH: The total number of shares of stock which the Corporation shall have authority to issue is [225,000,000][200,000,000][175,000,000][175,000,000][150,000,000][150,000,000] shares of capital stock, classified as (i) 50,000,000 shares of preferred stock, par value $0.01 per share ("Preferred Stock"), and (ii) [175,000,000][150,000,000][125,000,000][125,000,000][100,000,000][100,000,000] shares of common stock, par value $0.01 per share ("Common Stock").
Effective as of 5:00 p.m.information up until 11:59 P.M. Eastern time onTime the date this Certificate of Amendment is filed with the Secretary of State of the State of Delaware, each [five][six][seven][eight][nine][ten] ([5][6][7][8][9][10]) shares of the Corporation's Common Stock issued and outstanding shall, automatically and without any action on the part of the respective holders thereof, be combined and converted into one (1) share of the Corporation's Common Stock; provided that the Corporation shall issue no fractional shares as a result of the actions set forth herein but shall instead pay to the holder of such fractional share a sum in cash equal to such fraction multiplied by the closing price of the Corporation's Common Stock as reported on the New York Stock Exchange on the last trading day before the meeting date. Have your proxy card in hand when you access the website and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date this Certificate of Amendment is filed with the Secretary of State of Delaware.
The designationsyour proxy card and the powers, preferences, rights, qualifications, limitations and restrictions of the Preferred Stock and Common Stock are as follows:
1. Provisions Relating to the Preferred Stock.
(a) The Preferred Stock may be issued from time to time in one or more classes or series, the shares of each class or series to have such designations and powers, preferences, and rights, and qualifications, limitations, and restrictions thereof, as are stated and expressed herein andreturn it in the resolutionpostage-paid envelope we have provided or resolutions providing for the issue of such class or series adopted by the board of directors of the Corporation (the "Board of Directors") as hereafter prescribed (a "Preferred Stock Designation").
(b) Authority is hereby expressly grantedreturn it to and vested in the Board of Directors to authorize the issuance of the Preferred Stock from time to time in one or more classes or series, and with respect to each class or series of the Preferred Stock, to fix and state by the resolution or resolutions from time to time adopted providing for the issuance thereof the designation and the
powers, preferences, rights, qualifications, limitations and restrictions relating to each class or series of the Preferred Stock, including, but not limited to, the following:
(i) whether or not the class or series is to have voting rights, full, special or limited, or is to be without voting rights, and whether or not such class or series is to be entitled to vote as a separate class either alone or together with the holders of one or more other classes or series of stock;
(ii) the number of shares to constitute the class or series and the designations thereof;
(iii) the preferences, and relative, participating, optional or other special rights, if any, and the qualifications, limitations or restrictions thereof, if any, with respect to any class or series;
(iv) whether or not the shares of any class or series shall be redeemable at the option of the Corporation or the holders thereof or upon the happening of any specified event, and, if redeemable, the redemption price or prices (which may be payable in the form of cash, notes, securities or other property), and the time or times at which, and the terms and conditions upon which, such shares shall be redeemable and the manner of redemption;
(v) whether or not the shares of a class or series shall be subject to the operation of retirement or sinking funds to be applied to the purchase or redemption of such shares for retirement, and, if such retirement or sinking fund or funds are to be established, the annual amount thereof, and the terms and provisions relative to the operation thereof;
(vi) the dividend rate, whether dividends are payable in cash, stock of the Corporation or other property, the conditions upon which and the times when such dividends are payable, the preference to or the relation to the payment of dividends payable on any other class or classes or series of stock, whether or not such dividends shall be cumulative or noncumulative, and if cumulative, the date or dates from which such dividends shall accumulate;
(vii) the preferences, if any, and the amounts thereof which the holders of any class or series thereof shall be entitled to receive upon the voluntary or involuntary liquidation, dissolution or winding up of, or upon any distribution of the assets of, the Corporation;
(viii) whether or not the shares of any class or series, at the option of the Corporation or the holder thereof or upon the happening of any specified event, shall be convertible into or exchangeable for, the shares of any other class or classes or of any other series of the same or any other class or classes of stock, securities or other property of the Corporation and the conversion price or prices or ratio or ratios or the rate or rates at which such exchange may be made, with such adjustments, if any, as shall be stated and expressed or provided for in such resolution or resolutions; and
(ix) such other powers, preferences, rights, qualifications, limitations and restrictions with respect to any class or series as may to the Board of Directors seem advisable.
(c) The shares of each class or series of the Preferred Stock may vary from the shares of any other class or series thereof in any or all of the foregoing respects.Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY The Board of Directors may increaserecommends you vote FOR the number of sharesfollowing: For Withhold For All AllAllExcept To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the Preferred Stock designated for any existing class or series by a resolution adding to such class or series authorized and unissued sharesnominee(s) on the line below. 1. Election of the Preferred Stock not designated for any other class or series.Directors Nominees 000 The Board of Directors recommends you vote FOR proposals 2 and 3. ForAgainst Abstain 2. To approve, on a non-binding advisory basis, the compensation of our named executive officers. 3. To ratify the appointment of Grant Thornton LLP as the Company's independent registered public accountants for 2018. NOTE: In their discretion, the proxies are authorized to vote upon such other business as may decreaseproperly come before the numbermeeting. 0000382208_1 R1.0.1.17 000 000 Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
0000382208_2 R1.0.1.17 Important Notice Regarding the Availability of sharesProxy Materials for the Annual Meeting: The Notice & Proxy Statement, Form 10-K, and Shareholder Letter are available at www.proxyvote.com . MIDSTATES PETROLEUM COMPANY, INC. Annual Meeting of Stockholders June 1, 2018 9:00 AM Kirkland & Ellis LLP 300 North LaSalle, Chicago, Illinois 60654 The undersigned hereby appoints Scott C. Weatherholt, as proxy, with the full power of substitution and revocation, to represent the undersigned and to vote all of the Preferred Stock designated for any existing class or series by a resolution subtracting from such class or series authorized and unissued shares of the Preferred Stock designated for such existing class or series, and the shares so subtracted shall become authorized, unissued, and undesignated shares of the Preferred Stock.
2. Provisions Relating to Common Stock.
(a) Each share of Common Stock of MIDSTATES PETROLEUM COMPANY, INC. that the Corporation shall have identical rights and privileges in every respect. Common Stock shall be subject to the express terms of the Preferred Stock and any series thereof. Except as may otherwise be provided in this Amended and Restated Certificate of Incorporation, in a Preferred Stock Designation or by applicable law, the holders of shares of Common Stock shall be entitled to one vote for each such share upon all questions presented to the stockholders, the holders of shares of Common Stock shall have the exclusive right to vote for the election of directors and for all other purposes, and the holders of Preferred Stock shall not beundersigned is entitled to vote at or receive noticethe Annual Meeting of any meeting of stockholders. Each holder of Common Stock shall be entitled to notice of any stockholders' meeting in accordance with the bylaws of the Corporation (as in effect at the time in question) and applicable law on all matters put to a vote of the stockholders of the Corporation.
(b) Notwithstanding the foregoing, except as otherwise required by law, holders of Common Stock, as such, shall not be entitled to vote on any amendment to this Amended and Restated Certificate of Incorporation (including any certificate of designations relating to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to this Amended and Restated Certificate of Incorporation (including any certificate of designations relating to any series of Preferred Stock) or pursuant to the General Corporation Law of the State of Delaware.
(c) Subject to the prior rights and preferences, if any, applicable to shares of the Preferred Stock or any series thereof, the holders of shares of Common Stock shall be entitled to receive ratably in proportion to the number of shares of Common Stock held by them such dividends and distributions (payable in cash, stock or otherwise), if any, as may be declared thereon by the Board of Directors at any time and from time to time out of any funds of the Corporation legally available therefor.
(d) In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, after distribution in full of the preferential amounts, if any,Stockholders to be distributed to the holders of shares of the Preferred Stock or any class or series thereof, the holders of shares of Common Stock shall be entitled to receive all of the remaining assets of the Corporation available for distribution to its stockholders, ratably in proportion to the number of shares of Common Stock held by them. A liquidation, dissolution or winding-up of the Corporation, as such terms are used in this Paragraph (d), shall not be deemed to be occasioned by or to include any consolidation or merger of the Corporation with or into any other corporation or corporations or other entity or a sale, lease, exchange or conveyance of all or a part of the assets of the Corporation.
(e) The number of authorized shares of Common Stock or Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority in voting power of the stock of the Corporation entitled to vote thereon irrespective of the provisions of Section 242(b)(2) of the Delaware General Corporation Law (or any successor provision thereto), and no vote of the holders of either the Common Stock or the Preferred Stock voting separately as a class shall be required therefor.
3. General.
(a) Subject to the foregoing provisions of this Amended and Restated Certificate of Incorporationon June 1, 2018, and any then-existing Preferred Stock Designation,adjournment or postponement thereof, upon the Corporation may issue shares of its Preferred Stock and Common Stock from time to time for such consideration (not less than the par value thereof) as may be fixed by the Board of Directors, which is expressly authorized to
fix the same in its absolute and uncontrolled discretion subject to the foregoing conditions. Shares so issued for which the consideration shall have been paid or delivered to the Corporation shall be deemed fully paid stock and shall not be liable to any further call or assessment thereon, and the holders of such shares shall not be liable for any further payments in respect of such shares.
(b) The Corporation shall have authority to create and issue rights and options entitling their holders to purchase shares of the Corporation's capital stock of any class or series or other securities of the Corporation, and such rights and options shall be evidenced by instrument(s) approved by the Board of Directors. The Board of Directors shall be empowered tomatters set the exercise price, duration, times for exercise, and other terms of such options or rights; provided, however, that the consideration to be received for any shares of capital stock subject thereto shall not be less than the par value thereof.
(c) The Corporation shall be entitled to treat the person in whose name any share of its stock is registered as the owner thereof for all purposes and shall not be bound to recognize any equitable or other claim to, or interest in, such shareforth on the part of any other person, whether or not the Corporation shall have notice thereof, except as expressly provided by applicable law."
SECOND: That pursuant to a resolution of its Board of Directors, an annual meeting of the Corporation's stockholders was duly calledreverse side. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, THE NAMED PROXY WILL VOTE "FOR ALL" ON THE ELECTION OF EACH OF THE DIRECTOR NOMINEES AND "FOR" PROPOSALS 2 AND 3, AND IN HIS DISCRETION UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING. THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS. TO BE VALID, THIS PROXY MUST BE SIGNED. Continued and held upon notice in accordance with the provisions of Section 222 of the DGCL, at which meeting the necessary number of shares as required by applicable law were voted in favor of such amendment.
THIRD: That such amendment was duly adopted in accordance with the provisions of Section 242 of the DGCL IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be signed by , this day of , 20 .on reverse side
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| THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: Signature (Joint Owners) Signature [PLEASE SIGN WITHIN BOX] Date Date To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. 0 0 0 0 0 0 0 0 0 0 0 0 0000247991_1 R1.0.0.51160 For Withhold For All All All Except The Board of Directors recommends you vote FOR the following: 1. Election of Directors Nominees 01 Frederic F. Brace 02 Thomas C. Knudson 03 George A. DeMontrond 04 Alan J. Carr 05 Bruce Stover 06 Robert E. Ogle 07 John Mogford MIDSTATES PETROLEUM COMPANY, INC. 321 SOUTH BOSTON AVE. SUITE 1000 TULSA,OKLAHOMA 74103 VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. The Board of Directors recommends you vote FOR proposals 2, 3 and 4. For Against Abstain 2 To approve, on a non-binding advisory basis, the compensation of our named executive officers. 3 To authorize the board of directors, in its discretion, to approve an amendment to our amended and restated certificate of incorporation to effect a reverse stock split of our outstanding common stock in a ratio of between 1-for-5 to 1-for-10, and a reduction in the number of authorized shares of common stock from 300,000,000 to a range of 175,000,000 to 100,000,000. 4 To ratify the appointment of Deloitte & Touche LLP as the Company's independent registered public accountants for 2015. NOTE: In their discretion, the proxies are authorized to vote upon such other business as may properly come before the meeting. Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer.
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| 0000247991_2 R1.0.0.51160 Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Annual Report, Notice & Proxy Statement is/ are available at www.proxyvote.com . MIDSTATES PETROLEUM COMPANY, INC. Annual Meeting of Stockholders May 22, 2015 9:00 AM The St. Regis Houston 1919 Briar Oaks Lane, Houston, TX 77027 The undersigned hereby appoints Nelson M. Haight and Scott C. Weatherholt, and each of them, as proxies, each with the full power of substitution and revocation as to each of them, to represent the undersigned and to vote all of the shares of Common Stock of MIDSTATES PETROLEUM COMPANY, INC. that the undersigned is entitled to vote at the Annual Meeting of Stockholders to be held on May 22, 2015, and any adjournment or postponement thereof, upon the matters set forth on the reverse side. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, THE NAMED PROXIES WILL VOTE "FOR ALL" ON THE ELECTION OF EACH OF THE DIRECTOR NOMINEES AND "FOR" PROPOSALS 2, 3 AND 4, AND IN THEIR DISCRETION UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING. THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS. TO BE VALID, THIS PROXY MUST BE SIGNED. Continued and to be signed on reverse side
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| THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: Signature (Joint Owners) Signature [PLEASE SIGN WITHIN BOX] Date Date 0 0 0 0 0 0 0 0 0 0000247990_1 R1.0.0.51160 MIDSTATES PETROLEUM COMPANY, INC. 321 SOUTH BOSTON AVE. SUITE 1000 TULSA,OKLAHOMA 74103 VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. The Board of Directors recommends you vote FOR proposals 2, 3 and 4. For Against Abstain 2 To approve, on a non-binding advisory basis, the compensation of our named executive officers. 3 To authorize the board of directors, in its discretion, to approve an amendment to our amended and restated certificate of incorporation to effect a reverse stock split of our outstanding common stock in a ratio of between 1-for-5 to 1-for-10, and a reduction in the number of authorized shares of common stock from 300,000,000 to a range of 175,000,000 to 100,000,000. 4 To ratify the appointment of Deloitte & Touche LLP as the Company's independent registered public accountants for 2015. NOTE: In their discretion, the proxies are authorized to vote upon such other business as may properly come before the meeting. Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer.
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| 0000247990_2 R1.0.0.51160 Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Annual Report, Notice & Proxy Statement is/ are available at www.proxyvote.com . MIDSTATES PETROLEUM COMPANY, INC. Annual Meeting of Stockholders May 22, 2015 9:00 AM The St. Regis Houston 1919 Briar Oaks Lane, Houston, TX 77027 The undersigned hereby appoints Nelson M. Haight and Scott C. Weatherholt, and each of them, as proxies, each with the full power of substitution and revocation as to each of them, to represent the undersigned and to vote all of the shares of Series A Mandatorily Convertible Preferred Stock of MIDSTATES PETROLEUM COMPANY, INC. that the undersigned is entitled to vote at the Annual Meeting of Stockholders to be held on May 22, 2015, and any adjournment or postponement thereof, upon the matters set forth on the reverse side. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, THE NAMED PROXIES WILL VOTE "FOR" PROPOSALS 2, 3, AND 4, AND IN THEIR DISCRETION UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING. THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS. TO BE VALID, THIS PROXY MUST BE SIGNED. Continued and to be signed on reverse side
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YOUR VOTE IS IMPORTANTQUORUM AND VOTINGPROPOSAL ONE ELECTION OF DIRECTORSDIRECTORS AND EXECUTIVE OFFICERSMEETINGS AND COMMITTEES OF DIRECTORSEXECUTIVE COMPENSATION AND OTHER INFORMATION2014 Annual Performance-Based Bonus PlanCOMPENSATION COMMITTEE REPORTPROPOSAL TWO NON-BINDING ADVISORY VOTE ON EXECUTIVE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERSPROPOSAL THREE APPROVAL OF AMENDMENT TO OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO EFFECT REVERSE STOCK SPLIT AND REDUCTION IN AUTHORIZED SHARES OF COMMON STOCKCOMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATIONAUDIT COMMITTEE REPORTCORPORATE GOVERNANCESECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTSECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCETRANSACTIONS WITH RELATED PERSONSPROPOSAL FOUR RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORSSTOCKHOLDER PROPOSALS; IDENTIFICATION OF DIRECTOR CANDIDATESSOLICITATION OF PROXIESSTOCKHOLDER LISTSTOCKHOLDERS SHARING AN ADDRESSPROXY MATERIALS ANNUAL REPORT AND OTHER INFORMATIONFORM OF CERTIFICATE OF AMENDMENT TO AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF MIDSTATES PETROLEUM COMPANY, INC.