United States
UNITED STATESSecurities and Exchange Commission
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
WASHINGTON, D.C. 20549
SCHEDULESchedule 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant x
Filed by a Party other than the Registrant ¨
Check the appropriate box:
Filed by a Party other than the Registrant | |
Check the appropriate box: | |
Preliminary Proxy Statement |
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14a-6(e)(2)) |
(AS PERMITTED BY RULE 14A-6(E)(2))
Definitive Proxy Statement |
Definitive Additional Materials |
Soliciting Material Pursuant to |
CABOT OIL & GAS CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
No fee required. |
Fee computed on table below per Exchange Act Rules 14a-6(i) |
(1) | Title of each class of securities to which transaction applies: |
(2) | Aggregate number of securities to which transaction applies: |
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
(4) | Proposed maximum aggregate value of transaction: |
(5) | Total fee paid: |
Fee paid previously with preliminary materials. |
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
Notice of 2014 Annual Meeting of Stockholders and Proxy Statement
840 Gessner Road, Suite 1400,
Houston, Texas 77024
Thursday, May 1, 2014,
8:00 a.m. (local time)
Dear Stockholder:
March 26, 2012
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of Cabot Oil & Gas Corporation to be held on Tuesday,Thursday, May 1, 2012,2014, at 8:00 a.m., local time, in our offices, located at 840 Gessner Road, Suite 1400, Houston, Texas 77024.
The attached Notice of Annual Meeting of Stockholders and Proxy Statement cover the formal business of the meeting. To better acquaint you with the directors, the Proxy Statement contains biographical information on each nominee and each director continuing in office. Directors and officers of the Company will be present at the meeting to respond to your questions.
Whether or not you plan to attend the Annual Meeting, it is important that your shares be represented. Please complete, sign, date and return the enclosed proxy card in the postage-paid envelope provided, or if your proxy card or voting instructions form so indicates, vote electronically via the Internet or telephone.
If you plan to attend the Annual Meeting, please bring a valid government-issued photo identification. If your shares are held in the name of a broker or other nominee, please bring with you a letter (and a legal proxy if you wish to vote your shares) from your broker or nominee confirming your ownership as of the record date.
Sincerely,
DAN
Dan O. DINGESDinges
Chairman, President and Chief Executive Officer
CABOT OIL & GAS CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD
Notice of Annual Meeting of Stockholders |
May 1, 20122014
The Annual Meeting of Stockholders of Cabot Oil & Gas Corporation (the “Company”)8:00 a.m., a Delaware corporation, will be held at the Company’s offices, Local Time,
840 Gessner Road, Suite 1400, Houston, Texas 77024 on Tuesday, May 1, 2012, at 8:00 a.m., local time, for
Purpose of the following purposes:Meeting:
To elect the |
To ratify the appointment of the firm PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Company for its |
To approve, by non-binding advisory vote, the compensation of our named executive officers. |
To approve an amendment to our Certificate of Incorporation to increase the number of authorized shares of |
To approve |
To consider |
To transact such other business as may properly come before the meeting or any adjournments or postponements thereof. |
Each of these items is fully described in the attached proxy statement, which is made a part of this Notice.
Record date:
Only holders of record of the Common Stock at the close of businessour common stock on March 13, 2012 are6, 2014 will be entitled to receive notice of and to vote at the Annual Meeting. The transfer books of the Company will not be closed.
It is important that
Voting Procedures:
Please vote your shares be represented and voted atas promptly as possible, even if you plan to attend the Annual Meeting. Stockholders are urged to vote their sharesMeeting, by one of the following methods whether or not they plan to attend the Annual Meeting:methods:
vote via the Internet or by telephone using the instructions on the proxy card, if this option is available to you (please refer to your proxy card to determine if this option is available to you); or
• | By internet, using the instructions on the proxy card or voting instruction form received from your broker or bank; |
• | By telephone, using the instructions on the proxy card or voting instruction form received from your broker or bank (if available); or |
• | By mail, by completing and returning the enclosed proxy card or voting instruction form in the postage-paid envelope provided. |
complete, sign, date and return the accompanying proxy card in the enclosed self-addressed envelope (the self-addressed envelope requires no postage if mailed in the United States).
You may also vote in person if you attend the Annual Meeting.To
If you plan to attend the Annual Meeting, you must show proof of stock ownership.Meeting: Registered stockholders will be asked to present a valid government-issued photo identification. If your shares are held in the name of your broker, bank or other nominee, you must bring to the meeting a valid government-issued photo identification and an account statement or letter (and a legal proxy if you wish to vote your shares) from the nominee indicating that you beneficially owned the shares on March 13, 2012, the record date for voting.
For safety and security reasons, cameras, camera phones, recording equipment, electronic devices, large bags, brief cases or packages will not be permitted in the meeting.
Please exercise
March 20, 2014
By Order of the Board of Directors,
Deidre L. Shearer
Corporate Secretary and Managing Counsel
7
PROXY STATEMENT
Annual Meeting Of Stockholders To Be Held May 1, 2014
This Proxy Statement is furnished in connection with the solicitation by the Board of Directors of Cabot Oil & Gas Corporation (the “Company”) of proxies for use at its 2014 Annual Meeting of Stockholders, to be held at the Company’s offices, 840 Gessner Road, Suite 1400, Houston, Texas 77024 on Thursday, May 1, 2014, at 8:00 a.m. (local time), or any adjournment or postponement thereof (the “Annual Meeting”), for the purposes set forth in the accompanying Notice of Annual Meeting of Stockholders. You may revoke your rightproxy at any time prior to its use by a written communication to Ms. Deidre L. Shearer, Corporate Secretary of the Company, or by a duly executed proxy bearing a later date.
Stockholders attending the Annual Meeting may vote their shares in person even though they have already executed a proxy. Properly executed proxies not revoked will be voted in accordance with the specifications thereon at the Annual Meeting and at any adjournment or postponement thereof. At the meeting, stockholders will be asked to consider and act upon the following matters discussed in the attached proxy statement. Proxies delivered by record stockholders without voting instructions marked will be voted:
PROPOSAL 1 | The election of director candidates named herein; | FOR |
PROPOSAL 2 | Ratification of the appointment of the firm PricewaterhouseCoopers LLP as the independent | |
registered public accounting firm for the Company for its 2014 fiscal year; | FOR | |
PROPOSAL 3 | The approval on an advisory basis of executive compensation; | FOR |
PROPOSAL 4 | The approval of an amendment to our Certificate of Incorporation to increase the number of | |
authorized shares of Common Stock of the Company; | FOR | |
PROPOSAL 5 | The approval of the Cabot Oil & Gas Corporation 2014 Incentive Plan; and | FOR |
PROPOSAL 6 | The shareholder proposal, if properly presented at the meeting. | AGAINST |
Proxies will be voted in the best judgment of the proxy holders on any other matters that may properly come before the meeting.
Only holders of record of the Company’s Common Stock, par value $.10 per share (“Common Stock”), as of the close of business on March 6, 2014, are entitled to vote at the Annual Meeting. As of that date, the Company had outstanding and entitled to vote 417,288,286 shares of Common Stock.
Each share of Common Stock is entitled to one vote per share. There is no provision for cumulative voting. A quorum for the consideration of business at the Annual Meeting consists of a majority of all outstanding shares of stock entitled to vote at the Annual Meeting. The Proxy Statement and form of Proxy are being first sent or given to shareholders on or about [March 20, 2014].
In accordance with Delaware law, a stockholder entitled to vote for the election of directors can vote against all nominees for director or can vote against certain nominees for director. Abstentions and broker non-votes (proxies submitted by brokers that do not indicate a vote for a proposal because they do not have discretionary voting authority and have not received instructions from the beneficial owners of the shares as to how to vote on that proposal) are counted as present in determining whether the quorum requirement is satisfied. For purposes of determining the outcome of any question as to which the broker has physically indicated on the proxy that it does not have discretionary authority to vote, these shares will be treated as not present and not entitled to vote with respect to that question, even though those shares are considered entitled to vote for quorum purposes and may be entitled to vote on other questions.
Brokers holding shares must vote according to specific instructions they receive from the beneficial owners of those shares. If brokers do not receive specific instructions, brokers may in some cases vote the shares in their discretion. However, the New York Stock Exchange (the “NYSE”) precludes brokers from exercising voting discretion on certain
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proposals without specific instructions from the beneficial owner. Importantly, NYSE rules prohibit brokers holding shares in “street name” for their beneficial holder clients from exercising voting discretion on certain proposals without specific instructions from those clients. Under NYSE rules, brokers will have discretion to vote only on Proposal 2 (ratification of appointment of auditor). Brokers cannot vote on any of the other proposals without instructions from the beneficial owners.If you do not instruct your earliest convenient time.broker how to vote on each of the other proposals, your broker will not vote for you.
Because the vote required for Proposal 1 (election of directors) is a majority of the votes present in person or by proxy at the meeting and entitled to vote on the proposal, with “majority” meaning that the number of shares voted “for” a director’s election exceeds the number of shares voted “against” such director’s election, abstentions and broker non-votes will have no effect on the outcome of the voting on the proposal. Because the vote required for approval of Proposal 2 (ratification of auditors), Proposal 3 (executive compensation), Proposal 5 (2014 Incentive Plan) and Proposal 6 (shareholder proposal), is a majority of the shares present in person or by proxy at the meeting and entitled to vote on the proposal, abstentions will have the same effect as votes against the proposal, but broker non-votes will not affect the outcome of the voting on the proposal. Because the vote required for approval of Proposal 4 (increase in authorized shares) is a majority of the shares outstanding and entitled to vote on the record date, abstentions and broker non-votes will have the same effect as votes against the proposal.
PROPOSAL 1 ELECTION OF DIRECTORS
The size of the Board of Directors is currently set at seven members, with four members whose terms expire in 2014 and three members whose terms expire in 2015. Beginning with the annual meeting in 2013, all directors with a term expiring at an annual meeting stand for election for one year terms, as a result of a management proposal to declassify the Board approved by the shareholders in 2012. This is the second annual meeting at which directors will be elected for one year terms. At the 2015 annual meeting, the Board will be fully declassified and all directors will stand for election for one-year terms.
Dan O. Dinges, James R. Gibbs, Robert L. Keiser and W. Matt Ralls are currently directors and have been nominated for election at the 2014 Annual Meeting for terms of one year, each to hold office until the expiration of his term in 2015 and until his successor shall have been elected and shall have qualified.
It is the intention of the persons named in the enclosed form of proxy to vote such proxiesFORthe election of Messrs. Dinges, Gibbs, Keiser and Ralls for terms of one year. If any one of the nominees is not available at the time of the Annual Meeting to serve, proxies received will be voted for substitute nominees to be designated by the Board of Directors or, in the event no such designation is made by the Board, proxies will be voted for a lesser number of nominees. In no event will the proxies be voted for more than the number of nominees set forth above.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTEFORTHE ELECTION OF MESSRS. DINGES, GIBBS, KEISER AND RALLS TO THE BOARD OF DIRECTORS.
Certain Information Regarding Nominees and Directors
Set forth below, as of March 1, 2014, for each continuing director and for each nominee for election as a director of the Company, is information regarding age, position(s) with the Company, membership on committees of the Board of Directors, the period served as a director and term of office, business experience during at least the past five years, and other directorships held at any time during the past five years. Mr. Dinges, Chairman, President and Chief Executive Officer, is the only employee or former employee of the Company on the Board of Directors.
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Rhys J. Best
BY ORDEROFTHE BOARDOF DIRECTORS,Age:
67
DEIDREDirector Since:2008
Committee Memberships:Audit and Compensation (Chairman)
Term of Office Expires:2015
Business Experience:
- | Non-Executive Chairman of the Board – 2012 to present |
- | Chairman of the Board (non-executive) – 2009 to March 2014 |
- | Chairman and Chief Executive Officer – 1999 to 2007 |
Other Directorships:
• | Crosstex Energy L.P. (until 2014) |
• | Trinity Industries, Inc. |
• | MRC Global Inc. |
• | Commercial Metals Company |
Dan O. Dinges
Age:60
Director Since:2001
Committee Memberships:Executive
Position:Chairman, President and Chief Executive Officer
Term of Office Expires:2014 (Nominee for Director)
Business Experience:
- | Chairman, President and Chief Executive Officer – May 2002 to present |
Other Directorships:
Private/Non-profit Directorships:
• | Spitzer Industries, Inc. (private company) |
• | American Exploration & Production Council |
• | American Natural Gas Alliance |
• | Boy Scouts of America – Sam Houston Area Council |
James R. Gibbs
Age:69
Director Since:2010
Committee Memberships:Compensation, Corporate Governance and Nominations (Chairman) and Executive
Term of Office Expires:2014 (Nominee for Director)
Business Experience:
- | Chairman – 2009 to 2010 | |
- | Chairman, President, Chief Executive Officer – 1999 to 2009 |
Other Directorships/Trusteeships:
• | Smith International, Inc. (until 2010) |
• | Frost National Bank – Houston (Advisory Director) |
• | Southern Methodist University |
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Robert L. SHEARERKeiser
Age:71
Director Since:2006
Committee Memberships:Safety and Environmental Affairs (Chairman) and Audit
Term of Office Expires:2014 (Nominee for Director)
Business Experience:
• | Retired June 1999 |
• | Kerr-McGee Corporation |
- | Chairman of the Board – February 1999 to June 1999 |
Robert Kelley
Age:68
Director Since:2003
Committee Memberships:Audit (Chairman) and Safety and Environmental Affairs
Term of Office Expires:2015
Business Experience:
- | President – April 2001 to present |
- | Chairman of the Board – 1992 to April 2001 | |
- | President and CEO – 1986 to October 2000 |
Other Directorships:
• | OGE Energy Corporation |
• | Smith International, Inc. (until 2010) |
P. Dexter Peacock
Age:72
Director Since:1998
Committee Memberships:Executive (Chairman), Compensation and Corporate Governance and Nominations
Position:Lead Director
Term of Office Expires:2015
Business Experience:
- | Of Counsel – 1998 to present | |
- | Partner – 1975 to 1997 | |
- | Managing Partner – 1986 to 1991 |
Other Directorships:
W. Matt Ralls
Age:64
Director Since:2011
Committee Memberships:Corporate Governance and Nominations and Safety and Environmental Affairs
Term of Office Expires:2014 (Nominee for Director)
Business Experience:
- | Chief Executive Officer | |
- | 2013 to present | |
- | President and Chief Executive Officer – 2009 to 2013 |
Other Directorships:
• | Rowan Companies plc |
• | Superior Energy Services, Inc. |
• | El Paso Pipeline Partners L.P. (until 2009) |
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The following table reports beneficial ownership of the Common Stock by holders of more than five percent of the Company’s Common Stock. Unless otherwise noted, all ownership information is based upon filings made by such persons with the SEC.
Name and Address of Beneficial Owner | Number of Shares of Common Stock Owned | Percent of Class | ||
The Vanguard Group 100 Vanguard Blvd. Malvern, PA 19355 | 29,438,269(1) | 6.97% | ||
BlackRock, Inc. 40 East 52ndStreet New York, NY 10022 | 29,212,480(2) | 6.90% | ||
FMR LLC Mr. Edward C. Johnson 3d 82 Devonshire Street Boston, MA 02109 | 29,116,041(3) | 6.90% | ||
Neuberger Berman Group LLC Neuberger Berman LLC 605 Third Avenue New York, NY 10158 | 22,596,660(4) | 5.36% |
(1) | According to Amendment No. 3 to a Schedule 13G, dated February 6, 2014, filed with the Commission by The Vanguard Group, it has sole voting power over 694,622 of these shares, shared dispositive power over 643,022 of these shares and sole dispositive power over 28,795,247 of these shares. |
(2) | According to Amendment No. 4 to a Schedule 13G, dated January 28, 2014, filed with the Commission by BlackRock, Inc., it has sole voting power over 24,502,606 shares and sole dispositive power over all 29,212,480 of these shares. |
(3) | According to Amendment No. 2 to a Schedule 13G, dated February 13, 2014, filed with the Commission by FMR LLC and Mr. Edward C. Johnson 3d, FMR has sole voting power with respect to 1,665,630 of these shares and sole dispositive power over all 29,116,041 shares as a result of being a parent holding company or control person of several other entities in accordance with Rule 13d-1(b)(ii)(G). Mr. Edward C. Johnson 3d, together with members of his family, through direct or indirect ownership of voting common shares of FMR, may be deemed to form a controlling group with respect to FMR and may, therefore, be considered to be beneficial owners of the shares beneficially owned by FMR. |
(4) | According to Amendment No. 6 to a Schedule 13G, dated February 12, 2014, filed with the Commission by Neuberger Berman Group LLC and Neuberger Berman LLC, it has shared voting power over 18,065,913 of these shares, no voting power over the remainder of these shares, and shared dispositive power over all of these shares. |
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Directors and Executive Officers
The following table reports, as of February 1, 2014, beneficial ownership of Common Stock by each director and nominee for director, by each named executive officer listed in the “Summary Compensation Table” below and by all directors, nominees and executive officers as a group. Unless otherwise indicated, the persons below have sole voting and investment power with respect to the shares of Common Stock shown as beneficially owned by them.
Name of Beneficial Owner | Number of Outstanding Shares of Common Stock Held | Number of Shares of Common Stock Beneficially Owned | Percent of Class | ||||||
Rhys J. Best | 10,000 | 85,356 | (1) | * | |||||
James R. Gibbs | 0 | 49,765 | (1) | * | |||||
Robert L. Keiser | 100,786 | 217,735 | (1) | * | |||||
Robert Kelley | 337,652 | 486,596 | (1) | * | |||||
P. Dexter Peacock | 231,040 | (8) | 382,672 | (1) | * | ||||
W. Matt Ralls | 0 | 25,440 | (1) | * | |||||
Dan O. Dinges | 3,224,598 | 3,595,506 | (2)(3)(6) | * | |||||
Scott C. Schroeder | 1,246,386 | 1,384,266 | (2)(3)(7) | * | |||||
Jeffrey W. Hutton | 560,891 | 611,093 | (2)(3)(4) | * | |||||
Phillip L. Stalnaker | 189,742 | 224,056 | (2)(3)(4) | * | |||||
G. Kevin Cunningham | 44,896 | 88,740 | (2)(3)(4) | * | |||||
All directors, nominees and executive officers as a group (17 individuals) | 7,878,081 | (1)(2)(3)(4)(5)(6)(7) | 1.90% |
* | Represents less than 1% of the outstanding Common Stock. |
(1) | Includes the following restricted stock units held as of February 1, 2014, as to which the restrictions lapse upon the holders’ retirement from the Board of Directors: Mr. Best, 75,356; Mr. Gibbs, 49,765; Mr. Keiser, 116,949; Mr. Kelley, 148,944; Mr. Peacock, 151,632; and Mr. Ralls, 25,440; and all directors, nominees and executive officers as a group, 568,086. No executive officers hold restricted stock units. |
(2) | Includes the following stock appreciation rights that are exercisable on or before April 2, 2014: Mr. Dinges, 256,718; Mr. Schroeder, 94,450; Mr. Hutton, 34,744; Mr. Stalnaker, 23,222; Mr. Cunningham, 30,080; and all directors, nominees and executive officers as a group, 587,462. No directors or nominees hold stock appreciation rights. The SARs were granted prior to 2013 and vest ratably over a three-year period after grant and have a seven year term. For more information on the SARs, see footnote 1 to the “Outstanding Equity Awards at Fiscal Year-End 2013” table below. |
(3) | Includes the following shares awarded pursuant to the hybrid performance share awards granted in 2011, 2012 and 2013 that vested in February 2014, as a result of 2013 operating results meeting the performance criteria established on the date of grant: Mr. Dinges, 114,190; Mr. Schroeder, 43,430; Mr. Hutton, 15,458; Mr. Stalnaker, 11,092; Mr. Cunningham, 13,764; and all directors, nominees and executive officers as a group, 236,742. No directors or director nominees hold hybrid performance shares. For more information on the hybrid performance shares see “Long-Term Incentives” in the “Compensation Discussion and Analysis” below. |
(4) | Includes the following shares held in the Company’s Savings Investment Plan as of December 31, 2013 as to which the reporting person shares voting power with the trustee of the plan: Mr. Hutton, 6,724; Mr. Cunningham, 13,432; Mr. Stalnaker, 16,353; and all directors, nominees and executive officers as a group, 77,075. |
(5) | Includes the following shares awarded in 2011 pursuant to employee performance awards that vested in February 2014, as a result of 2013 operating results meeting the performance criteria established on the date of grant: all directors, nominees and executive officers as a group, 17,280. |
(6) | Includes 916,825 shares held in trust for the benefit of an immediate family member, with respect to which Mr. Dinges has shared voting and investment power. |
(7) | Includes 9,480 shares held by immediate family members, with respect to which Mr. Schroeder has shared voting and investment power. |
(8) | Includes 48,000 shares held by Mr. Peacock subject to a pledge to secure indebtedness as to which Mr. Peacock shares voting and investment power. |
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s executive officers and directors to file initial reports of ownership and reports of changes in ownership of Company Common Stock with the SEC and, pursuant to rules promulgated under Section 16(a), such individuals are required to furnish the Company with copies of Section 16(a) reports they file. Based solely on a review of the copies of such reports furnished to the Company, and written representations that those reports accurately reflect all reportable transactions and holdings, all reports required by Section 16(a) were filed in 2013.
Board of Directors Independence
The Company’s Corporate Governance Guidelines require that at least a majority of the Company’s directors be independent under the New York Stock Exchange (“NYSE”) listing standards and all other applicable legal requirements. Additionally, all members of the audit committee, compensation committee and corporate governance and nominations committee are required to be independent. The NYSE listing standards include objective tests that can disqualify a director from being treated as independent, as well as a subjective element, under which the Board must affirmatively determine that each independent director has no material relationship with the Company or management. In making its independence determinations, the Board considered all material relationships with each director, and all transactions since the start of 2011 between the Company and each director nominee, members of their immediate families or entities associated with them.
The Board has adopted categorical standards to assist it in making independence determinations. A relationship falls within these categorical standards if it:
• | Is a type of relationship addressed in Section 303A.02 (b) of the NYSE Listed Company Manual, but under those rules does not preclude a determination of independence; |
• | Is a type of relationship or transaction addressed in Item 404 of Regulation S-K, but under that regulation does not require disclosure; or |
• | Consists of charitable contributions by the Company to an organization where a director is an executive officer and does not exceed the greater of $1 million or 2% of the organization’s gross revenue in any of the last three years. |
The Board of Directors has determined that each director’s relationship with the Company, with the exception of Mr. Dinges, the Chairman, President and Chief Executive Officer, falls within the categorical standards and that all directors, with the exception of Mr. Dinges, are independent. In making its subjective determination that each non-employee director is independent, the Board reviewed and discussed additional information provided by the directors and the Company with regard to each director’s business and personal activities as they may relate to the Company and the Company’s management. The Board considered the transactions in the context of the NYSE’s objective listing standards, the categorical standards noted above, the additional standards established for members of audit committees, and the SEC, U.S. Internal Revenue Service and NYSE standards for compensation committee members. Some members of the Company’s Board also serve as directors of other entities with which the Company does business. Each of these relationships is reviewed by the Board, which examines the amount of business done by the Company and the other entities and the gross revenue for each of the other entities. This review is for each of the last three fiscal years for which financial data is available. This review applied to Messrs. Best and Ralls. None of these relationships involved payments in excess of the greater of $1 million or 2% of the relevant entity’s consolidated gross revenue for 2011, 2012 or 2013.
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Based on all of the foregoing, the Board made a subjective determination that, because of the nature of the transaction, the director’s relationship with the other entity and/or the amount involved, no relationships exist that, in the opinion of the Board, would impair the director’s independence. Further, the Board of Directors has determined that all members of the Audit Committee, Compensation Committee and Corporate Governance and Nominations Committee are independent.
Board of Directors Qualifications
Mr. Dinges was chosen to serve on the Board of Directors, and to lead the Company as Chairman of the Board, President and CEO, for his executive management experience at the Company and while at Noble Energy Inc., a publicly traded company involved in the oil and natural gas business. Mr. Best was chosen to serve on the Board of Directors for his executive management experience at Lone Star Technologies, Inc., a former publicly traded company servicing the oil and natural gas industry, and for his banking and finance experience. Mr. Gibbs was selected to serve on the Board of Directors for his executive management experience at Frontier Oil Corporation, a publicly traded oil refining company. Mr. Keiser was selected to serve on the Board of Directors for his executive management experience at Kerr-McGee Corporation and Oryx Energy Company, both former publicly traded companies involved in the energy industry, and for his engineering background. Mr. Kelley was selected to serve on the Board of Directors for his executive management experience at Noble Energy Inc., and for his financial background as a Certified Public Accountant. Mr. Peacock was selected to serve on the Board of Directors for his business experience managing a large professional organization and for his legal experience at Andrews Kurth L.L.P representing energy companies in corporate law, securities matters and mergers and acquisitions. Mr. Ralls was selected to serve on the Board of Directors for his executive management and industry experience as the CEO and a director of Rowan Companies plc, a publicly traded provider of global offshore contract drilling services.
The Board of Directors encourages a diversity of backgrounds among its members; however, it does not have a formal diversity policy. The Board considers candidates with significant direct or indirect energy industry experience that will provide the Board as a whole the talents, skills, diversity and expertise to serve the long-term interests of the Company and its shareholders. For more information on specific minimum qualifications that the Corporate Governance and Nominations Committee has established for board candidates see “Information on Standing Committees of the Board of Directors – Corporate Governance and Nominations Committee” below.
Board of Directors Leadership Structure
Mr. Dinges serves as the Chairman of the Board, President and Chief Executive Officer of the Company. We believe that our Board of Directors is best served by combining the roles of Chairman and CEO and that Mr. Dinges is highly qualified to serve in this role.
The Chairman and CEO is responsible to the Board for the overall management and functioning of the Company. The Chairman is joined in the leadership of the Board by our Lead Director, Mr. Peacock, who was elected by the non-management directors. Mr. Peacock has significant board experience and has served on the Company’s Board since 1998 and as Lead Director since 2005. Mr. Peacock performs an important role in the leadership of the Board by presiding at executive sessions of the non-management directors at each regular Board meeting and setting the agenda for these sessions. Mr. Peacock also serves as a mentor to Mr. Dinges and as a liaison between Mr. Dinges and the other independent directors. Mr. Peacock’s longevity on the Board enhances this leadership role and provides for continuity among the non-employee directors.
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In addition to the Lead Director, our Corporate Governance Guidelines also contain strong checks and balances regarding the combined role of CEO and Chairman. Those provisions include the inability of the CEO to serve on any committees of the Board other than the Executive Committee, as only non-management directors may do so, and the requirement that a substantial majority of the directors be independent, as discussed above under “Board of Directors Independence.” All of our directors are independent, other than Mr. Dinges.
Our Board of Directors has determined that its current leadership structure is appropriate. The Board believes that Mr. Dinges, acting in his capacity as CEO of the Company, is well positioned to facilitate communications with the Board of Directors about our business. Mr. Dinges has served in this capacity since May 2002, during which time the Company’s business has undergone signification changes. Only one of the current independent directors, Mr. Peacock, the Lead Director, was serving at that time, so Mr. Dinges provides continuity and historical perspective to the Board. Under Mr. Dinges’ leadership, the Company has grown from a market capitalization of approximately $800 million with operations in onshore Texas and Louisiana Gulf Coast, the Rocky Mountains, the Anadarko Basin and Appalachia to an over $14 billion market capitalization company with most of its reserves in the Marcellus Shale area in northeast Pennsylvania. In addition, Mr. Dinges has the full confidence of the Board. For all these reasons, the Board has determined that the most appropriate form of leadership for the Board of Directors currently is for the CEO, who is responsible for the day-to-day operations of the Company, to serve as Chairman, with strong and independent oversight by the Lead Director and the other non-management directors.
Board of Directors Oversight of Risk
The Board of Directors considers risk oversight to be an integral part of its role, and discussions regarding risks faced by the Company are part of its meetings and deliberations throughout the year. Our Corporate Governance Guidelines provide that the Board is responsible for assessing major risks facing the Company and reviewing options for their mitigation. At the direction of the Board, management is responsible for implementing an enterprise risk management process and reporting to the Board at least annually regarding its assessment of risks that could have a significant impact on the Company and the strategies for their mitigation. In this way, the Board is engaged in risk oversight at the enterprise level.
The Board is also engaged in risk oversight through regular reports from the Audit Committee. The Audit Committee is charged with reviewing with management and the Company’s internal auditors the Company’s major financial exposures and the steps management has taken to monitor and control those exposures. The Audit Committee receives periodic reports from management on these areas of potential exposure, including litigation, commodity price hedging, liquidity and capital resources, financial reporting and disclosures and regulatory risks, among others. The Audit Committee also receives reports from management regarding compliance with our Code of Business Conduct. The Audit Committee reviews at least annually the Company’s policies and guidelines concerning financial risk assessment and financial risk management, with the assistance of the Company’s internal auditors, KPMG LLP. KPMG LLP conducts a process of assessing major risks, including management interviews, and presents and discusses with the Audit Committee its conclusions regarding the Company’s major risks. From this process, areas of concern are identified and considered and the internal audit plan is developed. Results of these reviews and audits are presented to the Audit Committee throughout the year. At each regular Board meeting, the Audit Committee Chairman reports to the Board regarding the activities of the Committee.
Corporate Governance Guidelines
The Cabot Oil & Gas Corporation Corporate Governance Guidelines outline the functions and responsibilities of the Board, director qualifications, and various processes and procedures designed to ensure effective and responsive governance. The guidelines are reviewed annually and revised as appropriate to reflect changing regulatory requirements and best practices. The full text of the Corporate Governance Guidelines can be found on the Company’s website atwww.cabotog.comby choosing “About Cabot,” and then choosing “Governance.”
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All employees, officers and directors are required to comply with the Company’s Code of Business Conduct to help ensure that the Company’s business is conducted in accordance with the highest standards of moral and ethical behavior. The Code of Business Conduct covers all areas of professional conduct, including conflicts of interest, customer relationships, insider trading, financial disclosure, intellectual property and confidential information, as well as requiring strict adherence to all laws and regulations applicable to the Company’s business. Employees, officers and directors are required annually to reply to a Code of Conduct Questionnaire, which is designed to elicit information related to any known or possible violation of the Code. The full text of the Code of Business Conduct can be found on the Company’s website atwww.cabotog.comby choosing “About Cabot,” and then choosing “Governance.” The Company will satisfy the requirement to disclose any amendments to or waivers from certain provisions of its Code of Business Conduct by posting such information on the website at that location.
Executive Sessions of the Board of Directors
The Board of Directors generally holds an executive session of the non-management and independent directors during each of its regularly scheduled meetings. The executive sessions are presided over by the Lead Director, Mr. Peacock.
Communications with the Board of Directors
The Company’s Board of Directors has a process for shareholders and other interested parties to send communications to the Board. Communications should be addressed to the “Board of Directors,” a specified committee of the Board, an individual director (including the Lead Director) or the “Non-management Directors” in care of:
Corporate Secretary and Managing Counsel
Houston, Texas
March 26, 2012
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to Be Held on May 1, 2012:
This proxy statement, along with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011 and the 2011 Annual Report to Stockholders, are available free of charge athttp://www.cabotog.com/2012AnnualMeeting.
CABOT OIL & GAS CORPORATION
840 Gessner Road, Suite 1400
Houston, Texas 77024
PROXY STATEMENT
Annual Meeting of Stockholders
To Be Held May 1, 2012
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by the Board of Directors of Cabot Oil & Gas Corporation (the “Company”) of proxies for use at its 2012 Annual Meeting of Stockholders, to be held at the Company’s offices, 840 Gessner Road, Suite 1400, Houston, Texas 77024 on Tuesday, May 1, 2012, at 8:00 a.m. (local time), or any adjournment or postponement thereof (the “Annual Meeting”), for the purposes set forth in the accompanying Notice of Annual Meeting of Stockholders. You may revoke your proxy at any time prior to its use by a written communication to Ms. Deidre L. Shearer, Corporate Secretary of the Company, or by a duly executed proxy bearing a later date.
Stockholders attending the Annual Meeting may vote their shares in person even though they have already executed a proxy. Properly executed proxies not revoked will be voted in accordance with the specifications thereon at the Annual Meeting and at any adjournment or postponement thereof. At the meeting, stockholders will be asked to consider and act upon the following matters discussed in the attached proxy statement. Proxies delivered by record stockholders without voting instructions marked will be voted:
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Proxies will be voted in the best judgment of the proxy holders on any other matters that may properly come before the meeting.
Only holders of record of the Company’s Common Stock, par value $.10 per share (“Common Stock”), as of the close of business on March 13, 2012, are entitled to vote at the Annual Meeting. As of that date, the Company had outstanding and entitled to vote 209,425,348 shares of Common Stock.
Each share of Common Stock is entitled to one vote per share. There is no provision for cumulative voting. A quorum for the consideration of business at the Annual Meeting consists of a majority of all outstanding shares of stock entitled to vote at the Annual Meeting. The Proxy Statement and form of Proxy are being first sent or given to stockholders on or about March 26, 2012.
In accordance with Delaware law, a stockholder entitled to vote for the election of directors can withhold authority to vote for all nominees for director or can withhold authority to vote for certain nominees for director. Abstentions and broker non-votes (proxies submitted by brokers that do not indicate a vote for a proposal because they do not have discretionary voting authority and have not received instructions from the beneficial owners of the shares as to how to vote on that proposal) are counted as present in determining whether the quorum requirement is satisfied. For purposes of determining the outcome of any question as to which the broker has physically indicated on the proxy that it does not have discretionary authority to vote, these shares will be treated as not present and not entitled to vote with respect to that question, even though those shares are considered entitled to vote for quorum purposes and may be entitled to vote on other questions.
Brokers holding shares must vote according to specific instructions they receive from the beneficial owners of those shares. If brokers do not receive specific instructions, brokers may in some cases vote the shares in their discretion. However, the New York Stock Exchange (the “NYSE”) precludes brokers from exercising voting discretion on certain proposals without specific instructions from the beneficial owner. Importantly, NYSE rules prohibit brokers holding shares in “street name” for their beneficial holder clients from voting in uncontested director elections or on advisory votes regarding executive compensation or frequency of those votes on behalf of the clients without receiving specific voting instructions from those clients. Under NYSE rules, brokers will have discretion to vote only on Proposal II (ratification of appointment of auditor). Brokers cannot vote on any of the other proposals without instructions from the beneficial owners.If you do not instruct your broker how to vote on each of the other proposals your broker will not vote for you.
Because the vote required for Proposal I (election of directors) is a majority of the votes present in person or by proxy at the meeting and entitled to vote on the proposal, with “majority” meaning that the number of shares voted “for” a director’s election exceeds the number of shares voted “against” such director’s election, abstentions and broker non-votes will have no effect on the outcome of the voting on the proposal. Because the vote required for approval of Proposal II (ratification of auditors), Proposal III (executive compensation) and Proposals VI and VII (stockholder proposals), is a majority of the shares present in person or by proxy at the meeting and entitled to vote on the proposal, abstentions will have the same effect as votes against the proposal, but broker non-votes will not affect the outcome of the voting on the proposal. Because the vote required for approval of Proposal IV (increase authorized shares) and Proposal V (amend by-laws to eliminate classified board) is a majority of the shares outstanding and entitled to vote on the record date, abstentions and broker non-votes will have the same effect as votes against the proposal.
PROPOSAL I
ELECTION OF DIRECTORS
The Board of Directors is currently divided into three classes of directors serving staggered three-year terms. The size of the Board of Directors is currently set at nine members, with three members in each class. Rhys J. Best, Robert Kelley and P. Dexter Peacock are currently directors and have been nominated for election at the Annual Meeting for terms of three years, each to hold office until the expiration of his term in 2015 and until his successor shall have been elected and shall have qualified. Regardless of whether stockholders approve Proposal V (amend by-laws to eliminate classified board), none of the current directors, or the nominees for director standing for election at the 2012 Annual Meeting, would have their terms of office shortened as a result of the amendments. Please read Proposal V for more information.
It is the intention of the persons named in the enclosed form of proxy to vote such proxiesFOR the election of Messrs. Best, Kelley and Peacock for terms of three years. If any one of the nominees is not available at the time of the Annual Meeting to serve, proxies received will be voted for substitute nominees to be designated by the Board of Directors or, in the event no such designation is made by the Board, proxies will be voted for a lesser number of nominees. In no event will the proxies be voted for more than the number of nominees set forth above.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTEFOR THE ELECTION OF MESSRS. BEST, KELLEY AND PEACOCK TO THE BOARD OF DIRECTORS.
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Certain Information Regarding Nominees and Directors
Set forth below, as of March 1, 2012, for each continuing director and for each nominee for election as a director of the Company, is information regarding age, position(s) with the Company, membership on committees of the Board of Directors, the period served as a director and term of office, business experience during at least the past five years, and other directorships held at any time during the past five years. Mr. Dinges, Chairman, President and Chief Executive Officer, is the only employee or former employee of the Company on the Board of Directors. Information regarding William P. Vititoe and David M. Carmichael, who are currently serving on the Board, has been omitted because they are scheduled to retire at the Annual Meeting, pursuant to our director retirement policy. There is currently no plan to replace them and we anticipate that the size of the Board of Directors will be reduced to seven members at the May 2012 Board meeting.
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CORPORATE GOVERNANCE MATTERS
Board of Directors Independence
The Company’s Corporate Governance Guidelines require that at least a majority of the Company’s directors be independent under the New York Stock Exchange (“NYSE”) listing standards and all other applicable legal requirements. Additionally, all members of the audit committee, compensation committee and corporate governance and nominations committee are required to be independent. The NYSE listing standards include objective tests that can disqualify a director from being treated as independent, as well as a subjective element, under which the Board must affirmatively determine that each independent director has no material relationship with the Company or management. In making its independence determinations, the Board considered all material relationships with each director, and all transactions since the start of 2009 between the Company and each director nominee, members of their immediate families or entities associated with them.
As contemplated by NYSE rules then in effect, the Board adopted categorical standards in 2004 to assist it in making independence determinations. A relationship falls within these categorical standards if it:
Is a type of relationship addressed in Section 303A2(b) of the NYSE Listed Company Manual, but under those rules does not preclude a determination of independence;
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Is a type of relationship or transaction addressed in Item 404 of Regulation S-K, but under that regulation does not require disclosure; or
Consists of charitable contributions by the Company to an organization where a director is an executive officer and does not exceed the greater of $1 million or 2% of the organization’s gross revenue in any of the last three years.
The Board of Directors has determined that each director’s relationship with the Company, with the exception of Mr. Dinges, the Chairman, President and Chief Executive Officer, falls within the categorical standards and that all directors, with the exception of Mr. Dinges, are independent. In making its subjective determination that each non-employee director is independent, the Board reviewed and discussed additional information provided by the directors and the Company with regard to each director’s business and personal activities as they may relate to the Company and the Company’s management. The Board considered the transactions in the context of the NYSE’s objective listing standards, the categorical standards noted above, the additional standards established for members of audit committees, and the SEC and U.S. Internal Revenue Service standards for compensation committee members. Some members of the Company’s Board also serve as directors of other entities with which the Company does business. Each of these relationships is reviewed by the Company’s Board, which examines the amount of business done by the Company and the gross revenue for each of the other entities. This review is for each of the last three fiscal years for which financial data is available.This review applied to Messrs. Best, Kelley, Peacock and Ralls. None of these relationships involved payments in excess of the greater of $1 million or 2% of the relevant entity’s consolidated gross revenue for 2009, 2010 or 2011.
Based on all of the foregoing, the Board made a subjective determination as required by NYSE rules that, because of the nature of the transaction, the director’s relationship with the entity and/or the amount involved, no relationships exist that, in the opinion of the Board, would impair the director’s independence. Further, the Board of Directors has determined that all members of the audit committee, compensation committee and corporate governance and nominations committee are independent.
Board of Directors Qualifications
Mr. Dinges was chosen to serve on the Board of Directors, and to lead the Company as Chairman of the Board, President and CEO, for his executive management experience at the Company and while at Noble Energy Inc., a publicly traded company involved in the oil and natural gas business. Mr. Best was chosen to serve on the Board of Directors for his executive management experience at Lone Star Technologies, Inc., a former publicly traded company servicing the oil and natural gas industry, and for his banking and finance experience. Mr. Gibbs was selected to serve on the Board of Directors for his executive management experience at Frontier Oil Corporation, a publicly traded oil refining company. Mr. Keiser was selected to serve on the Board of Directors for his executive management experience at Kerr-McGee Corporation and Oryx Energy Company, both former publicly traded companies involved in the energy industry, and for his engineering background. Mr. Kelley was selected to serve on the Board of Directors for his executive management experience at Noble Energy Inc., and for his financial background as a Certified Public Accountant. Mr. Peacock was selected to serve on the Board of Directors for his business experience managing a large professional organization and for his legal experience representing energy companies in corporate law, securities matters and mergers and acquisitions at Andrews Kurth L.L.P. Mr. Ralls was selected to serve on the Board of Directors for his executive management and industry experience as the CEO and a director of Rowan Companies, Inc., a publicly traded provider of international and domestic oil and gas contract drilling services.
Board of Directors Diversity
The Board of Directors does not have a formal diversity policy. The board considers candidates that will make the board as a whole reflective of a range of talents, skills, diversity and expertise, particularly in the areas of (i) management, (ii) strategic planning, (iii) accounting and finance, (iv) corporate governance, and (v) the oil and natural gas industry sufficient to provide sound and prudent guidance about the Company’s operations and interests.
Board of Directors Leadership Structure
Mr. Dinges serves as the Chairman of the Board, President and Chief Executive Officer of the Company. Mr. Peacock serves as the Lead Director. With the separate Lead Director, the Board of Directors believes that the combined role of Chairman and CEO strengthens the communication between the Board of Directors and Company management.
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Mr. Peacock, as Lead Director, serves as a mentor to Mr. Dinges (along with the other board members) and his specific responsibilities are to preside over an executive session of the non-management and independent directors at each regularly scheduled meeting of the Board of Directors and to serve as a liaison between Mr. Dinges and the independent directors.
Board of Directors Oversight of Risk
The Board of Directors oversees the Company’s risk management through the audit committee. Annually and with the assistance of the Company’s internal auditors, KPMG LLP, a thorough review of risk factors is presented to and discussed by the audit committee. This process elicits areas of concern that are thereafter reviewed and audited, if appropriate. Results of these reviews and audits are presented to the audit committee throughout the year. The audit committee reports the results of these reviews and audits to the entire Board throughout the year.
Corporate Governance Guidelines
The Cabot Oil & Gas Corporation Corporate Governance Guidelines outline the functions and responsibilities of the Board, director qualifications, and various processes and procedures designed to ensure effective and responsive governance. The guidelines are reviewed from time to time, most recently in February 2012, in response to changing regulatory requirements and best practices and are revised accordingly. The full text of the Corporate Governance Guidelines can be found on the Company’s website atwww.cabotog.comby clicking “Investor Info,” and then clicking “Governance.”
Code of Business Conduct
All employees, officers and directors are required to comply with the Company’s long-standing Code of Business Conduct to help ensure that the Company’s business is conducted in accordance with the highest standards of moral and ethical behavior. The Code of Business Conduct covers all areas of professional conduct, including conflicts of interest, customer relationships, insider trading, financial disclosure, intellectual property and confidential information, as well as requiring strict adherence to all laws and regulations applicable to the Company’s business. Employees, officers and directors annually are required to reply to a Code of Conduct Questionnaire, which is designed to elicit information related to any known or possible violation of the Code. The full text of the Code of Business Conduct can be found on the Company’s website atwww.cabotog.comby clicking “Investor Info,” and then clicking “Governance.”
Executive Sessions of the Board of Directors
The Board of Directors generally holds an executive session of the non-management and independent directors during each of its regularly scheduled meetings. The executive sessions are presided over by the Lead Director, Mr. Peacock.
Communications with the Board of Directors
The Company’s Board of Directors has a process for stockholders and other interested parties to send communications to the Board. Communications should be addressed to the “Board of Directors,” a specified committee of the Board, an individual director (including the Lead Director) or the “Non-management Directors” in care of:
Corporate Secretary and Managing Counsel
Corporate Legal Department
840 Gessner Road, Suite 1400
Houston, Texas 77024
(281)589-4890
(281)589-4808 (fax)
(Outside the U.S. or U.S. long distance-call collect)
Deidre.Shearer@cabotog.com (email)
All communications received as described above and intended for the Board of Directors, a committee of the Board of Directors, an individual director, or the non-management directors as a group will be relayed to the appropriate directors.
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The Company’s policy is that it expects all members of the Board of Directors to attend the Company’s annual meeting of stockholders. In 2011,2013, all of the members of the Board attended the annual meeting.
Board of Directors and Committee Meeting Attendance
The Board of Directors held six meetings during 2011.2013. All directors attended more than 75%100% of the meetings of the Board of Directors and of the committees on which they served.
-2014 Proxy Statement17
Directors who are employees of the Company receive no additional compensation for their duties as directors. During 2011,2013, non-employee directors’ annual compensation was based upon aincluded an annual retainer fee of $55,000,$75,000 each, payable quarterly, for their servicesservice on the Company’s Board of Directors and its committees. The Lead Director received an additional $20,000 annual retainer, the Audit Committee Chairman and the Compensation Committee Chairman receivereceived an additional $12,500$15,000 annual retainer and the remaining committee chairmen receivereceived an additional $7,500$10,000 annual retainer, each payable quarterly, for theirthis additional service. There are noAdditionally, each non-employee director will receive $2,000 for each Board of Directors meeting attended in excess of six meetings per year. The directors did not receive additional meeting fees paid.in 2013 because they did not attend in excess of six meetings.
In 2011,2013, non-employee directors were also entitled to an annual award of restricted stock units under the 2004 Incentive Plan, the restrictions on which lapse the date the non-employee director leaves the Board of Directors, with a targeted award value at grant date of $160,000.$200,000. In 2011,2013, these directors each received 7,8907,520 restricted stock units.
Beginning in 2013, Board members had the option of participating in the Director Non-Qualified Deferred Compensation Plan, which provides each non-employee director an opportunity to elect each year to take any, or all, of the director’s annual retainer and additional fees for serving as lead director or as a committee chairman in restricted stock units, withvalued at the exceptionclosing price of Mr. Ralls, who joined the Boardcommon stock on the date specified in June 2011. Mr. Ralls received a pro-rated award with a grant date valuethe plan, for the quarterly retainer payment. The terms of $120,000, which resulted in a grant of 4,172 restricted stock units.
Effective January 1, 2012, the Board of Directors approved an increase in non-employee directors’ annual compensation to an annual fee of $65,000 and an annual award of restricted stock units with a targeted award value at grant date of $175,000.are the same as those issued annually.
Directors who are employees of the Company receive no additional compensation for their duties as directors.
All directors were reimbursed for travel expenses incurred for attending Board and committee meetings. Spouses of the directors were invited to attend onethe Board of Director strategy meeting during 20112013 and travel expenses incurred by the spouses were reimbursed by the Company. For more information on director compensation, see “Director Compensation Table” below.
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The table below summarizes the total compensation paid to each of the non-employee directors of the Company for the fiscal year ended December 31, 2011.2013. Shares and share prices discussed in this proxy statement have been adjusted to reflect our two-for-one stock split, in the form of a stock dividend, effective as of January 26, 2012.
DIRECTOR COMPENSATION TABLEAugust 14, 2013.
Name | Fees Earned or ($) | Stock Awards ($)
(1), (2) | Option Awards ($)
(2) | Non-Equity ($) | Change in Pension Value and ($) | All Other ($)
(3) | Total ($) | |||||||||||||||||||||
Rhys J. Best | $ | 55,000 | $ | 160,009 | - | - | - | $ | 1,629 | $ | 216,638 | |||||||||||||||||
David M. Carmichael | $ | 62,500 | $ | 160,009 | - | - | - | $ | 2,805 | $ | 225,314 | |||||||||||||||||
James R. Gibbs | $ | 55,000 | $ | 160,009 | - | - | - | $ | 2,710 | $ | 217,719 | |||||||||||||||||
Robert L. Keiser | $ | 62,500 | $ | 160,009 | - | - | - | $ | 5,272 | $ | 227,781 | |||||||||||||||||
Robert Kelley | $ | 67,500 | $ | 160,009 | - | - | - | $ | 3,837 | $ | 231,346 | |||||||||||||||||
P. Dexter Peacock | $ | 75,000 | $ | 160,009 | - | - | - | $ | 5,732 | $ | 240,741 | |||||||||||||||||
W. Matt Ralls | $ | 18,333 | $ | 120,007 | - | - | - | $ | 1,947 | $ | 140,287 | |||||||||||||||||
William P. Vititoe | $ | 67,500 | $ | 160,009 | - | - | - | $ | 7,310 | $ | 234,819 |
Name | Fees Earned or Paid in Cash* ($) | Stock Awards ($)(1) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($)(2) | Total ($) | |||||||||||||||
Rhys J. Best | $ | 86,875 | $ | 200,145 | - | - | - | $ | 4,446 | $ | 291,466 | |||||||||||
James R. Gibbs | $ | 81,875 | $ | 200,145 | - | - | - | $ | 5,319 | $ | 287,339 | |||||||||||
Robert L. Keiser | $ | 81,875 | $ | 200,145 | - | - | - | $ | 6,866 | $ | 288,886 | |||||||||||
Robert Kelley | $ | 86,875 | $ | 200,145 | - | - | - | $ | 10,745 | $ | 297,765 | |||||||||||
P. Dexter Peacock | $ | 92,500 | $ | 200,145 | - | - | - | $ | 10,899 | $ | 303,544 | |||||||||||
W. Matt Ralls | $ | 72,500 | $ | 200,145 | - | - | - | $ | 3,674 | $ | 276,319 |
Restricted stock units were issued pursuant to the Company’s Non-Employee Director Deferred Compensation Plan in lieu of quarterly cash retainer and leadership fees totaling $42,500 each for Messrs. Gibbs and Keiser and $47,500 for Mr. Peacock. | |
(1) | The amounts in this column reflect the grant date fair value with respect to restricted stock units in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718 for the fiscal year ended December 31, |
The aggregate number of stock awards |
-2014 Proxy Statement18
Name | Stock Awards | |||||
Rhys J. Best | ||||||
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James R. Gibbs | 49,199 | |||||
| 116,383 | |||||
Robert Kelley | 148,944 | |||||
P. Dexter Peacock | 150,999 | |||||
W. Matt Ralls | 25,440 |
The amounts in this column include for each director some or all of the following: | ||
• | Quarterly dividends paid on the restricted stock units. | |
• | Spouse travel to the September 2013 Board of Directors strategy meeting and related expenses. |
A quarterly dividend of $.015 per share paid on the restricted stock units awarded in 2011 and in prior years.
Spouse travel to the September 2011 Board of Directors meeting and related expenses.
It is the policy of the Board of Directors that directors of the Company retire at the annual meeting following a director’s 73rd birthday,birthday. It is also the policy of the Board of Directors that a retiring CEO of the Company retires from service on the Board, unless a determination is otherwise made by the Board of Directors.
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Information on Standing Committees of the Board of Directors
The Board of Directors has five standing committees: the Corporate Governance and Nominations Committee, the Audit Committee, the Compensation Committee, the Safety and Environmental Affairs Committee and the Executive Committee. Membership on each committee during 20112013 is as discussed below. All standing committees, with the exception of the Executive Committee, are composed entirely of independent, non-employee directors.
Corporate Governance and Nominations Committee - Committee.The Corporate Governance and Nominations Committee (the “CGN Committee”) is composed of fivethree members: Messrs. CarmichaelGibbs (Chairman), Gibbs, Peacock Ralls and Vititoe.Ralls. During 2011,2013, the CGN Committee held twothree meetings. Each member of the CGN Committee satisfies the independence requirements of the NYSE listing standards. The CGN Committee Charter is available to stockholdersshareholders on the Company’s website atwww.cabotog.comby clicking “Investor Info,choosing “About Cabot,” and then clickingchoosing “Governance.”
The CGN Committee will consider director candidates recommended by stockholders.shareholders. Under its charter, the CGN Committee seeks out and evaluates qualified candidates to serve as Board members as necessary to fill vacancies or the additional needs of the Board, and considers candidates recommended by stockholdersshareholders and management of the Company. Any stockholdershareholder desiring to propose a nominee to the Board of Directors should submit such proposed nominee for consideration by the CGN Committee, including the proposed nominee’s qualifications, to Ms. Deidre L. Shearer, Corporate Secretary, Cabot Oil & Gas Corporation, 840 Gessner Road, Suite 1400, Houston, Texas 77024.
The CGN Committee seeks to select candidates who have personal and professional integrity, who have demonstrated exceptional ability and judgment and who shall be most effective, in conjunction with the other nominees and Board members, in collectively serving the long-term interests of the stockholders.Company and its shareholders. The CGN Committee’s assessment will include, but not be limited to, considerations of character, judgment, diversity, age, expertise, industry experience, independence, other board commitments and the ability and willingness to devote the time and effort necessary to be an effective board member. The CGN Committee has adopted minimum criteria for Board membership that include (i) a strong commitment to his/her fiduciary responsibilities to the Company’s shareholders, with no actual or perceived conflict of interest that would interfere with his/her responsibilities to or relationships with the Company’s shareholders, employees, suppliers, and customers; (ii) the ability to think strategically and the insight to assist management in placing the Company in a competitive position within the industry; (iii) a record of achievement, and a position of leadership in his/ her field, with the interest and intellect to be able to address energy industry challenges and opportunities; and (iv) the time to attend Board meetings and the
-2014 Proxy Statement19
commitment to devote any reasonable required additional time to deal with Company business.
The CGN Committee generally identifies nominees through recommendations made by incumbent directors. A resume is reviewed and, if merited, an interview follows. A qualified candidate identified by a stockholdershareholder follows the same committee process. There are no differences in the manner in which the CGN Committee evaluates nominees for director based on whether the nominee is recommended by a stockholdershareholder or the incumbent directors.
Audit Committee - Committee.The Audit Committee is composed of fourthree members: Messrs. Kelley (Chairman), Best Gibbs and Keiser. During 2011,2013, the Audit Committee held four meetings. Each member of the Audit Committee satisfies the financial literacy and independence requirements of the NYSE listing standards. The Board has determined that Mr. Kelley meets the requirements of an “audit committee financial expert” as defined by the Securities and Exchange Commission (the “SEC”). The Audit Committee Charter is available to stockholdersshareholders on the Company’s website atwww.cabotog.comby clicking “Investor Info,choosing “About Cabot,” and then clickingchoosing “Governance.”
The function of the Audit Committee is to review and report to the Board of Directors with respect to various auditing and accounting matters, including overseeing the integrity of the financial statements of the Company, the compliance by the Company with legal and regulatory requirements, the selection, independence, qualifications, performance and compensation of the Company’s independent auditors and the performance of the Company’s internal audit function.
It is the policy of the Audit Committee to pre-approve all audit, review or attest engagements and permissible non-audit services, including the fees and terms thereof, to be performed by the independent auditors, subject to, and in compliance with, the dede minimisexception for non-audit services described in Section 10A(i)(l)(B) of the Securities Exchange Act of 1934 and the applicable rules and regulations of the SEC.
The Audit Committee has delegated to each member of the Audit Committee authority to pre-approve permissible services to be performed by the independent auditors. Decisions of a member to pre-approve permissible services must be reported to the full Audit Committee at its next scheduled meeting.
Compensation Committee - Committee.The Compensation Committee is composed of fivethree members: Messrs. VititoeBest (Chairman), Best, Carmichael, Gibbs and Peacock. During 2011,2013, the Compensation Committee held sixfour meetings. Each member of the
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Compensation Committee satisfies the independence requirements of the NYSE listing standards. The Compensation Committee Charter is available to stockholdersshareholders on the Company’s website atwww.cabotog.comby clicking “Investor Info,choosing “About Cabot,” and then clickingchoosing “Governance.”
The function of the Compensation Committee is to:
• | Review and approve corporate goals and objectives relevant to the CEO’s compensation, evaluate the CEO’s performance in light of those goals and objectives, and determine, subject to ratification by the Board, the CEO’s compensation level based on this evaluation. |
• | Provide counsel and oversight of the evaluation and compensation of management of the Company, including base salaries, incentive compensation and equity-based compensation. |
• | Discharge any duties imposed on the Compensation Committee by the Company’s incentive compensation and equity-based compensation plans, including making grants. |
• | Evaluate the independence of, and retain or replace any compensation consultant engaged to assist in evaluating the compensation of the Company’s directors, CEO and other officers and to approve such consultant’s fees and other terms of retention. |
• | Review the annual compensation of the directors. |
Review and approve corporate goals and objectives relevant to the CEO’s compensation, evaluate the CEO’s performance in light of those goals and objectives, and determine, subject to ratification by the Board, the CEO’s compensation level based on this evaluation.
Provide counsel and oversight of the evaluation and compensation of management of the Company, including base salaries, incentive compensation and equity-based compensation.
Discharge any duties imposed on the Compensation Committee by the Company’s incentive compensation and equity-based compensation plans, including making grants.
Retain or replace any compensation consultant engaged to assist in evaluating the compensation of the Company’s directors, CEO and other officers and to approve such consultant’s fees and other terms of retention.
Review the annual compensation of the directors.
Safety and Environmental Affairs Committee - Committee.The Safety and Environmental Affairs (“S&EA”) Committee is composed of fourthree members: Messrs. Keiser (Chairman), Best, Kelley and Ralls. During 2011, the Safety and Environmental Affairs Committee held two meetings. Each member of the Safety and Environmental Affairs Committee satisfies the independence requirements of the NYSE listing standards.
The function of the Safety and Environmental AffairsS&EA Committee is to reviewassist the Board in providing oversight and support of the Company’s safety and environmental management programs. From time to time, it alsopolicies, programs and initiatives. Among other things, the S&EA Committee reviews the nature ofour compliance with environmental, health and extent of Company spending for safety laws and environmental complianceregulations, pending legislative and regulatory initiatives, training initiatives and, as needed, consults with outside and internal advisors regarding the management of the Company’s safety and environmental programs.policies, programs and initiatives. During 2013, the S&EA Committee held four meetings.
Executive Committee -Committee.The Executive Committee is composed of fourthree members: Messrs. Peacock (Chairman), Carmichael, Dinges and Gibbs. During 2011, there were no Executive Committee meetings held.
The function of the Executive Committee is to exercise all power and authority of the Board of Directors in the event action is needed between regularly scheduled Board Meetings and a meeting of the full Board is deemed unnecessary, except as limited by the Company’s by-laws or applicable law.
During 2013, there were no Executive Committee meetings held.
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COMPENSATION DISCUSSION AND ANALYSIS
EXECUTIVE COMPENSATION
This Compensation Discussion and Analysis (“CD&A”) provides stockholders with an understanding of our compensation philosophy, objectives, policies and practices in place during 2013, as well as the factors considered by our Compensation Committee of the Board of Directors in making compensation decisions for 2013. This CD&A focuses on the compensation of our Chief Executive Officer, our Chief Financial Officer and our three other most highly compensated officers for 2013 (the “NEOs”), namely:
Executive Summary
Dan O. Dinges | Chairman, President & Chief Executive Officer |
Scott C. Schroeder | Executive Vice President, Chief Financial Officer & Treasurer |
Jeffrey W. Hutton | Senior Vice President, Marketing |
G. Kevin Cunningham | Vice President & General Counsel |
Phillip L. Stalnaker | Vice President & Regional Manager, North Region |
The Company’sOur compensation plans and practices are designed to align the financial interests of the named executive officers (“NEOs”)above NEOs with the financial interests of theour shareholders. To that end, the Company provides itswe provide our NEOs with a competitive base salary, an annual cash bonus opportunity based on stringent goalthe achievement metricsof specific goals aligned with long-term shareholder value creation and long-term incentives tied to total shareholder return over the long-term and annual cash flow attainment and stock appreciation over the long term.attainment. For the NEOs, in 2013 the level of at-risk pay rangesranged from 71%75% to 89%88% of the total annual compensation opportunity, with the CEO having the highest level of at-risk pay.
For 2011,
2013 Financial Highlights
In 2013, we continued to outperform most of our selected industry peer group described below and our own prior period operating results, with our highest production and reserve levels in company history, achieved with an investment program that added the Company hadreserves at our lowest finding cost in more than 20 years. In addition, we were able to further reduce our unit costs from 2012 levels, marking the best performingfifth consecutive year of reduced unit costs. These achievements generated stock appreciation of 56% during 2013–in the S&P 500, growing from a closing pricetop quartile of $18.92 per share on December 31, 2010 to a closing price of $37.95 per share on December 30, 2011, a 100.5% increase. Further, the Company was able to grow its production to unprecedented levels and increase its total proved reserves to over 3 Tcfe at an all in finding cost of $1.21 per Mcfe from an investment plan fully funded by cash flow from operations and asset sale proceeds, allowing for an overall reduction in debt. Higher production and a stable cost structure drove unit production costs down 19% from 2010.our peer group.
Summary compensation actions and
2013 Compensation Highlights
Compensation outcomes aligned with these business results and consistent with the Company’s philosophy2013 achievements include:
Performance shares granted in 2009,
• | Due to our first-place ranking among our compensation peer group, performance shares granted to our executives in 2011 with vesting contingent upon our three-year total shareholder return (“TSR”) relative to our peers, vested at 200% of target. |
• | Our performance target of achieving at least $100 million of operating cash flow in 2013 was met, resulting in the annual vesting of hybrid performance shares granted to executives over the last three years. |
• | Operating and financial performance metrics set for the 2013 annual cash incentive awards to executives were exceeded, resulting in the awards being paid out in the range of 225% to 274% of target for the NEOs. |
At our most recent annual meeting in May 2013, over 96% of the votes cast on the Company’s three-year total shareholder return relative to industry peers, vested at 167% of target, based on the Company’s third-place finish among seventeen industry peer companies;
Performance shares granted over the past three years, with contingent vesting tied to cash generation, vested per the prescribed schedule;
Annual cash bonuses paid for 2011 operating and financial performance were paid at the maximum level for the NEOs;
96.13% of the shares voted in the 2011 Annual Meeting supported the Company’sitem approved our NEO compensation practices; and
The Company maintained its performance-based compensation approach through awards and opportunities granted during 2011 at levels similarpractices. Due to 2010 awards.
These philosophies, programs, actions and related outcomes are described in further detail below. Shares and share prices discussed in this proxy statement have been adjusted to reflect our two-for-one stock split, instrong support, the form of a stock dividend, effective as of January 26, 2012.
Introduction
The Compensation Committee of the Cabot Oil & Gasour Board of Directors (“Committee”) determined to continue our 2012 practices unchanged, except for the following enhancements put in place for 2013:
• | Increasing the performance-based portion of long-term incentive awards measured solely on three-year TSR from 40% to 60% and eliminating the use of stock appreciation rights (“SARs”) entirely; |
• | Adopting a mandatory anti-hedging policy for all officers and directors; and |
• | Back-loading the vesting schedule for hybrid performance shares to defer vesting of 50% of each grant until the third anniversary of the grant, in order to strengthen retention and the pay-for-performance alignment. |
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Philosophy and Objectives of Our Compensation Programs
The Committee oversees an executive compensation program designed to attract, retain, and engage highly qualified executives. The Committee has developed a structured executive compensation program, which it has formally evaluated and approved. This program includes a compensation committee charter, total compensation philosophy and strategy, industry peer group definition, annual calendar and general policy framework.
Philosophy and Objectives of the Company’s Compensation Programs
The guiding philosophy and specificprimary objectives of the Company’sour compensation programs are: (1) to align executive compensation design and outcomes with business strategy, (2) to encourage management to create sustained value for the stockholders while managing inherent business risks, (3) to attract, retain, and engage talented executives and (4) to support
• | To align executive compensation with our business strategy; |
• | To encourage management to create sustained value for the shareholders while managing inherent business risks; |
• | To attract, retain, and engage talented executives; and |
• | To support a long-term performance-based culture throughout the Company. |
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a performance-based culture throughout the Company. These primaryWe achieve these objectives are evaluated annually by: (a) measuring and managing the mix of NEO compensation, with a goal of making a majority of total compensation performance-based and balanced between short-term and long-term incentives, (b) tying incentive plan metrics and goals to shareholder value principles and (c) having balanced, open and objective reviews of goals and performance.
• | Assigning the vast majority of NEO compensation to at-risk, performance-based incentive opportunities; |
• | Tying incentive plan metrics and goals to shareholder value principles; and |
• | Having balanced, open and objective reviews of goals and performance. |
The Committee believes that each of these objectives carries an equal amount of importance in the Company’sour compensation program.
CEO Compensation and Performance-Based Pay
We have maintained consistent and disciplined performance-based compensation programs for all of our executives. For many years, the Committee has awarded compensation opportunities to our CEO and other executives that require meaningful absolute and relative stock price and financial performance to deliver targeted realized compensation levels. The Company usesallocation of 2013 compensation among salary, short-term incentives and long-term incentives for our CEO and the other NEOs, on an average basis, reflects this guiding principle, as show below:
CEO | OTHER EXECUTIVES | |
In 2013, the Committee awarded 60% of each executive’s long-term incentive opportunity in the form of performance shares payable solely on the basis of our total shareholder return relative to our industry peer group over a three year performance period (“TSR performance shares”). The 2013 TSR performance share award was larger, relative to prior years’ awards, due to the elimination in 2013 of SARs, which had represented 20% of the executives’ long-term incentive opportunity since 2004. When the use of SARs was discontinued in 2013, the portion of the long-term incentive opportunity awarded in TSR performance shares increased from 40% to 60%. Our frequent top-quartile TSR performance has often generated above-target payments for executives from the TSR performance shares and
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added significant value to our shareholders. The CEO’s awards and the relative performance achieved for the most recently completed performance period, plus the current ranking for the two remaining unvested awards, are as follows:
CEO TSR PERFORMANCE SHARE AWARDS
Target Value Awarded (1) | Peer Rank Achieved | Percentage of Target Achieved | Award Earned or Estimated Based on Rank Achieved(2) | |||||||||||
Performance Period Achieved | ||||||||||||||
2011-2013(3) | $ | 1,782,401 | 1stof 15 | 200 | % | $ | 13,497,129 | |||||||
Performance Periods In Progress(4) | ||||||||||||||
2012-2014 | $ | 1,976,697 | 1stof 15 | 200 | % | $ | 8,637,744 | |||||||
2013-2015 | $ | 3,000,043 | 4thof 15 | 170 | % | $ | 7,427,346 |
(1) | Target value based on number of performance shares awarded multiplied by the closing stock price on date of grant. |
(2) | Amounts are based on the percentage of target achieved and the appreciation in value of the underlying common stock. |
(3) | This performance period ended December 31, 2013. The earned value is based on the average of the high and low trading prices of the Company’s common stock on that day, which was $38.61. |
(4) | These performance periods are in progress; rank, target achieved and estimated awards are based on results and closing stock prices through December 31, 2013. Our closing stock price on December 31, 2013 was $38.76. |
In 2013, we awarded 40% of each executive’s long-term incentive value through hybrid performance shares that require threshold achievement based on a financial metric (see “Hybrid Performance Shares” below). The hybrid performance shares vest on a three year graduated schedule, with 25% of the award vesting on each of the first two anniversaries of the date of grant and 50% vesting on the third anniversary. To date, all of the CEO’s hybrid performance share awards have satisfied the required performance criteria at their scheduled vesting date.
Elements of Our Compensation Program
We use various components of executive compensation, with an emphasis on variable compensation and long-term incentives. The components of executive compensation are presented in the table below and discussed in more detail later in this discussion.section of the proxy statement.
Compensation Component | Purpose | Competitive Positioning | ||
Base Salary | Compensation for | Base salaries are targeted to approximate the | ||
Annual | Reward the achievement of annual business objectives, including: • Financial Goals (Unit Costs, Finding Costs) • Operational Goals (specific objectives tied to Production Growth and Reserve Growth) • Individual objectives aligned with corporate strategy • Committee evaluation of qualitative performance | Annual bonus opportunities are established as a percentage of base salary and are targeted to match industry bonus percentage levels for comparable executive positions.
Realizing target bonus opportunities requires achieving key annual financial and operating goals aligned with long-term shareholder value creation. |
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Compensation Component | Purpose | Competitive Positioning | ||
Long-term Incentives | Prominent part of total compensation to maintain alignment with shareholder value creation: •
• Hybrid Performance Shares (time vested and tied to operating cash flow results) • Stock Ownership Guidelines | Long-term incentives are intended to promote long-term value creation for
To place relatively greater emphasis on the importance of shareholder return performance, the value of equity awards is generally targeted | ||
Executive Benefits and Perquisites | Comprehensive programs to build financial security, manage personal financial risk and limit Company costs. | Value of benefits and perquisites | ||
Total Compensation | Designed to attract, retain, align and engage highly qualified executives, while creating a strong connection to financial and operational performance and long-term shareholder value. | Total compensation is highly correlated with Company and individual performance and is |
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The Committee’s philosophy for executiveIn making compensation is to assess and offer adecisions, the Committee includes comparisons of each element of total compensation package that is targeted slightly above the median level for the comparativeagainst a peer industry group.group of publicly-traded exploration and production companies. In that total, a greater weight is placed on long-term equity awards versus salary and annual cash incentive bonus to foster an environment where stock price appreciation over the long-term is a major executive focus. This focus which in turn benefitsaligns the stockholders.interests of the executives with those of the shareholders. The competitive market is determined by reference to the compensation practices of an industry peer group as set forth below.
Industry Peer Group
The companies chosen by the Committee for the peer group represent the Company’sour direct competitors of similar size and scope in the exploration and production sector of the energy industry, and areinclude several companies that compete in the Company’sour core areas of operation for both business opportunities and executive talent. Based on 2011 year-end closing market prices, the industry peer group’s market capitalization ranged from approximately $240 million to $11 billion. The Company’s market capitalization at 2011 year-end was approximately $8 billion. The peer group changes from time to time due to organic changes in the Company or its peers, business combinations, asset sales and other types of transactions that cause peer companies to no longer exist or to no longer be comparable. The Committee approves all revisions to the peer group. The Company’sBased on 2013 year-end closing market prices, the market capitalization of companies in our industry peer group ranged from approximately $350 million to $26 billion. Our market capitalization at 2013 year-end was approximately $16.3 billion. In February 2014, the Committee approved the removal of Berry Petroleum Company and Plains Exploration & Production Company from the peer group because they were no longer in existence due to business combinations. The current peer group for the 2014 to 2016 performance cycle is as follows:
• Cimarex Energy Company | • | |
•
| • Quicksilver Resources, Inc. | |
• EQT Corporation | • Range Resources Corporation | |
• Exco Resources Inc. | • Southwestern Energy Company | |
• Newfield Exploration Company | • SM Energy Company
|
In February 2012, the Committee reviewed the peer group list for application in the 2012 to 2014 performance cycle and future compensation benchmarking. As a result of the Company’s rapid growth in recent years, the Committee adjusted the listed peer group on a go-forward basis. The Company’s new peer group is as follows:
• Noble Energy Inc.
|
• Ultra Petroleum Corp. | |
• Pioneer Natural Resources Company | • WPX Energy, Inc. |
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2013 Committee Activity
During 20112013 the Committee held three regular meetings, one in each of February, July and October. The Committee also held three special meetings during 2011. The Committee held a special meeting in early January 20112014 for the purpose of certifying the results for the 2011 to 2013 TSR performance share awards made in 2008 for the performance period January 1, 2008 tothat vested on December 31, 2010.2013.
At the February 2011 meeting,time the 2013 grants were made and periodically throughout the year, the Committee referenced the Fall 20102012 competitive market study of the peer group by Meridian Compensation Partners, LLC (Meridian), the Committee’s independent compensation consultant. Based on the study and the CEO’s recommendations with respect to the other Company officers, the Committee determined 20112013 salaries, bonus payouts for 2012 performance, certified the 2012 results for payouts of one-third of each of the hybrid performance shares granted from 2010 performanceto 2012, and the annual grant of long-term incentive awards for the officers of the Company.our officers. A detailed discussion of each item of compensation can be found below under “Elements of Compensation.”
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Also at the February 20112013 meeting and prior to making any compensation decisions, the Committee reviewed a spreadsheetdetailed analysis of 2002-2010 wealth accumulation for each NEO.NEO for the period from 2002 to 2012. The Committee uses the wealth accumulation spreadsheets in lieu ofdoes not use tally sheets, to reviewbut over the impactcourse of prior years’the year reviews each element of compensation decisions.for the NEOs, including elements of total direct compensation and payments upon severance or change of control, as well as other benefits and perquisites. Lastly, at the February 20112013 meeting, the Committee commenced discussionand the Board of Directors approved the 20112013 measurement criteria for the 20112013 cash bonus plan.
The Committee held two special meetings in March 2011 for the purpose of refining and finalizing the 2011 measurement criteria for the 2011 bonus plan.
At the July 2011 meeting,During 2013, the Committee reviewed an analysis prepared by Meridian of 20102012 executive compensation reported by our peer group. From the Company’s peer group prepared by Meridian. This data was used byavailable 2012 survey information, the Committee to evaluate theevaluated its compensation decisions made by therelative to our peer group during 2010.
At the October 2011 meeting, thegroup. The Committee also reviewed an analysis prepared and presented by Meridian onof current compensation issues and trends, andincluding a 20112013 competitive market study of executive compensation among the peer companies. This analysis is the precursor forutilized in the Committee’s review of all components of compensation in the following February meeting.
Elements of In-Service Compensation
There are three major elements of the executive in-service compensation program: (1) base salary, (2) annual cash incentive bonus and (3) long-term incentive equity awards. Company perquisites are a minor element of the executive compensation program. This design generally mirrors the pay practices of the exploration and production industry generally and our selected industry peer group. Our compensation is intentionally weighted toward long-term equity-based compensation. Each element is described below.
Mr. Dinges, the Company’sour Chairman, President and Chief Executive Officer, has a significantly broader scope of responsibilities at the Company than the other named executive officers, as do his peers in the peer group.officers. The difference in compensation for Mr. Dinges described below primarily reflects these differing responsibilities as valued by the peer companies and, except as described below, does not result from the application of different policies or decisions with respect to Mr. Dinges.
Base Salary
The Committee believes base salary is a critical element of executive compensation because it provides executives with a base level of monthly income. The base salary of each executive, including the NEOs, is reviewed annually by the Committee. The CEO’s salary is established by the Committee (and ratified by the Board of Directors) and the other executives’ salaries are established jointly by the CEO and the Committee. Base salary is targeted for all executive positions near the median level of the peer group. Individual salaries take into account the Company’s annualour established salary budget,policies and our current salary budget; the individual’s levels of responsibility, contribution and value to the Company,Company; individual performance,performance; prior relevant experience,experience; breadth of knowledge and internal and external equity issues. Base salary increases from 20102012 to 20112013 for the NEOs ranged from approximately 4%5% to 8%18%.
Name | 2010 Base Salary | 2011 Base Salary | ||||||
Mr. Dinges | $ | 600,000 | $ | 650,000 | ||||
Mr. Schroeder | $ | 365,000 | $ | 380,000 | ||||
Mr. Cunningham | $ | 270,000 | $ | 290,000 | ||||
Mr. Hutton | $ | 263,000 | $ | 274,000 | ||||
Ms. Machesney | $ | 261,000 | $ | 271,000 |
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Name | 2012 Base Salary | 2013 Base Salary | ||
Mr. Dinges | $700,000 | $825,000 | ||
Mr. Schroeder | $420,000 | $450,000 | ||
Mr. Hutton | $320,000 | $340,000 | ||
Mr. Cunningham | $320,000 | $335,000 | ||
Mr. Stalnaker | $275,000 | $300,000 |
In 2011,2013, the Committee reviewed two competitive market studies for compensation of the peer group, (in July and October).prepared by our independent consultant. The Committee noted that Mr. Dinges’ 20112013 base salary of $650,000 approximates$825,000 was between the 6025thand 50thpercentile of the industry peer group for the 20112013 competitive data. The base salaries of the other NEOs generally matched the median of peers in total, ranging individually
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from the 25thalthough individual base salaries varied by position due to 75th percentiles of their respective peers by position.individual experience in each role and differences in peer organization management structures relative to ours. The Committee views these salary levels as consistent with its compensation philosophy, given the ongoing changes in peer compensation levels and the intention of delivering a relatively higher percentage of CEONEO compensation through long-term incentives. The Committee took no additional action to revise base salaries during the year.
In February 2014, in connection with Mr. Dinges’ performance evaluation and the results of the competitive market studies, Mr. Dinges’ base salary was increased approximately 9% to $900,000, which is slightly above the 50thpercentile of the industry peer group as measured in 2013. Base salaries for the NEOs increased from 4% to 7% for 2014 over 2013 levels.
Annual Cash Incentive Bonus
The annual cash incentive bonus opportunity is based upon the Company’sour pay-for-performance philosophy. The opportunity provides the NEOs, as well as other executives and key employees, with an incentive in the form of an annual cash bonus to achieve overall business goals. The bonus opportunity is stated as a percentage of base salary and is set using the Committee’s philosophy to target bonus levels (as a percentage of base salary) consistent with the competitive market for executives in similar positions. Annual bonus opportunities allow the Company to communicateare based on specific goals that are of primary importance to the Company during the coming year and motivate executives to achieve those goals. The 2011 measurement criteria were designed to drive value increases for the Company’s stockholders.
During 20112013 the bonus opportunity at a 100% of target level payout for the NEOs was as follows:
Executive | Percentage of Salary | 100% Payout Value | Target Bonus (as a % of Salary) | Target Bonus Value (100%) | ||||||||||||
Mr. Dinges | 100 | % | $ | 650,000 | 100 | % | $ | 825,000 | ||||||||
Mr. Schroeder | 90 | % | $ | 342,000 | 100 | % | $ | 450,000 | ||||||||
Mr. Hutton | 70 | % | $ | 238,000 | ||||||||||||
Mr. Cunningham | 70 | % | $ | 203,000 | 70 | % | $ | 234,500 | ||||||||
Mr. Hutton | 55 | % | $ | 150,700 | ||||||||||||
Ms. Machesney | 50 | % | $ | 135,500 | ||||||||||||
Mr. Stalnaker | 70 | % | $ | 210,000 |
In 2011, the
The bonus measurement criteria for 2013 were unchanged from 2012. The measurement criteria were refineddesigned to provide an evaluation ofemphasize value-generating metrics, to link related metrics together to effectively measuretake into account the interrelated impacts of each metricsuch metrics on the Company,value creation, and to increase the overall payout potential for a breakout year, all while simplifying the calculation and reducing overall discretion. Also, the measurement criteria place a cap on the payment for performance for each metric at 275% of target payout, which allows for some additional benefit for above-range performance, but removes the potential of one metric creating a disproportionate payout. The overall plan has a target maximum award of 250% of target in the aggregate, but individual awards can vary, at the discretion of the Committee. The metrics, their weightings and the payout rangesrequired levels of achievement for specified bonus awards are highlightedlisted in the table below.
Payout (Percent of Target) | ||||||||
Weighting | 0% | Target | 200% | |||||
Reserve Growth | 25% | 2% | 7% | 12% | ||||
Finding Costs | 15% | $2.00 | $1.66 | $1.30 | ||||
Production Growth | 25% | 25% | 30% | 35% | ||||
Unit Costs | 15% | $4.86 | $4.52 | $4.20 | ||||
Discretion | 20% | |||||||
| ||||||||
100% | ||||||||
|
The -2014 Proxy Statement26
2013 Bonus Performance Goals (% of Target) | ||||||||||||||||
Weighting | 0% | 100% | 200% | |||||||||||||
Reserve Growth | 25 | % | 11% | 17% | 23% | |||||||||||
Finding Costs (per Mcfe) | 15 | % | $1.15 | $1.00 | $0.85 | |||||||||||
Production Growth | 25 | % | 33% | 43% | 52% | |||||||||||
Unit Costs (per Mcfe) | 15 | % | $3.25 | $3.00 | $2.75 | |||||||||||
Strategic Evaluation (Discretionary) | 20 | % | ||||||||||||||
100 | % |
At the start of each year the bonus criteria targets are established at the start of each year and based on the operating budget approved by the Board of Directors. The payout ranges are created at this same time. Upon completion of each fiscal year, the CEO makes recommendations to the Committee for annual bonuses to be paid to each executive officer (other than the CEO) using the formula established for the program in that year. The Committee references both the CEO’s recommendations and the formulaic output in determining the bonuses to be paid to the NEOs other than the CEO. With respect to the discretionary components,strategic evaluation component, the Compensation Committee evaluates key influences on Company performance not otherwise considered through the metrics. These may include the management of capital spending, environmental and safety performance, net income performance, organizational leadership and organizational leadership.other factors the Committee deems to have been important in the prior year’s performance. The Committee follows no formulaic structure relating to these factors. In general, the Committee expects to award the fulltarget 20% of the discretionarystrategic evaluation component in years when the Company meets internal and external performance expectations with respect to these factors.factors, although the strategic component can range from 0% to 55% in the weighting of the bonus awards calculation. Acquisitions and divestitures are not part of establishing the target metrics because the Company does not budget these activities. When acquisition or divestiture activity occurs, the Committee assesses its impact and exercises its discretion to adjust for the impact.
Upon completion of each fiscal year, the CEO makes recommendations to the Committee for annual bonuses to be paid to each executive officer (other than the CEO) using the formula established for the program in that year.
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Additional parameters for the 20112013 annual cash incentive bonus include a payout multiplier of 1.5 times for each of two grouped metrics if the grouped metrics both achieve target, subject to the 275% maximum payout per metric. The grouped metrics are (1) Reserve Growth and Finding Costs, and (2) Production Growth and Unit Costs. These groupings wereThe Committee established asthe incentive on the grouped metrics to encourage a checkbalanced approach to achieving operational goals and balance to make surediscourage over-achievement of one metric in a singular focusmanner that adversely affects the grouped metric. For example, undisciplined spending on a development program could help achieve the reserve growth metric at levels above target levels, but cause finding costs to increase to unacceptable levels. By grouping the reserve growth and finding costs metrics together, and using a payout multiplier of 1.5 for achieving target in both metrics, the Committee is not being maderewarding efficiency in one area at the cost/loss in another. Cash payouts from the plan can range from 0% to 250% of the targeted level of payout.operations.
Actual
In 2013, actual performance under these metrics beat expectations for 2011 with all fourexceeded targets and budget metrics exceeding target and the upper boundary.as follows:
Actual | Target | 200% | ||||
Reserve Growth | 12.3% | 7% | 12% | |||
Finding Costs | $1.25 | $1.66 | $1.30 | |||
Production Growth | 43.5% | 30% | 35% | |||
Unit Costs | $4.08 | $4.52 | $4.20 |
The Company had
Actual Results | Bonus Plan Target (100%) | Bonus Plan 200% | |||||||
Reserve Growth | 41.9% | 17% | 23% | ||||||
Finding Costs (per Mcfe) | $0.55 | $1.00 | $0.85 | ||||||
Production Growth | 54.5% | 43% | 52% | ||||||
Unit Costs (per Mcfe) | $3.03 | $3.00 | $2.75 |
Our proved reserves were in excess of 35.4 Tcfe, for the first time representing reserve growth of 12.3%41.9% in 2011.2013. These reserves were added at a very efficient $1.25$0.55 per Mcfe. Production growth of 43.5% is the most ever generated by the Company by a significant margin, which54.5% helped drive down unit costs to the lowest level in seven years, even after adding a new expense category for transportation.
nine years. In reaching a conclusion on the discretionary metric,strategic evaluation component, the Committee especially considered that the Company’sour significant level of outperformance versus the measurement criteria was supported in fact by the corresponding substantial increase in our stock price during the Company’s stock price.year. The Committee found that the executive team had implemented effective strategies to realign the asset portfolio to maximize financial and operational performance and to position the Company for continued long-term success. The Committee also found that the executives initiated effective strategiesdelivered focused operational performance to manage capital,lower costs and improve the balance sheet, and position the Company for continued long-term success.safety. In light of these achievements, the Committee set an above-target score on the discretionary component of approximately 200%.strategic evaluation component. The result of 2011 2013
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performance against all the bonus metrics, including the discretionary metric,strategic evaluation component, was that the total bonus payout reached the program maximumaward pool was approved at 225% of 250% of target.target, prior to adjustment for regional or individual performance.
Upon completion of each fiscal year, the Committee determines the CEO’s annual cash incentive bonus based on Company performance, the results of the bonus plan formula payoutdescribed above and the Board’s annual CEO performance evaluation. The independent directors of the Board discuss and ratify the CEO’s annual cash incentive bonus payment. Thepayment, considering the factors stated above and any factors relating to performance that were particularly significant in the year in question.
For 2013, the Committee noted in particular:
• | the Company’s best in class three-year total shareholder return; |
• | the successful development of senior leadership to achieve the best results in our history, as evidenced by record production and reserve growth, as well as outstanding results compared to our compensation peer group; |
• | the operational oversight and adjustments leading to value enhancement in both the North and South operating regions; and |
• | continued strategic efforts to maximize total enterprise value. |
Based on this evaluation, the committee approved the CEO’s bonus payment for 2011 was 250%2013 at 242% of target. The bonus payments for the other NEOs ranged from 225% to 274% of target.
Long-Term Incentives
All long-term incentives awarded in 2011 were made under the 2004 Incentive Plan, approved by the Company’s stockholders at the 2004 Annual Meeting of Stockholders and the performance goals of which were approved by the Company’s stockholders at the 2009 Annual Meeting of Stockholders.
In 2011,2013, the Committee employedcontinued its practice established in 2007 of awarding two types of performance shares traditional– TSR performance shares and hybrid performance shares – to provide long-term incentives to our NEOs, and discontinued the use of stock appreciation rights (“SARs”) to provide long-term incentives to the Company’s NEOs. The SARs awarded in 2011 are payable in shares of Common Stock, thereby using fewer shares and minimizing dilution as compared to stock options.. The award allocation to NEOs in 2013 is designed to provide 40%60% of the targeted grant-date value from traditionalTSR performance shares and 40% from hybrid performance shares and 20% from SARs. The Committee believes thisshares. This allocation delivers a long-term incentive program with a relatively stronger performance orientationis more heavily weighted toward performance-based awards than that observed at the average of our peer companies. group, based on 2012 compensation data, as shown below.
CABOT | COMPENSATION PEER GROUP | |
The total size of the long-term incentive awards is based on a number of factors, including peer group and related industry competitive practice, which is used as a point of reference to gauge appropriate total compensation levels for a company of our size, business complexity and is generally targeted to fall within the 2nd highest quartile of the peer group.growth profile. The Committee does not typically consider pastprior period long-term incentive awards, such as the amount of equity previously granted and outstanding, or the number of shares owned, when determining annual long-term incentive awards.
All long-term incentives awarded in 2013 were made under the 2004 Incentive Plan, which was approved by our stockholders at the 2004 Annual Meeting of Stockholders and the performance goals of which were approved by our stockholders at the 2009 Annual Meeting of Stockholders.
TraditionalTSR Performance Shares. In 2004, theThe Committee began shifting more value tobelieves performance shares insteadbased on the Company’s total shareholder return relative to that of its peers provides a strong link between the performance of the executive group and their pay, whereas other types of equity awards, such as stock options due to: (i) the less dilutive impact of performance shares, and (ii) the fact that in an up market, stock options can increase in value, but Company performance can still lag the peer groups’ performance.may not. The Committee also believes that a relative comparison of performance against peers over a three-year period, as opposed to a single year, provides a better evaluation of how management
17
performed under changing economic conditions. For these reasons, the Committee believes that the Company’s traditionalour TSR performance share awards are a bettergood measure of performance versus the peer group and appropriately link stock performance and compensation. To allow for payouts in excess of target without excessive dilution or the need to reserve shares in excess of
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target, all payouts in excess of 100% of target are paid in the cash value of the shares, based on the average of the high and low trading prices of our common stock on the last day of the performance period. For additional information about the traditionalTSR performance shares, see the table “Grants of Plan-Based Awards” below.
Hybrid Performance Shares. Due to restricted stock share limitations under the 2004 Incentive Plan and Section 162(m) tax considerations, in 20112013 the Committee again usedawarded hybrid performance share awardsshares instead of restricted stock. The hybrid performance shares vest one-third onover a three year period from the date of grant, with 25% vesting in each of the first secondtwo years and 50% vesting in the third anniversaries of the date of grant,year, provided the Company has $100 million or more operating cash flow in the fiscal year prior to the vesting date. Applying a cash flow threshold on share vesting allows these awards to remain fully tax deductible to the Company upon vesting. Hybrid performance shares also have less underlying volatility than do traditional performance shares, and therefore help manage attrition risk by creating a more sustained forfeitable stake in the Company. For additional information about the hybrid performance shares, see the table “Grants of Plan-Based Awards” below.
Stock Appreciation Rights (SARs). No SARs were granted in 2011 with2013, but SARs were an exercise price equalintegral part of the long-term incentive program from 2006 to 2012, and SARs granted previously to the fair market value on theNEOs remain outstanding. All SARs granted to date of grant. Consistent with the Company’s 2004 Incentive Plan, the SAR grant date is the date on which the Committee or the Board of Directors approves the award, and the fair market value is the average of the high and low trading prices of the Common Stock on the grant date. SAR awards, as well as all other executive equity awards, are generally made in February of eachvest ratably over a three year at a pre-scheduled and in-person meeting of the Committee. Company management is given no discretion to choose the grant dates. The SARs vest one-third on each of the first, second and third anniversaries of the date of grantperiod and have a seven-year term. Upon exercise, the executive receives Common Stock equal to the appreciated value of the award. This value is determined by subtracting the exercise price from the fair market value of each share on the exercise date and multiplying this result by the number of shares exercised. The resulting value (less any required tax withholding) is then divided by the fair market price on the date of exercise to determine the number of shares issued.
Personal Benefits and Perquisites
The Company provides
We provide the NEOs with perquisites and other personal benefits that the Company and the Committee believe are reasonable and consistent with the overall compensation program to better enable the Companyus to attract and retain superior employees for key positions. The Committee periodically reviews the level of perquisites and other personal benefits provided to the NEOs. TheIn an effort to promote physical and financial health of the NEOs, they are provided with club membership dues, a Company-paid physical examination for the NEO and his or her spouse, a financial and tax planning stipend of up to $3,000 annually, life insurance, and spouse travel to certain business meetings. The NEOs are reimbursed for these expenses only if they are incurred. The aggregate cost to the Company of the perquisites and personal benefits described above for the NEOs for 20112013 are included under “All Other Compensation” in the Summary Compensation Table below.
Other Compensation
The Company offers
We offer all of itsour employees, including the NEOs, standardindustry competitive benefits including medical and dental reimbursement, short-term and long-term disability plans, basic life and accident insurance and an employee assistance program. The Company offersWe offer a retirement program consisting of both qualified and non-qualified defined contribution savings plans. See “Elements of Post-Termination Compensation” below for further descriptions of these programs.
Impact of Regulatory Requirements
The Company’s
Our performance shares, both traditional and hybrid, SARs and stock options (when used as a long-term incentive) are intended to constitute “qualified performance based compensation” as defined under Section 162(m) of the Internal Revenue Code, with theCode. The effect of that the deduction disallowance of Section 162(m) should not be applicable toqualification is that compensation paid to covered employees underpursuant to the performance shares and the SARs and stock option provisions.should remain fully deductible. It is the Committee’s intent that the majority of long-term incentive awards and annual cash incentive bonuses will qualify under Section 162(m). In 2011, and with respect to 2013 compensation, we believe that to be the Company was subjectcase. However, a loss of deductibility may occur from year to disallowed deductions of $2.1 million asyear and is not considered a result of the application of Section 162(m) to the payout of the terminated Supplemental Employee Retirement Plan discussed below.material factor in setting compensation.
In addition, in order to permit the Committee the flexibility to use subjective and discretionary components in setting annual cash incentive awards without the Company’s loss of deduction under Section 162(m), the Company useswe use a “negative discretion” plan for executive officers to whom Section 162(m) might be applicable. Under this plan, the Committee sets one
18
or more financial or operating performance targets early in the year to create a bonus pool intended to meet the requirements of Section 162(m) for such executive officers and reserves the right to reduce or otherwise set the cash incentive amounts taking other factors into account. As a result, the Section 162(m) metrics are not the primary metrics used in determining the relevant cash incentive awards to these executive officers.
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Clawback Provisions
The Company has
We have not adopted express “clawback” provisions with respect to compensation elements which would allow the Company to recoup paid compensation from designated officers in the event of a financial restatement. The Committee has deferred taking action on clawbacks until such time as the regulations are issued pursuant to Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act requiresin order to ensure our policy will comply with the SEC to implement regulations requiring clawbacks and the Committee has deferred taking action on clawbacks in anticipation of these regulations. In light of the delay by the SEC in adopting such regulations, however, theThe Committee will continue to consider adopting a formthe appropriateness of clawback for executivesprovisions in 2012.future compensation decisions.
Elements of Post-Termination Compensation
Pension Plan
In 2010, after a detailed assessment, the Company determined that the cost of providing benefits under its noncontributory defined benefit plan, together with the increasing regulatory and reporting burden, made it desirable to terminate the Pension Plan and replace it with an additional contribution to the Company’s Savings Investment Plan as described below. In July 2010, the Company notified its employees, including the NEOs, that effective September 30, 2010 the Pension Plan would be frozen and liquidated. Distributions will be made to all qualifying employees, including the NEOs, following required regulatory filings to and approvals from the Pension Benefit Guaranty Corporation (PBGC) and the Internal Revenue Service (IRS). As of March 14, 2012, the Company had received approval from the PBGC and the IRS and expects to make distributions to qualifying employees within the 120 day period required by law. In connection with the Pension Plan termination, the Company allowed for an early retirement enhancement to the benefit to be received upon distribution for all participants under the age of 55.
Prior to September 2010, Company employees, including the NEOs, were provided with retirement income by the Company’s Pension Plan, which provided benefits based generally upon the employee’s years of service and the employee’s compensation levels, using the highest five consecutive years of the last ten consecutive years of employment. Compensation for the purposes of determining benefits under the Pension Plan consisted of the total taxable income, including base salary, annual, discretionary and sign-on bonuses, and any amounts by which an employee’s remuneration was reduced pursuant to voluntary salary reduction plans such as flexible spending/”cafeteria” style plans and 401(k) plans. Compensation excluded any amounts contributed by or on behalf of the Company to these plans or any other employee benefit plan sponsored by the Company, any income arising from stock compensation awards, nondeductible moving expenses, disability pay, severance pay and related amounts, taxable group term life insurance benefits, reimbursements, expense allowances, taxable fringe benefits and retention and relocation bonuses. Except in connection with the age 55 enhancement discussed above, no current participant was given any enhanced or extra years of service credit.
The Pension Plan provided for full vesting after five years of service. Benefits were automatically payable for the life of the employee on a single-life annuity basis if the retiree was unmarried or on a 50% joint and survivor basis if the retiree was married. Other benefit payment methods were available at the election of the employee. Benefits were not subject to any deductions for Social Security or other offset amounts. Lump sum conversions were based on the 1994 Group Annuity Reserves Table with rates blended 50% for males and females and an interest rate equal to the 30-year Treasury rate for the month of November in the year preceding the year of payment.
Savings Investment Plan
The Savings Investment Plansavings investment plan is a tax-qualified retirement savings plan, or 401(k) plan, in which all employees, including the NEOs, may participate. It allows participants to contribute the lesser of up to 50% of their annual salary, or the limit prescribed by the Internal Revenue Service, on a pre-tax basis. The Company matchesWe match 100% of the first six percent of a participant’s eligible pre-tax contribution. Participants are 100% vested in the Company’s contributions after five years of service, vesting 20% per year.
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In July 2010During 2013, we continued the Company amendedpractice, established in 2011 after the Savings Investment Plan to allowtermination of the Company to make discretionary profit sharing contributions topension plan, of contributing 9% of salary and bonus of all eligible employees, including the NEOs. Effective October 1, 2010, the Company commenced contributing 9% of anall eligible employee’s, including an eligible NEO’s, salary and bonusNEOs, into the Savings Investment Plan401(k) plan (or into the non-qualified deferred compensation plan to replace the Company’s Pension Plan contributions.extent in excess of the qualified plan limits). Participants are 100% vested in the Company’s contributions after five years of service, vesting 20% per year. The 9% contribution is approved annually by the Board of Directors and in October 2011,2013, the Board approved continuation of the contribution for 2012.2014.
Supplemental Employee Retirement Plan (“SERP”)
Prior to September 2010, the Company had entered into non-qualified and unfunded supplemental arrangements to supplement the benefits payable to certain officers, including the NEOs, to the extent benefits under the Pension Plan were limited by provisions of the Internal Revenue Code. The amount of the SERP was calculated using the same formula as was used for the qualified Pension Plan and was the difference between total compensation as defined in the Pension Plan (as if certain defined benefit limits were not imposed) and the qualified benefit. Effective September 30, 2010, the Company terminated the SERP program as it was no longer necessary as a result of the Company’s termination of the Pension Plan. As a result of such termination, distributions of SERP benefits to certain officers, including the NEOs who were entitled to benefits, were made in December 2011.
Deferred Compensation Plan
The Deferred Compensation Plannon-qualified deferred compensation plan provides supplemental retirement income benefits for theour NEOs, other officers of the Company, including the NEOs,and other key employees, through voluntary deferrals of salary, bonus and certain long-term incentives. It also allows for the Company to provide its full 6% percent match and 9% Company non-elective contribution when Company contributions of the matching amount cannot be made to the Companyour 401(k) Planplan due to Internal Revenue Codefederal income tax limitations. The plan allows the officers to defer the receipt and taxation onof income until retirement from the Company. The Company makesWe make no additional contributions to, nor does itdo we pay in excess of market interest rates on, the Deferred Compensation Plan.deferred compensation plan. Amounts deferred by an officer under the Deferred Compensation Plandeferred compensation plan are held and invested by the Company in various mutual funds and other investment options selected by the officer at the time of deferral. For additional information about the Deferred Compensation Plan,deferred compensation plan, including the investment options and the manner of distributions, see “Non-Qualified Deferred Compensation” below.
Retiree Medical Coverage
The Company provides
NEOs are eligible for certain health benefits for retired employees, including the NEOs, including their spouses, eligible dependents and surviving spouses. The health care plans are contributory with participants’ contributions adjusted annually. Employees become eligible for this benefit if they meet certain age and service requirements at retirement.
Change in Control Agreements
The Company has
We have entered into change in control agreements with the NEOs and with certain other senior officers that provide for cash payments and certain other benefits in the event that the employee is actually or constructively terminated within two years of the Company.a change in control event. This program has been in place since 1995,
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with some modifications in 2001. At both of these time frames, many of the industry peerspeer group and industry generally had change in control benefits.place some form of change-in-control program. When approving the plan in 1995 and thewith minor modifications in 2001, the Committee reviewed the features of comparable programs offered bydata regarding similar plans within the peer group and others in the Company’s industry generally and applied its judgment to determine whether the level of paymentstriggering events and other benefits, and the circumstances that trigger the payment or provision of benefits,benefit levels under these agreements were necessary to meet the Committee’s objectives of encouraging such employees to remain employed and to carry out their duties with the Company in the event of a change in control of the Company and during circumstances suggesting a change in control might occur. The Committee believes this program was again slightly modifiedis important in 2008 primarilyrecruiting and retaining strong leadership and to address Section 409Aencourage retention in these situations.
The cash payments include three times the sum of base salary and the Internal Revenue Code.highest bonus paid in the last three years or targeted to be paid in the year of termination. Benefits include continued eligibility for medical, dental and life insurance for three years, provided the employee pays the premiums, three years service credit in retirement plans, limited outplacement assistance and tax gross-up on excise taxes for agreements that were in place prior to 2010. In 2010, the Committee adopted a policy to exclude excise tax gross-up provisions from newly adoptedfor change in control agreements.agreements adopted after that date. The Committee believes this program is importantaward agreements for the equity awards also contain accelerated vesting immediately upon a change in control, subject, in the case of the traditional performance shares, to maintaining strong leadership and to encourage retentionthe achievement of the prescribed performance conditions as of the last day of the month immediately preceding the month in these situations. For a more detailed discussion ofwhich the change in control program, see “Potential Payments Upon Termination or Change In Control” below.
As noted under “Pension Plan” above, effective September 30, 2010, the Company terminated the Pension Plan in which all of our eligible employees, including the NEOs, participated. In connection with that action and as described above under “Supplemental Employee Retirement Plan,” the Company also terminated the SERP in which certain officers, including
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the NEOs, participated. As a result, no further benefits will be accrued under either the Pension Plan or the SERP. As a result of the termination of these plans, executive officers are no longer entitled to the additional pension benefits under their change in control agreements that had previously applied in the event of some terminations of employment.
The Committee generally views the potential payments and benefits under the change in control agreements as a separate compensation element because such payments and benefits are not expected to be paid in a particular year and serve a different purpose for the executive other than elements of compensation. Accordingly, those payments and benefits do not significantly affect decisions regarding other elements of compensation.
Stock Ownership Guidelines
In February 2006, the
The Corporate Governance and Nominations Committee ofand the Board of Directors have adopted stock ownership guidelines for theour officers and directors of the Company. These stock ownershipdirectors. Under those guidelines, were thereafter approved by the Board of Directors. As increased by the Corporate Governance and Nominations Committee in February 2012, the Chief Executive Officer and the Chief Financial Officer are expected to hold 30% of the after-tax shares received upon the vesting or exercise of an equity award until such time as they have accumulated six times their base salary. Directors are expected to hold 30% of the after-tax shares received upon the vesting or exercise of an equity award until such time as they have accumulated five times their annual retainer. All other Vice Presidents are expected to hold 30% of the after-tax shares received upon the vesting or exercise of an equity award until such time as they have accumulated three times their base salary. All of the NEOs have reached the required level of shareholdings under the stock ownership guidelines. Non-employee directors must hold 100% of their restricted stock units until they cease to be a director.
Anti-hedging Policy
In October 2013, the Company adopted a policy prohibiting directors and officers from speculative trading in Company securities, including hedging transactions, short selling, and trading in put options, call options, swaps or collars. The policy was effective immediately and to our knowledge all directors and executive officers are in compliance with the stock ownership guidelines, with the exception of Mr. Cunningham. Mr. Cunningham became an officer of the Company in 2010 and is expected to hold 30% of the after-tax shares received upon vesting or exercise of an equity award until such time as he has accumulated three times his base salary.
CEO Compensation and Performance-Based Pay
For the past several years Cabot has been an industry leader in maintaining consistent and disciplined performance-based compensation programs. In 2011 and in prior years, program payouts to executives have reflected the financial and operating results achieved and the total returns delivered to shareholders.
The Committee has not significantly increased the CEO’s targeted long-term incentive award value as a percentage of salary over the past several years. With each of these recent awards the eventual payment received will be based on performance achieved after the grant. Specific demonstrations of this performance alignment as shown in the CEO’s compensation include:
Since 2004, the Company has awarded 40% of an executive’s long-term incentive opportunity through performance shares payable solely on the basis of Cabot’s total shareholder return relative to its industry peer group. Less than 40% of Cabot’s industry peers currently maintain a similar “relative returns” program, and Cabot was among the first to implement one. Since the program started in 2004, Cabot’s frequent top-quartile performance has at times generated above-target payments for executives. The CEO’s awards and the relative performance achieved for the two most recently completed performance periods plus the current ranking for the two remaining unvested awards are as follows:
Performance Periods | Target Value Awarded to the CEO (1) | Peer Rank Achieved (Payout Percent) | Payment Earned or Payable Based on Rank Achieved | Percent of Target Earned or Payable (2) | ||||||||||||
2008-2010 | $ | 1,895,808 | 9/17 (75%) | $ | 1,090,080 | 57.5 | % | |||||||||
2009-2011 | $ | 1,626,883 | 3/17 (167%) | $ | 9,364,170 | 575.6 | % | |||||||||
2010-2012 (3) | $ | 1,688,775 | 2/17 (200%) | $ | 6,261,750 | 370.8 | % | |||||||||
2011-2013 (3) | $ | 1,782,401 | 1/17 (200%) | $ | 6,633,205 | 372.2 | % |
21Conclusion
The Company awards 20% of an executive’s long-term incentive opportunity through SARs that only generate compensation value to the extent the Company’s stock price appreciates from the award date. Based on the closing price of the Company’s stock on December 30, 2011, recent SAR awards have in-the-money value commensurate with the positive stock price performance achieved. Shares and share prices discussed in this proxy statement have been adjusted to reflect our two-for-one stock split, in the form of a stock dividend, effective as of January 26, 2012.
Award Years | Stock Price at Date of | Target Value Awarded to the CEO (1) | Share Price Appreciation | Current In-the-Money Value (3) | In-the-Money Value as a | |||||
2008 | $24.24 | $605,287 | 56.6% | $1,093,572 | 180.7% | |||||
2009 | $11.31 | $731,264 | 235.5% | $4,166,638 | 569.8% | |||||
2010 | $20.27 | $736,793 | 87.3% | $1,374,478 | 185.5% | |||||
2011 | $20.37 | $854,895 | 86.3% | $1,587,017 | 215.4% |
The Company awards 40% of an executive’s long-term incentive value through hybrid performance shares that require threshold achievement based on a financial metric (see “Hybrid Performance Shares” above). Cabot is one of the only industry peer companies where all full-value share awards have performance-vesting requirements. To date, all of the CEO’s hybrid performance share awards have satisfied the required performance criteria at their scheduled vesting date.
Cabot plans to continue to award compensation opportunities that require meaningful absolute and relative stock performance to deliver targeted pay levels.
Conclusion
The Committee and the CompanyWe believe these executive compensation policies and programs effectively serve the interests of the stockholdersshareholders and the Company. The Committee has worked over the years to devise, manage and provide an executive compensation program that meets its intended objectives and contributes to the Company’s overall success.
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Effects on Say on Pay VoteVotes and Shareholder Outreach
96.13%
In setting 2013 executive compensation, the Committee considered the outcome of the say-on-pay vote at the 2012 annual meeting, which reflected the approval of 95.24% of the shareholders who voted on the matter, as strongly supportive of our stockholders who voted atpay practices and programs. As a result, the 2011 Annual Meeting approvedCommittee concluded that the 2013 compensation paid to our NEO’s. The Committee believes this affirms stockholders’ supportNEOs and our overall pay practices did not require substantial revision to address shareholder concerns. This conclusion was further affirmed at the 2013 annual meeting, with a say-on-pay vote reflecting the approval of 96.36% of the Company’s approachshares voted on the matter, and in input received from our top institutional shareholders in our regular outreach program during the period after the 2013 annual meeting. This continued positive support from both the annual say-on-pay vote and direct communications with shareholders was considered by the Committee in its decision not to make substantial changes to the program in setting 2014 executive compensation. The Committee maintained in 2011 the same compensation practices it used in 2010. The Committee will continue to consider the outcome of the Company’s say-on-pay votes when making future compensation decisions for the NEOs.
Compensation Consultant
The Committee employs the services of an executive compensation consultant. In 2011,2013, the Committee engaged Meridian as its independent consultant, and Meridian has also been retained by the Committee for 2012.2014. Meridian is responsible for preparing and presenting a comprehensive competitive market study of the compensation levels and practices for a group of industry peers. The Committee-approved industry peer group is listed and described in more detail above at “Industry Peer Group.” Meridian is also responsible for preparing and presenting an outside director compensation study
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using the same industry peer group. The Committee relies on Meridian for input on pay philosophy, current market trends, legal and regulatory considerations and prevalence of benefit and perquisite programs. A representative of Meridian attends all regular meetings of the Committee and participates in most executive sessions.
In October 2013, the Committee reviewed the independence of Meridian, and found it to be independent and without conflicts of interest in providing services to the Committee. In making such determination, the Committee considered the six factors established by the NYSE effective July 2013. Fees paid by the Company to Meridian account for less than 1% of Meridian’s total annual revenues. The Committee believesreviewed Meridian’s policies and procedures designed to prevent conflicts of interest. To the knowledge of Meridian, is independentthere are no personal relationships among Meridian partners, consultants or employees and members of the Committee or the Company’s management. To the knowledge of Meridian, none of the Meridian partners, consultants or employees providing services the Committee owns Company stock. Meridian works exclusively for the Committee and generally performs no services directly for management. Management does not retain the services of a compensation consultant.
Role of Executives in Establishing Compensation
The President and CEO, the Executive Vice President and CFO, and the Vice President,Corporate Secretary and Managing Counsel and Corporate Secretary each play a role in the Company’sour compensation process. With the benefit of Meridian’s independent competitive market study, the CEO makes compensation recommendations to the Committee for theour other officers, of the Company, but not for his own compensation. The CEO considers internal pay equity issues, individual performance and Company performance in making his recommendations to the Committee. The Executive Vice President and CFO makes recommendations to the CEO for the officers who are his direct reports. The Human Resources Department provides the Committee survey data from a wider group of companies in the energy sector than the industry peer group described above, which the Committee uses for evaluation of non-executive compensation trends, and general administrative support implementing the Committee’s decisions. The executives listed above, together with the Vice President,Corporate Secretary and Managing Counsel, and Corporate Secretary, prepare materials and agenda
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for the Committee meetings and also prepare the long-term equity plans as directed by the Committee for its review and consideration. Certain of the noted officers attend the Committee meetings; however, the officers are generally excused from the meetings to enable the Committee to meet privately in executive session, both with and without the compensation consultant.consultant also being present. The Committee has delegated to management authority to administer the long-term incentive plans in accordance with the terms and conditions of the shareholder approved plans, the specific award agreements and the specific individual awards approved by the Committee.Committee and, as needed, by the Board of Directors.
Executive Compensation Business Risk Review
The ownership stake in the Company provided by our equity-based compensation, the extended vesting of these awards and our stock ownership guidelines are designed to align the interests of our NEO’sNEOs with our shareholders, maximize performance and promote executive retention. At the same time, the Committee believes, with the concurrence of itsour independent consultant, that, as a result of our focus on long-term incentive compensation, our use of different types ofbalanced long-term incentives, the metric diversification and capped opportunities in our annual bonus plan and long-term incentives, and our stock ownership guidelines, the Company’sour executive compensation program does not encourage our management to take unreasonable risks related to the Company’s business.
Compensation Committee Report
The Compensation Committee of the Board of Directors has reviewed and discussed with management the above Compensation Discussion and Analysis and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.
The Compensation Committee
William P. Vititoe, Chairman
Rhys J. Best
David M. Carmichael
(Chairman)
James R. Gibbs
P. Dexter Peacock
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The table below summarizes the total compensation paid to or earned by each of the CEO, the CFO and the next three most highly compensated executive officers (“NEOs”) for the fiscal year ended December 31, 2011. Shares and share prices discussed in this proxy statement have been adjusted to reflect our two-for-one stock split, in the form of a stock dividend, effective as of January 26, 2012.
2013. Cash bonus amounts paid under the Company’s 2004 Incentive Plan, which are listed in the column titled “Non-Equity Incentive Plan Compensation,” were determined by the Committee at its February 16, 201219, 2014 meeting for 20112013 performance and, to the extent not deferred by the executive, were paid out shortly thereafter. For additional information about Non-Equity Incentive Plan Compensation, see “Annual Incentive Bonus”cash incentive bonus” above. Shares and share prices discussed in this proxy statement have been adjusted to reflect our two-for-one stock split, in the form of a stock dividend, effective as of August 14, 2013.
2011 SUMMARY COMPENSATION TABLE
Name and Principal Position | Year | Salary ($) | Bonus ($) (1) | Stock ($) (2) | Option ($) (3) | Non-Equity ($) (4) | Change in Value and (5) | All Other Compensation (6) | Total ($) | |||||||||||||||||||||||||||
Dan O. Dinges Chairman, President and Chief Executive Officer |
| 2011 2010 2009 |
| $ $ $ | 641,667 595,833 575,000 |
|
| 0 0 0 |
| $ $ $ | 3,144,873 2,957,072 2,896,318 |
| $ $ $ | 854,895 736,793 731,264 |
| $ $ $ | 1,625,000 1,200,000 948,750 |
| $ $ $ | 18,270 1,474,945 369,758 |
| $ $ $ | 200,032 56,137 30,679 |
| $ $ $ | 6,484,737 7,020,780 5,551,769 |
| |||||||||
Scott C. Schroeder Vice President, Chief Financial Officer and Treasurer |
| 2011 2010 2009 |
| $ $ $ | 377,500 362,500 350,000 |
|
| 0 0 0 |
| $ $ $ | 1,130,721 1,108,680 1,089,249 |
| $ $ $ | 307,377 276,061 274,984 |
| $ $ $ | 855,000 620,500 462,000 |
| $ $ $ | 44,279 888,298 177,802 |
| $ $ $ | 122,234 49,815 32,587 |
| $ $ $ | 2,837,111 3,305,854 2,386,622 |
| |||||||||
Jeffrey W. Hutton Vice President, Marketing |
| 2011 2010 2009 |
| $ $ $ | 272,167 261,166 252,000 |
| $ $ | 0 25,000 22,100 |
| $ $ $ | 434,627 439,486 431,719 |
| $ $ $ | 118,148 109,400 109,021 |
| $ $ $ | 376,750 263,000 207,900 |
| $ $ $ | 51,684 1,108,873 214,064 |
| $ $ $ | 77,033 37,339 29,211 |
| $ $ $ | 1,330,409 2,244,264 1,266,015 |
| |||||||||
G. Kevin Cunningham Vice President and General Counsel | 2011 | $ | 286,667 | 0 | $ | 353,373 | $ | 96,063 | $ | 507,500 | 0 | $ | 82,016 | $ | 1,325,619 | |||||||||||||||||||||
Lisa A. Machesney Vice President, Managing Counsel and Corporate Secretary |
| 2011 2010 |
| $ $ | 269,333 259,500 |
|
| 0 0 |
| $ $ | 371,005 379,094 |
| $ $ | 100,856 94,422 |
| $ $ | 338,750 261,000 |
| $ $ | 52,060 981,014 |
| $ $ | 75,687 44,932 |
| $ $ | 1,207,691 2,019,962 |
| |||||||||
Name and Principal Position | Year | Salary ($) | Bonus ($)(1) | Stock Awards ($)(2) | Option Awards ($)(3) | Non-Equity Incentive Plan Compensation ($)(4) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(5) | All Other Compensation ($)(6) | Total ($) | |||||||||||||||||
Dan O. Dinges Chairman, President and Chief Executive Officer | 2013 | $ | 800,962 | - | $ | 6,045,748 | - | $ | 2,000,000 | - | $ | 266,154 | $ | 9,112,864 | ||||||||||||
2012 | $ | 678,205 | - | $ | 4,265,387 | $ | 931,758 | $ | 1,750,000 | - | $ | 238,540 | $ | 7,863,890 | ||||||||||||
2011 | $ | 641,667 | - | $ | 3,715,993 | $ | 854,895 | $ | 1,625,000 | $ | 18,270 | $ | 200,032 | $ | 7,055,857 | |||||||||||
Scott C. Schroeder Executive Vice President, Chief Financial Officer and Treasurer | 2013 | $ | 444,231 | - | $ | 2,599,587 | - | $ | 1,112,500 | - | $ | 173,144 | $ | 4,329,462 | ||||||||||||
2012 | $ | 405,256 | - | $ | 1,653,926 | $ | 361,283 | $ | 1,050,000 | - | $ | 152,647 | $ | 3,623,112 | ||||||||||||
2011 | $ | 377,500 | - | $ | 1,336,063 | $ | 307,377 | $ | 855,000 | $ | 44,279 | $ | 122,234 | $ | 3,042,453 | |||||||||||
Jeffrey W. Hutton Senior Vice President, Marketing | 2013 | $ | 336,154 | - | $ | 846,386 | - | $ | 595,000 | - | $ | 114,134 | $ | 1,891,674 | ||||||||||||
2012 | $ | 306,179 | - | $ | 548,399 | $ | 119,797 | $ | 580,000 | - | $ | 88,157 | $ | 1,642,532 | ||||||||||||
2011 | $ | 272,167 | - | $ | 513,557 | $ | 118,148 | $ | 376,750 | $ | 51,684 | $ | 77,033 | $ | 1,409,339 | |||||||||||
G. Kevin Cunningham Vice President and General Counsel | 2013 | $ | 332,115 | - | $ | 785,958 | - | $ | 527,630 | - | $ | 101,170 | $ | 1,746,873 | ||||||||||||
2012 | $ | 308,846 | - | $ | 548,399 | $ | 119,797 | $ | 475,000 | - | $ | 99,862 | $ | 1,551,904 | ||||||||||||
2011 | $ | 286,667 | - | $ | 417,546 | $ | 96,063 | $ | 507,500 | - | $ | 82,016 | $ | 1,389,792 | ||||||||||||
Phillip L. Stalnaker Vice President and Regional Manager, North Region | 2013 | $ | 295,192 | - | $ | 785,958 | - | $ | 575,000 | - | $ | 89,540 | $ | 1,745,690 | ||||||||||||
2012 | $ | 266,378 | - | $ | 391,758 | $ | 85,562 | $ | 430,000 | - | $ | 74,254 | $ | 1,247,952 | ||||||||||||
-2014 Proxy Statement34
(1) | Cash bonuses paid pursuant to the 2004 Incentive Plan for |
(2) | The amounts in this column reflect the grant date fair value with respect to both the TSR and the hybrid performance share awards for the relevant fiscal year in accordance with the FASB ASC Topic 718. The grant date fair value of |
Grant Date | Grant Date Fair Value per Share | Award Types Included | ||||||
February 19, 2009 | $ | 11.31 | Hybrid Performance Shares | |||||
February 18, 2010 | $ | 20.27 | Hybrid Performance Shares | |||||
February 17, 2011 | $ | 20.28 | Hybrid Performance Shares |
24
Traditional performance shares granted on February 19, 2009, February 18, 2010 and February 17, 2011 were valued using a Monte Carlo model and the grant date fair values per share used for financial reporting purposes were $8.82, $16.05 and $15.62 respectively. Assumptions used in the Monte Carlo model for these grants, as well as additional information regarding accounting for performance share awards, are included in Note 11 of the Notes to the Consolidated Financial Statements included in the Company’s Form 10-K.
The grant date fair values of traditional performance shares granted in 2011, 2010, and 2009, at target value (100% of award) and at maximum value assuming the highest level of performance is achieved (200% of award) are as follows:
Dinges | Schroeder | Hutton | Cunningham | Machesney | ||||||||||||||||||||||||||||||||||||
Target | Maximum | Target | Maximum | Target | Maximum | Target | Maximum | Target | Maximum | |||||||||||||||||||||||||||||||
2011 | $ | 1,364,657 | $ | 2,729,315 | $ | 490,655 | $ | 981,309 | $ | 188,598 | $ | 377,196 | $ | 153,339 | $ | 306,679 | $ | 160,991 | $ | 321,981 | ||||||||||||||||||||
2010 | $ | 1,323,713 | $ | 2,647,425 | $ | 496,272 | $ | 992,544 | $ | 196,712 | $ | 393,423 | — | — | $ | 169,756 | $ | 339,512 | ||||||||||||||||||||||
2009 | $ | 1,291,617 | $ | 2,583,235 | $ | 485,789 | $ | 971,578 | $ | 192,552 | $ | 385,105 | — | — | — | — |
Grant Date | Grant Date Fair Value per Share | Award Types Included | ||||
February 17, 2011 | $ | 10.19 | Hybrid Performance Shares | |||
February 16, 2012 | $ | 17.59 | Hybrid Performance Shares | |||
February 21, 2013 | $ | 26.62 | Hybrid Performance Shares |
TSR performance shares granted on February 11, 2011, February 16, 2012 and February 21, 2013 were valued using a Monte Carlo model and the grant date fair values per share used for financial reporting purposes were $11.08, $20.69 and $35.89, respectively. Assumptions used in the Monte Carlo model for these grants, as well as additional information regarding accounting for performance share awards, are included in Notes 11, 12 or 13 of the Notes to the Consolidated Financial Statements included in the Company’s Form 10-K for the years shown. | |
(3) | The amounts in this column reflect the grant date fair value with respect to Stock Appreciation Rights (“SARs”) for the relevant fiscal year, in accordance with ASC Topic |
(4) | The amounts in this column reflect cash incentive awards to the NEOs under the 2004 Incentive Plan, which is discussed in detail above under “Annual Cash Incentive Bonus.” |
(5) | The amounts in this column for 2011 reflect the actuarial increase in the present value of the NEOs benefit under the Company’s |
(6) | The amounts in this column include the Company’s matching contribution to the Savings Investment Plan (401(k) Plan), which is discussed above under “Elements of Post-Termination |
Premiums paid on executive term life insurance
Club dues
Executive physical examination for the NEOs and their spouses
A financial and tax planning stipend of up to $3,000 per year
Personal use of an administrative assistant and/or event tickets
Personal use of Company jet
Spouse travel to certain business meetings
• | Premiums paid on executive term life insurance; | |
• | Club dues; | |
• | Executive physical examination for the NEOs and their spouses; | |
• | A financial and tax planning stipend of up to $3,000 per year; and | |
• | Spouse travel to certain business meetings. |
25 -2014 Proxy Statement35
2013 Grants of Plan-Based Awards
The table below reports all grants of plan-based awards made during 2011.2013. All grants of awards were made under the Company’s 2004 Incentive Plan. Shares and share prices discussed in this proxy statement have been adjusted to reflect our two-for-one stock split, in the form of a stock dividend, effective as of January 26, 2012.
2011 GRANTS OF PLAN-BASED AWARDSAugust 14, 2013.
Name | Grant Date | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Number of Shares of Stock or Units (#) | All Other (#) (4) | Exercise or Base ($/Sh) (4) | Grant Date of Stock and Option ($) (5) | |||||||||||||||||||||||||||||||||||
Threshold ($) | Target ($) | Maximum ($) (1) | Threshold (#) | Target (#) (2) | Maximum (#) (3) | |||||||||||||||||||||||||||||||||||||
Dan O. Dinges | 02/17/11 | $ | 0 | $ | 650,000 | $ | 1,625,000 | |||||||||||||||||||||||||||||||||||
02/17/11 | 0 | 87,394 | 174,788 | $ | 1,364,657 | |||||||||||||||||||||||||||||||||||||
02/17/11 | 87,394 | $ | 1,780,216 | |||||||||||||||||||||||||||||||||||||||
02/17/11 | 90,274 | $ | 20.37 | $ | 854,895 | |||||||||||||||||||||||||||||||||||||
Scott C. Schroeder | 02/17/11 | $ | 0 | $ | 342,000 | $ | 855,000 | |||||||||||||||||||||||||||||||||||
02/17/11 | 0 | 31,422 | 62,844 | $ | 490,655 | |||||||||||||||||||||||||||||||||||||
02/17/11 | 31,422 | $ | 640,066 | |||||||||||||||||||||||||||||||||||||||
02/17/11 | 32,458 | $ | 20.37 | $ | 307,377 | |||||||||||||||||||||||||||||||||||||
Jeffrey W. Hutton | 02/17/11 | $ | 0 | $ | 150,700 | $ | 376,750 | |||||||||||||||||||||||||||||||||||
02/17/11 | 0 | 12,078 | 24,156 | $ | 188,598 | |||||||||||||||||||||||||||||||||||||
02/17/11 | 12,078 | $ | 246,029 | |||||||||||||||||||||||||||||||||||||||
02/17/11 | 12,476 | $ | 20.37 | $ | 118,148 | |||||||||||||||||||||||||||||||||||||
G. Kevin Cunningham | 02/17/11 | $ | 0 | $ | 203,000 | $ | 507,500 | |||||||||||||||||||||||||||||||||||
02/17/11 | 0 | 9,820 | 19,640 | $ | 153,339 | |||||||||||||||||||||||||||||||||||||
02/17/11 | 9,820 | $ | 200,033 | |||||||||||||||||||||||||||||||||||||||
02/17/11 | 10,144 | $ | 20.37 | $ | 96,064 | |||||||||||||||||||||||||||||||||||||
Lisa A. Machesney | 02/17/11 | $ | 0 | $ | 135,500 | $ | 338,750 | |||||||||||||||||||||||||||||||||||
02/17/11 | 0 | 10,310 | 20,620 | $ | 160,991 | |||||||||||||||||||||||||||||||||||||
02/17/11 | 10,310 | $ | 210,015 | |||||||||||||||||||||||||||||||||||||||
02/17/11 | 10,650 | $ | 20.37 | $ | 100,856 |
All Other | ||||||||||||||||||||||||||
Option | ||||||||||||||||||||||||||
All Other | Awards: | Exercise | Grant Date | |||||||||||||||||||||||
Stock | Number of | or Base | Fair Value | |||||||||||||||||||||||
Estimated Future Payouts | Awards: | Securities | Price Of | of Stock | ||||||||||||||||||||||
Estimated Possible Payouts Under | Under Equity Incentive Plan | Number | Underlying | Option | and Option | |||||||||||||||||||||
Non-Equity Incentive Plan Awards | Awards | of Shares | Options | Awards | Awards | |||||||||||||||||||||
Threshold | Target | Maximum | Threshold | Target | Maximum | |||||||||||||||||||||
Name | ‘ | Grant Date | ($) | ($) | ($) (1) | (#) | (#) (2) | (#) (1) | (#) | (#) | ($/Sh) | ($) (4) | ||||||||||||||
Dan O. Dinges | 02/21/2013 | $0 | $ | 825,000 | $ | 2,062,500 | ||||||||||||||||||||
02/21/2013 | 0 | 112,720 | 225,440 | $ | 4,045,521 | |||||||||||||||||||||
02/21/2013 | 75,140 | $ | 2,000,227 | |||||||||||||||||||||||
Scott C. | 02/21/2013 | $0 | $ | 450,000 | $ | 1,125,000 | ||||||||||||||||||||
Schroeder | 02/21/2013 | 0 | 48,460 | 96,920 | $ | 1,739,229 | ||||||||||||||||||||
02/21/2013 | 32,320 | $ | 860,358 | |||||||||||||||||||||||
Jeffrey W. | 02/21/2013 | $0 | $ | 238,000 | $ | 595,000 | ||||||||||||||||||||
Hutton | 02/21/2013 | 0 | 15,780 | 31,560 | $ | 566,344 | ||||||||||||||||||||
02/21/2013 | 10,520 | $ | 280,042 | |||||||||||||||||||||||
G. Kevin | 02/21/2013 | $0 | $ | 234,500 | $ | 586,250 | ||||||||||||||||||||
Cunningham | 02/21/2013 | 0 | 14,660 | 29,320 | $ | 526,147 | ||||||||||||||||||||
02/21/2013 | 9,760 | $ | 259,811 | |||||||||||||||||||||||
Phillip L. | 02/21/2013 | $0 | $ | 210,000 | $ | 525,000 | ||||||||||||||||||||
Stalnaker | 02/21/2013 | 0 | 14,660 | 29,320 | $ | 526,147 | ||||||||||||||||||||
02/21/2013 | 9,760 | $ | 259,811 |
(1) | Amounts in this column represent a bonus payout of 250% of target. See discussion of the bonus factor applicable to the |
(2) | The first amount in this column for each NEO represents 100% of TSR performance shares, which will be paid out based on the relative total shareholder return on the Company’s stock over the three year period from January 1, 2013 to December 31, 2015, if the Company’s total shareholder return ranks 9thor higher out of its peer group of fifteen companies, including the Company. The second amount in this column for each NEO represents 100% of hybrid performance shares, which vest |
(3) | Amounts in this column represent 200% of the targeted |
26
The amounts in this column reflect the grant date fair value of the |
-2014 Proxy Statement36
TSR performance shares
The traditionalTSR performance shares awarded in 20112013 have a three-year performance period, which commenced January 1, 20112013 and ends December 31, 2013.2015. Each TSR performance share represents the right to receive, after the end of the performance period, from 00% to 200% of a share of Common Stock (with amounts over 100% paid in cash), based on the Company’s performance. The performance criteria that determines the payout per performance share is the relative total shareholder return on the Company’s Common Stock as compared to the total shareholder return on the common equity of each company in a comparator group. For this purpose, total shareholder return is expressed as a percentage equal to common stock price appreciation as averaged for the first and last month of the performance period, plus dividends (on a cumulative reinvested basis). The comparator group consists of the companies listed above under “Industry Peer Group”.Group.” If any member of the comparator group ceases to have publicly traded common stock or if as a result of other business transactions becomes incomparable, it willmay be removed from the comparator group and a replacement company will be added by the Compensation Committee.Committee, or the Committee may decide to reduce the peer group to the remaining companies.
After the end of the performance period, the Company will issue shares of Common Stock and pay cash in respect of each TSR performance share based on the relative ranking of the Company versus the comparator group for total shareholder return during the performance period using the following scale:
Company Relative Placement | Percent Performance Shares | Value Consideration | Percent Performance Shares | Value Consideration | ||||||
1-2 (highest) | 200 | % | 100% stock / 100% cash | 200% | 100% stock / 100% cash | |||||
3 | 185 | % | 100% stock / 85% cash | 185% | 100% stock / 85% cash | |||||
4 | 170 | % | 100% stock / 70% cash | 170% | 100% stock / 70% cash | |||||
5 | 155 | % | 100% stock / 55% cash | 155% | 100% stock / 55% cash | |||||
6 | 140 | % | 100% stock / 40% cash | 140% | 100% stock / 40% cash | |||||
7 | 125 | % | 100% stock / 25% cash | 125% | 100% stock / 25% cash | |||||
8 | 110 | % | 100% stock / 10% cash | 110% | 100% stock / 10% cash | |||||
9 | 100 | % | stock | 100% | stock | |||||
10 | 90 | % | stock | 90% | stock | |||||
11 | 75 | % | stock | 75% | stock | |||||
12 | 60 | % | stock | 60% | stock | |||||
13 | 45 | % | stock | 45% | stock | |||||
14 | 30 | % | stock | 30% | stock | |||||
15 | 15 | % | stock | 15% | stock | |||||
16-17 (lowest) | 0 | % | 0 |
As noted above, in the event of a relative ranking of 1 through 8, corresponding to a percentage payout above 100%, a share of TSR performance stock will entitle the participant to receive one full share of Common Stock with respect to the first 100% of the payout and the balance of the payout in cash, in an amount based on the fair market value of a share of Common Stock at the end of the performance period. The Committee certifies the Company’s relative placement and the resulting level of achievement of the performance share awards prior to the issuance of Common Stock and cash, if any.
If a participant is not an employee on the last day of the performance period due to death, disability or retirement, Common Stock will be issued on the original performance period schedule and the level of payout will be determined as with all other participants, except that (i) if the participant retires and thereafter accepts an offer of employment from a competitor
27
at any time prior to the receipt of Common Stock, the participant will forfeit the right to receive such Common Stock and (ii) in the case of a retirement, the participant must be an employee on September 30thof the year the award is granted in order to continue vesting in the award. If a participant is not an employee on the last day ofdate the Compensation Committee certifies the Company’s achievement level with respect to the TSR performance periodshares due to any other voluntary or involuntary termination, no shares of Common Stock or cash will be issued in respect of the participant’s
-2014 Proxy Statement37
TSR performance share award unless otherwise determined by the Compensation Committee. Prior to the issuance of shares of Common Stock in respect of a TSR performance share award, the participant will have no right to vote or receive dividends on the shares. The TSR performance share award may not be assigned or transferred except by will or the laws of descent and distribution. In the event of a Change In Control (as defined) all unvested TSR performance shares shall vest to the extent of actual performance as of the Change In Control. Actual performance as of the Change In Control is based on the greater of (i) total shareholder return through the end of the month prior to the Change In Control or (ii) total shareholder return through the end of the month prior to the Change In Control calculated using the value realized by shareholders in the Change In Control event. In the event the Company ceases to have publicly traded Common Stock as a result of a business combination or other extraordinary transaction, the performance period will be terminated effective upon the date of such cessation. The Committee certifies the results of the
Hybrid performance share awards prior to the issuance of Common Stock.shares
The hybrid performance shares awarded in 20112013 vest one-third25% on each of the first secondtwo anniversaries of the date of grant and 50% on the third anniversariesanniversary of the date of grant, provided the Company has $100 million or more operating cash flow in the fiscal year prior to the vesting date. If the performance metric is not met in any given year, then the respective tranche of hybrid performance shares will be forfeited. Unvested hybrid performance shares will be forfeited if, during the three-year vesting period, the executive voluntarily leaves the Company. In the event of an involuntary termination by the Company, the Compensation Committee will determine whether the unvested hybrid performance shares will be forfeited. In the event of an employment termination due to death, disability or retirement, all unvested hybrid performance shares will vest in accordance with the original vesting schedule except that (i) if the participant retires and thereafter accepts an offer of employment from a competitor at any time prior to the receipt of hybrid performance shares, the participant will lose the right to receive such hybrid performance shares and (ii) in the case of a retirement, the participant must be an employee on September 30thof the year the award is granted in order to continue vesting in the award. Prior to vesting, the participant has no right to vote or receive dividends on such shares. The hybrid performance shares may not be assigned or transferred except by will or the laws of descent and distribution. In the event of a Change In Control (as defined), the unvested hybrid performance shares shallwill vest.
The SARs awarded in 2011 vest one-third on each of the first, second and third anniversaries of the date of grant and have a seven year term. Unvested SARs will be forfeited and vested SARs must be exercised within ninety days if the executive voluntarily leaves the Company. In the event of an involuntary termination by the Company, the Compensation Committee may extend the exercise period for vested SARs from 90 days to 36 months. In the event of an employment termination due to death, disability or retirement, all SARs will vest except that (i) if the participant retires and thereafter accepts an offer of employment from a competitor at any time prior to the exercise of the SARs, the participant will lose the right to exercise any remaining SARs and the remaining SARs shall be forfeited and (ii) in the case of a retirement, the participant must be an employee on September 30th of the year the award is granted in order to continue vesting in the award. The SAR award may not be assigned or transferred except by will or the laws of descent and distribution. In the event of a Change In Control (as defined) all unvested SARs shall vest and remain exercisable throughout the term of the SAR, provided the Company’s stock is still trading on a national stock exchange.
In the event of any merger, reorganization, recapitalization, separation, liquidation, stock dividend, share combination or other change in the corporate structure of the Company affecting the performance shares, or the SARs, the number of performance shares and SARs shallwill be equitably adjusted by the Compensation Committee to prevent dilution or enlargement of rights.
For additional information about the treatment of certain of Mr. Dinges’ awards in the event of an employment termination, see “Potential Payments Upon Termination or Change In Control” below.
28 -2014 Proxy Statement38
Outstanding Equity Awards at Fiscal Year-End 2013
The table below reports for each NEO outstanding equity awards at December 31, 2011.2013. Shares and share prices discussed in this proxy statement have been adjusted to reflect our two-for-one stock split, in the form of a stock dividend, effective as of January 26, 2012.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2011August 14, 2013.
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||
Name | Number of (#) Exercisable
(1) | Number of (#) Unexercisable
(2) | Equity (#) | Option Price ($) | Option Expiration Date | Number of Units of Stock That Not Vested (#)
(3) | Market of Shares Not Vested ($ )
(6) | Equity Plan Number of Unearned Units or Rights Not Vested (#)
(4)(5) | Equity Plan or Payout Unearned Units or Rights Not Vested ($)
(6) | |||||||||||||||||||||||||||
Dan O. Dinges | 182,600 | - | $ | 11.90 | 2/23/2013 | |||||||||||||||||||||||||||||||
74,000 | - | $ | 17.61 | 2/22/2014 | ||||||||||||||||||||||||||||||||
79,750 | - | $ | 24.24 | 2/20/2015 | ||||||||||||||||||||||||||||||||
104,280 | 52,140 | - | $ | 11.31 | 2/19/2016 | |||||||||||||||||||||||||||||||
25,906 | 51,814 | - | $ | 20.27 | 2/18/2017 | |||||||||||||||||||||||||||||||
90,274 | - | $ | 20.37 | 2/17/2018 | ||||||||||||||||||||||||||||||||
316,394 | $ | 12,007,152 | ||||||||||||||||||||||||||||||||||
188,407 | $ | 7,150,046 | ||||||||||||||||||||||||||||||||||
Scott C. Schroeder | 60,000 | - | $ | 11.90 | 2/23/2013 | |||||||||||||||||||||||||||||||
24,400 | - | $ | 17.61 | 2/22/2014 | ||||||||||||||||||||||||||||||||
32,400 | - | $ | 24.24 | 2/20/2015 | ||||||||||||||||||||||||||||||||
39,212 | 19,608 | - | $ | 11.31 | 2/19/2016 | |||||||||||||||||||||||||||||||
9,706 | 19,414 | - | $ | 20.27 | 2/18/2017 | |||||||||||||||||||||||||||||||
32,458 | - | $ | 20.37 | 2/17/2018 | ||||||||||||||||||||||||||||||||
117,452 | $ | 4,457,303 | ||||||||||||||||||||||||||||||||||
69,348 | $ | 2,631,757 | ||||||||||||||||||||||||||||||||||
Jeffrey W. Hutton | 33,200 | - | $ | 11.90 | 2/23/2013 | |||||||||||||||||||||||||||||||
13,200 | - | $ | 17.61 | 2/22/2014 | ||||||||||||||||||||||||||||||||
12,900 | - | $ | 24.24 | 2/20/2015 | ||||||||||||||||||||||||||||||||
15,546 | 7,774 | - | $ | 11.31 | 2/19/2016 | |||||||||||||||||||||||||||||||
3,846 | 7,694 | - | $ | 20.27 | 2/18/2017 | |||||||||||||||||||||||||||||||
12,476 | - | $ | 20.37 | 2/17/2018 | ||||||||||||||||||||||||||||||||
46,178 | $ | 1,752,455 | ||||||||||||||||||||||||||||||||||
27,111 | $ | 1,028,862 | ||||||||||||||||||||||||||||||||||
G. Kevin Cunningham | 10,114 | - | $ | 20.37 | 2/17/2018 | |||||||||||||||||||||||||||||||
10,000 | $ | 379,500 | ||||||||||||||||||||||||||||||||||
9,820 | $ | 372,669 | ||||||||||||||||||||||||||||||||||
9,820 | $ | 372,669 | ||||||||||||||||||||||||||||||||||
6,000 | $ | 227,700 | ||||||||||||||||||||||||||||||||||
Lisa A. Machesney | 13,200 | - | $ | 17.61 | 2/22/2014 | |||||||||||||||||||||||||||||||
12,900 | - | $ | 24.24 | 2/20/2015 | ||||||||||||||||||||||||||||||||
15,546 | 7,774 | - | $ | 11.31 | 2/19/2016 | |||||||||||||||||||||||||||||||
3,320 | 6,640 | - | $ | 20.27 | 2/18/2017 | |||||||||||||||||||||||||||||||
10,650 | - | $ | 20.37 | 2/17/2018 | ||||||||||||||||||||||||||||||||
42,730 | $ | 1,621,604 | ||||||||||||||||||||||||||||||||||
24,244 | $ | 920,059 |
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options (#) Exercisable (1) | Number of Securities Underlying Unexercised Options (#) Unexercisable (2) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) (3) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) (4) | |||||||||||||||||||||||
Dan O. | 120,364 | 60,184 | - | $ | 10.19 | 2/17/2018 | ||||||||||||||||||||||||||
Dinges | 38,084 | 76,172 | - | $ | 17.59 | 2/16/2019 | ||||||||||||||||||||||||||
- | 224,146 | $ | 8,687,899 | |||||||||||||||||||||||||||||
- | 207,688 | $ | 8,049,987 | |||||||||||||||||||||||||||||
Scott C. | 43,276 | 21,640 | - | $ | 10.19 | 2/17/2018 | ||||||||||||||||||||||||||
Schroeder | 14,766 | 29,536 | - | $ | 17.59 | 2/16/2019 | ||||||||||||||||||||||||||
- | 91,666 | $ | 3,552,974 | |||||||||||||||||||||||||||||
- | 82,072 | $ | 3,181,111 | |||||||||||||||||||||||||||||
Jeffrey W. | 16,632 | 8,320 | - | $ | 10.19 | 2/17/2018 | ||||||||||||||||||||||||||
Hutton | 4,896 | 9,794 | - | $ | 17.59 | 2/16/2019 | ||||||||||||||||||||||||||
- | 30,106 | $ | 1,166,909 | |||||||||||||||||||||||||||||
- | 28,124 | $ | 1,090,086 | |||||||||||||||||||||||||||||
G. Kevin | 13,524 | 6,764 | - | $ | 10.19 | 2/17/2018 | ||||||||||||||||||||||||||
Cunningham | 4,896 | 9,794 | - | $ | 17.59 | 2/16/2019 | ||||||||||||||||||||||||||
- | 28,986 | $ | 1,123,497 | |||||||||||||||||||||||||||||
- | 25,860 | $ | 1,002,334 | |||||||||||||||||||||||||||||
Phillip L. | 10,816 | 5,412 | - | $ | 10.19 | 2/17/2018 | ||||||||||||||||||||||||||
Stalnaker | 3,496 | 6,996 | - | $ | 17.59 | 2/16/2019 | ||||||||||||||||||||||||||
- | 24,894 | $ | 964,891 | |||||||||||||||||||||||||||||
- | 21,824 | $ | 845,898 |
(1) | Amounts in this column represent the exercisable portion of SARs granted in various years, all of which vest ratably on the first, second and third anniversaries of the date of grant and have a seven-year term. Unvested SARs will be forfeited and vested SARs must be exercised within 90 days if the executive voluntarily leaves the Company. In the event of an involuntary termination by the Company, the Compensation Committee may extend the exercise period for vested SARs from 90 days to 36 months. In the event of an employment termination due to death, disability or retirement, all SARs will vest except that (i) if the participant retires and thereafter accepts an offer of employment from a competitor at any time prior to the exercise of the SARs, the participant will lose the right to exercise any remaining SARs and the remaining SARs shall be forfeited and (ii) in the case of a retirement, the participant must be an employee on September 30thof the year the award is granted in order to continue vesting in the award. The SAR award may not be assigned or transferred except by will or the laws of descent and distribution. In the event of a Change In Control (as defined) all unvested SARs shall vest and remain exercisable throughout the term of the SAR, provided the Company’s stock is still trading on a national stock exchange. |
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(2) | Amounts in this column represent the unexercisable portion of SARs granted in various years, all of which vest ratably on the first, second and third year anniversaries of the date of grant and have a seven year term. |
(3) |
The first amount in this column for each NEO is |
Date | Dan O. Dinges | Scott C.Schroeder | Jeffrey W. Hutton | G. Kevin Cunningham | Lisa A. Machesney | |||||
12/31/2011 | 146,500 | 55,100 | 21,840 | - | 21,840 | |||||
12/31/2012 | 82,500 | 30,930 | 12,260 | - | 10,580 | |||||
12/31/2013 | 87,394 | 31,422 | 12,078 | 9,820 | 10,310 |
-2014 Proxy Statement39
Date | Dan O. Dinges | Scott C. Schroeder | Jeffrey W. Hutton | G. Kevin Cunningham | Phillip L. Stalnaker | |||||||||||||||
12/31/2014 | 111,426 | 43,206 | 14,326 | 14,326 | 10,234 | |||||||||||||||
12/31/2015 | 112,720 | 48,460 | 15,780 | 14,660 | 14,660 |
The second amount in this column for each NEO is hybrid performance shares. The terms and conditions of the hybrid performance share awards are described in the narrative following the “2013 Grants of Plan-Based Awards” table above. The hybrid performance shares vest, if at all, for each executive as follows:
Date | Dan O. Dinges | Scott C. Schroeder | Jeffrey W. Hutton | G. Kevin Cunningham | Lisa A. Machesney | |||||
2/19/2012 | 47,280 | 17,780 | 7,047 | - | 7,047 | |||||
2/18/2012 | 26,867 | 10,073 | 3,993 | - | 3,443 | |||||
2/17/2012 | 29,131 | 10,474 | 4,026 | 3,273 | 3,437 | |||||
2/18/2013 | 26,867 | 10,073 | 3,993 | - | 3,443 | |||||
2/17/2013 | 29,131 | 10,474 | 4,026 | 3,273 | 3,437 | |||||
2/17/2014 | 29,131 | 10,474 | 4,026 | 3,274 | 3,437 |
Date | Dan O. Dinges | Scott C. Schroeder | Jeffrey W. Hutton | G. Kevin Cunningham | Phillip L. Stalnaker | |||||||||||||||
2/17/2014 | 58,264 | 20,948 | 8,052 | 6,548 | 5,240 | |||||||||||||||
2/16/2014 | 37,142 | 14,402 | 4,776 | 4,776 | 3,412 | |||||||||||||||
2/16/2015 | 37,142 | 14,402 | 4,776 | 4,776 | 3,412 | |||||||||||||||
2/21/2014 | 18,784 | 8,080 | 2,630 | 2,440 | 2,440 | |||||||||||||||
2/21/2015 | 18,786 | 8,080 | 2,630 | 2,440 | 2,440 | |||||||||||||||
2/21/2016 | 37,570 | 16,160 | 5,260 | 4,880 | 4,880 |
Market value is based on |
2012 Option Exercises and Stock Vested
The table below reports exercised stock options that were exercised and a performance share payoutshares that vested during 2011.2013. Shares and share prices discussed in this proxy statement have been adjusted to reflect our two-for-one stock split, in the form of a stock dividend, effective as of January 26, 2012.
2011 OPTION EXERCISES AND STOCK VESTEDAugust 14, 2013.
Option Awards | Stock Awards | |||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares (1) | Value Realized on (1) | ||||
Dan O. Dinges | - | - | 57,600 | $1,087,920 | ||||
Scott C. Schroeder | - | - | 19,500 | $ 368,306 | ||||
Jeffrey W. Hutton | - | - | 7,726 | $ 145,906 | ||||
G. Kevin Cunningham | - | - | - | - | ||||
Lisa A. Machesney | 33,200 | $1,040,820 | 7,726 | $ 145,906 |
Option Awards | Stock Awards | |||||||||||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) (1) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | ||||||||||||
Dan O. Dinges | 468,280 | $ | 14,739,753 | 323,930 | (2) | $ | 10,827,598 | (2)(4) | ||||||||
- | $ | 6,748,565 | (3) | |||||||||||||
Scott C. Schroeder | 289,480 | $ | 8,775,279 | 118,342 | (2) | $ | 3,944,277 | (2)(4) | ||||||||
- | $ | 2,426,407 | (3) | |||||||||||||
Jeffrey W. Hutton | 121,920 | $ | 3,662,556 | 54,292 | (2) | $ | 1,462,755 | (2)(4) | ||||||||
- | $ | 932,663 | (3) | |||||||||||||
G. Kevin Cunningham | 0 | $ | 0 | 11,322 | (2) | $ | 1,067,957 | (2)(4) | ||||||||
- | $ | 758,300 | (3) | |||||||||||||
12,000 | (5) | $ | 328,200 | (5) | ||||||||||||
Phillip L. Stalnaker | 14,940 | $ | 414,809 | 29,526 | (2) | $ | 984,453 | (2)(4) | ||||||||
- | $ | 606,640 | (3) |
(1) | |
(2) | Represents the number of shares and value realized for TSR performance shares, the performance period for which was January 1, |
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Pension Benefits Table
The table below reports the present values of accumulated benefits payable to each NEO, including the number of years of service credited to each NEO, under the Company’s qualified Pension Plan. The table below also reports payments to the NEOs of the non-qualified Supplemental Executive Retirement Plan benefits. Additional information regarding the Pension Plan and the Supplemental Executive Retirement Plan can be found above under “Elements of Post-Termination Compensation.” The Pension Plan and associated SERP were frozen and terminated on September 30, 2010.
PENSION BENEFITS
Name | Plan Name | Number of Years Credited Service (#) | Present Value of ($) (1) | Payments During Last Fiscal Year ($) | ||||||||||
Dan O. Dinges | Cabot Oil & Gas Corporation Pension Plan | 9.00 | $ | 370,452 | — | |||||||||
Cabot Oil & Gas Corporation Non-Qualified Plan (SERP) | — | $ | 651,240 | (2) | $ | 1,552,756 | ||||||||
Scott C. Schroeder | Cabot Oil & Gas Corporation Pension Plan | 14.92 | $ | 419,764 | — | |||||||||
Cabot Oil & Gas Corporation Non-Qualified Plan (SERP) | — | — | $ | 1,048,907 | ||||||||||
Jeffrey W. Hutton | Cabot Oil & Gas Corporation Pension Plan | 25.50 | $ | 935,152 | — | |||||||||
Cabot Oil & Gas Corporation Non-Qualified Plan (SERP) | — | — | $ | 1,055,545 | ||||||||||
G. Kevin Cunningham | Cabot Oil & Gas Corporation Pension Plan | — | — | — | ||||||||||
Cabot Oil & Gas Corporation Non-Qualified Plan (SERP) | — | — | — | |||||||||||
Lisa A. Machesney | Cabot Oil & Gas Corporation Pension Plan | 25.33 | $ | 900,788 | — | |||||||||
Cabot Oil & Gas Corporation Non-Qualified Plan (SERP) | — | — | $ | 959,735 |
(4) | These amounts |
(5) | These shares include 12,000 performance shares, the |
-2014 Proxy Statement40
2013 Non-Qualified Deferred Compensation
The table below reports NEO contributions, a Company contribution,contributions, earnings, and aggregate balances in the Company’s Deferred Compensation Plan for 2011.
2011 NONQUALIFIED DEFERRED COMPENSATION2013.
Name | Executive in Last FY ($) (1) | Registrant ($) (2) | Aggregate Earnings Last FY ($) (3) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last FYE ($) (5) | |||||||||||||||
Dan O. Dinges | - | $ | 147,950 | $ | 2,917,240 | $ | 1,977,990 | (4) | $ | 7,290,303 | ||||||||||
Scott C. Schroeder | - | $ | 72,020 | $ | 2,134,498 | - | $ | 4,698,917 | ||||||||||||
Jeffrey W. Hutton | - | $ | 32,615 | $ | 69 | - | $ | 706,787 | ||||||||||||
G. Kevin Cunningham | - | $ | 37,160 | $ | 2 | - | $ | 37,162 | ||||||||||||
Lisa A. Machesney | $ | 40,400 | $ | 26,294 | $ | 5,889 | - | $ | 394,971 |
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Name | Executive Contributions in Last FY ($) (1) | Registrant Contributions in Last FY ($) (2) | Aggregate Earnings in Last FY ($) (3) | Aggregate Withdrawals/ Distributions ($) (4) | Aggregate Balance at Last FYE ($) (5) | |||||||||||||||
Dan O. Dinges | $ | 0 | $ | 211,386 | $ | 4,629,578 | $ | 0 | $ | 14,213,824 | ||||||||||
Scott C. Schroeder | $ | 0 | $ | 116,281 | $ | 3,304,102 | $ | 0 | $ | 9,610,419 | ||||||||||
Jeffrey W. Hutton | $ | 0 | $ | 64,254 | $ | 82 | $ | 0 | $ | 814,660 | ||||||||||
G. Kevin Cunningham | $ | 0 | $ | 54,441 | $ | 13 | $ | 0 | $ | 147,094 | ||||||||||
Phillip L. Stalnaker | $ | 36,260 | $ | 43,804 | $ | 21,530 | $ | 0 | $ | 236,399 |
(1) | Amounts reported in this column are included in the Summary Compensation Table as salary and non-equity incentive plan compensation, as applicable. |
(2) | Amounts reported in this column are included in the Summary Compensation Table as all other compensation. |
(3) | Amounts reported in this column are not included in the Summary Compensation Table. |
(4) | Distribution pursuant to |
(5) |
Dan O. Dinges | $ | 472,375 | $ | 4,833,437 | ||||
Scott C. Schroeder | $ | 1,349,077 | $ | 2,592,540 | ||||
Jeffrey W. Hutton | $ | 152,000 | $ | 553,350 | ||||
G. Kevin Cunningham | $ | 0 | $ | 0 | ||||
Lisa A. Machesney | $ | 113,950 | ||||||
Phillip L. Stalnaker | $ | 101,257 |
Up to 100% of salary and annual cash incentive bonus are permitted to be deferred into the Deferred Compensation Plan, subject to payment of Social Security, Medicare, incomes taxes (on compensation not deferred) and employee benefit plan withholding requirements. Prior to June 1, 2008, traditionalTSR performance shares were permitted to be deferred into the Deferred Compensation Plan. The Company also makes contributions to make up for certain matching and profit-sharing contributions which, due to IRS limitations, cannot be contributed to the Company’s tax-qualified Savings Investment Plansavings investment plan (401(k) Plan)plan). Earnings on the deferred balances are determined by the executive’s investment selections at the time of deferral. The Company holds deferred amounts and earnings thereon as corporate assets, which are invested as elected by the executive. For 2011,2013, the investment options and their respective rates of return follow:
Fund Name | Rate of Return | Fund Name | Rate of Return | Rate of Return | Fund Name | Rate of Return | ||||||||||||
Fidelity Retirement Money Market | .01% | FID Freedom K 2000 | 2.07 | % | 0.01 | % | FID Freedom K 2005 | 8.15 | % | |||||||||
Fidelity Spartan U.S. Bond Index | 7.67% | FID Freedom K 2005 | .36 | % | -2.24 | % | FID Freedom K 2010 | 11.20 | % | |||||||||
Oakmark Equity & Income | .64% | FID Freedom K 2010 | -.19 | % | 24.25 | % | FID Freedom K 2015 | 11.96 | % | |||||||||
Oakmark Fund I | 1.82% | FID Freedom K 2015 | -.34 | % | 37.29 | % | FID Freedom K 2020 | 13.35 | % | |||||||||
Davis NY Venture | -4.55% | FID Freedom K 2020 | -1.24 | % | 34.88 | % | FID Freedom K 2025 | 16.65 | % | |||||||||
Spartan 500 Index | 2.03% | FID Freedom K 2025 | -2.50 | % | 32.33 | % | FID Freedom K 2030 | 18.21 | % | |||||||||
Fidelity Capital Appreciation | -2.49% | FID Freedom K 2030 | -3.09 | % | ||||||||||||||
Lord Abbett Mid Cap Value | -3.64% | FID Freedom K 2035 | -4.63 | % | ||||||||||||||
Calamos Growth A | -8.84% | FID Freedom K 2040 | -4.64 | % | ||||||||||||||
Fidelity Capital Appreciation K | 36.11 | % | FID Freedom K 2035 | 20.86 | % | |||||||||||||
Lord Abbett Mid Cap Stock | 30.76 | % | FID Freedom K 2040 | 21.25 | % | |||||||||||||
Calamos Growth Institution | 33.47 | % | FID Freedom K 2045 | 21.84 | % | |||||||||||||
Fidelity Small Cap Stock | -15.60% | FID Freedom K 2045 | -4.95 | % | 29.79 | % | FID Freedom K 2050 | 22.08 | % | |||||||||
Fidelity Int’l Discovery | -15.11% | FID Freedom K 2050 | -5.50 | % | ||||||||||||||
Fidelity Int’l Discovery K | 25.15 | % | FID Freedom K 2055 | 22.78 | % | |||||||||||||
Cabot Oil & Gas Common Stock | 100.96% | FID Freedom K Income | 2.12 | % | 56.13 | % | FID Freedom K Income | 4.60 | % | |||||||||
FID Freedom K 2000 | 4.56 | % |
-2014 Proxy Statement41
Distributions from the Deferred Compensation Plan are based on the executive’s election at the time of deferral. Distribution elections may be modified, provided that the modification is made at least one year prior to the original time elected and the new election is moved out at least five years past the original time-based distribution election. Distribution elections can only be delayed not accelerated.
Potential Payments Upon Termination or Change In Control
The tables below reflect the compensation payable to each NEO upon voluntary termination, retirement, involuntary not-for-cause termination, for cause termination, termination following a change in control and in the event of disability or death of the executive. The amounts shown assume that such termination was effective as of December 31, 2011, and thus includes amounts earned through such time and are estimates of the amounts which would be paid out to the executives upon their termination. The actual amounts to be paid out can only be determined at the time of such executive’s separation from the Company.
32
Change In Control Benefits
The Company has entered into change in control agreements with each NEO and certain other senior officers of the Company. The Committee believes that these agreements encourage these executives to remain employed and to carry out their duties with the Company in the event of a change in control of the Company and during circumstances suggesting a change in control might occur. The Committee believes this program is important to maintaining strong leadership in those situations.
In the agreements, a “change in control” is generally defined to include:
• | any person or group becoming the beneficial owner of 35% or more of either the Company’s common stock or the combined voting power of the Company’s outstanding voting securities, with certain exceptions; | |
• | specified changes in a majority of the members of the Board of Directors; | |
• | a reorganization, merger or consolidation or sale or other disposition of substantially all of the Company’s assets being consummated, unless, following the transaction: | |
- | the persons who were the beneficial owners of the Company prior to the transaction continue to own at least 50% of the common stock or other securities entitled to vote in the election of directors of the resulting entity in substantially the same proportions as prior to the transaction, | |
- | no individual or entity (other than an entity resulting from the transaction) beneficially owns 35% or more of the common equity or voting power of the entity resulting from the transaction, except to the extent that such ownership existed prior to the transaction, and | |
- | at least a majority of the members of the Board of Directors of the entity resulting from the transaction were members of the Company’s Board at the time the transaction was approved or entered into; and | |
• | a liquidation or dissolution of the Company. |
The agreements provide that, in the event of a change in control or in the eventupon an occurrence deemed to be in anticipation of a change in control, the executives will receive certain benefits, in the eventprovided that their employment is terminated within two years of such event. The executive will receive these benefits unless termination is:
for cause,
• | for cause; |
• | voluntary on the part of the executive (but not a constructive termination without cause); or |
• | due to death or disability. |
voluntary on the part of the executive, but not a constructive termination, or
because of death or disability.
Benefits under the change in control agreements generally include:
a lump-sum cash payment equal to three times the sum ofof:
the executive’s base salary in effect immediately prior to the change in control or the executive’s termination, whichever is greater, and |
- | the greater of (1) the executive’s target bonus for the year during which the change in control occurred or, if greater, the year during which the executive’s termination occurred, or (2) the executive’s actual bonus paid in any of the three fiscal years immediately preceding the change in control or, if termination of employment occurs prior to a change in control, termination of |
payment with respect
• | three years of continued medical, dental and life insurance coverage at the premium rate applicable to active executives; and |
• | outplacement assistance in an amount up to 15% of the executive’s base salary. |
Beginning in 2010, the Company ceased entering into agreements containing tax gross-up payments on payments to traditional performance shares based on performance throughexecutives by the Company upon a change in control event as more fully described above under “2011 Grants of Plan-Based Awards.”
immediate vesting and exercisability ofcontrol. The agreements in place prior to that time with all of the executive’s stock options and SAR awards, with exercisability extended for the full term of the award,NEOs except Mr. Cunningham, who became an officer in September 2010, provide
-2014 Proxy Statement42
immediate vesting and lapse of restrictions on any outstanding restricted stock grants,
immediate vesting of any outstanding hybrid performance shares,
three years of continued medical, dental and life insurance coverage at the premium rate applicable to active executives, and
outplacement assistance in an amount up to 15% of the executive’s base salary.
Back to Contents |
Inthat in the event that excise taxes apply to payments to the executives by the Company upon a change in control, the Company will make an additional tax gross upgross-up payment to the executive in an amount necessary to leave the executive “whole,” as if no excise tax had applied.Since the fourth quarter of 2010, the excise tax gross-up is no longer offered in any new change in control agreements.No payments have been made to any of the NEOs under these agreements.
In the
The award agreements a “change in control” is generally defined to include:
any person or group becoming the beneficial owner of 35% or more of either the Company’s common stock or the combined voting power of the Company���s outstanding voting securities, with certain exceptions,
specified changes in a majority of the members of the Board of Directors,
a reorganization, merger or consolidation or sale or other disposition of substantiallyfor all of the Company’s assets is consummated, unless, followingNEOs’ long-term equity awards also include provisions for the transaction:
|
|
|
a liquidation or dissolutionimmediate vesting of all unvested awards upon the Company.
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Each of the award agreements for performance shares, hybrid performance shares and stock appreciation rights have provisions addressing the consequences of a change in control event, as follows:
• | payment with respect to traditional performance shares based on performance through the change in control event as more fully described above under “Grants of Plan-Based Awards;” |
• | immediate vesting and exercisability of all of the executive’s stock options and SAR awards, with exercisability extended for the full term of the award; |
• | immediate vesting and lapse of restrictions on any outstanding restricted stock grants; and |
• | immediate vesting of any outstanding hybrid performance shares. |
For a more detailed discussion of the terms of these awards, see above under Grants“Grants of Plan-Based Awards.”
CEO Employment Agreement
In addition to a change in control agreement, the Company haswe have entered into an employment agreement with Mr. Dinges. The employment agreement provides that if Mr. Dinges terminates his employment for good reason (as defined) or if the Company terminates his employment other than for cause (as defined), Mr. Dinges will receive:
a lump sum cash payment equal to two times his annual base salary plus two times his annual target bonus,
a 24-month continuation of medical and life insurance programs at the premium rate applicable to active executives,
full vesting of all of his restricted stock awards,
full vesting of all of his stock option awards and SAR awards, with exercisability extending for 36 months following termination (or the expiration of the original term, if earlier), and
full vesting of all of his performance shares, subject to the payout provisions in the underlying award agreements.
Under the terms of Mr. Dinges’ Employment Agreement,employment agreement, in the event of a change in control, Mr. Dinges will receive the more generous of the benefits and payments, as determined on a benefit-by-benefit basis, under either his change in control agreement or his employment agreement, but not both.
The following table showsemployment agreement provides that if Mr. Dinges terminates his employment for good reason (as defined) or if the potential payments upon terminationCompany terminates his employment other than for Dan O.cause (as defined), Mr. Dinges Chairman, President and Chief Executive Officer.will receive:
Dan O. Dinges | ||||||||||||||||||||||||||||||||
Executive Benefit and Payments Upon Separation | Voluntary Termination for Good Reason | Voluntary Termination | Retirement (1) | Involuntary Not For Cause Termination | For Cause Termination | Change In Control | Disability | Death | ||||||||||||||||||||||||
Compensation | ||||||||||||||||||||||||||||||||
Multiple of Salary (0x, 2x or 3x) | $ | 1,300,000 | $ | 0 | $ | 0 | $ | 1,300,000 | $ | 0 | $ | 1,950,000 | $ | 0 | $ | 0 | ||||||||||||||||
Multiple of Bonus (0x, 2x or 3x) | 1,300,000 | 0 | 0 | 1,300,000 | 0 | 4,250,000 | 0 | 0 | ||||||||||||||||||||||||
Long-Term Incentive Compensation | ||||||||||||||||||||||||||||||||
Performance Share Vesting (2) | 19,157,236 | 0 | 19,157,236 | 19,157,236 | 0 | 19,157,236 | 19,157,236 | 19,157,236 | ||||||||||||||||||||||||
Stock Appreciation Rights Vesting | 3,892,099 | 0 | 3,892,099 | 3,892,099 | 0 | 3,892,099 | 3,892,099 | 3,892,099 | ||||||||||||||||||||||||
Benefits & Perquisites | ||||||||||||||||||||||||||||||||
Payout of Deferred Compensation (3) | 7,290,303 | 7,290,303 | 7,290,303 | 7,290,303 | 7,290,303 | 7,290,303 | 7,290,303 | 7,290,303 | ||||||||||||||||||||||||
Health, Life, and Welfare Benefits Continuation | 32,855 | 0 | 0 | 32,855 | 0 | 49,282 | 0 | 0 | ||||||||||||||||||||||||
Excise Tax & Gross-Up | 0 | 0 | 0 | 0 | 0 | 8,055,767 | 0 | 0 | ||||||||||||||||||||||||
Outplacement Services | 0 | 0 | 0 | 0 | 0 | 97,000 | 0 | 0 | ||||||||||||||||||||||||
Earned Vacation | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Total | $ | 32,972,493 | $ | 7,290,303 | $ | 30,339,638 | $ | 32,972,493 | $ | 7,290,303 | $ | 44,741,687 | $ | 30,339,638 | $ | 30,339,638 |
a lump-sum cash payment equal to two times his annual base salary plus two times his annual target bonus; | |
• | a 24-month continuation of medical and life insurance programs at the premium rate applicable to active executives; |
• | full vesting of all of his restricted stock awards; |
• | full vesting of all of his stock option awards and SAR awards, with exercisability extending for 36 months following termination (or the expiration of the original term, if earlier); and |
• | full vesting of all of his performance shares, subject to the payout provisions in the underlying award agreements. |
Potential Payments to NEOs
The tables below reflect the compensation payable to each NEO upon voluntary termination, retirement, involuntary not-for-cause termination, for cause termination, termination following a change in control and in the event of disability or death of the executive. The actual amounts to be paid out can only be determined at the time of such executive’s separation from the Company.
-2014 Proxy Statement43
DAN O. DINGES, CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
Voluntary | Involuntary | |||||||||||||||||||||||||||||||
Termination | Not For | Change In | ||||||||||||||||||||||||||||||
Executive Benefit and | for Good | Voluntary | Retirement | Cause | For Cause | Control | ||||||||||||||||||||||||||
Payments Upon Separation | Reason | Termination | (1) | Termination | Termination | (2) | Disability | Death | ||||||||||||||||||||||||
Compensation | ||||||||||||||||||||||||||||||||
Multiple of Salary (0x, 2x or 3x) | $ | 1,650,000 | - | - | $ | 1,650,000 | - | $ | 2,475,000 | - | - | |||||||||||||||||||||
Multiple of Bonus (-x, 2x or 3x) | $ | 1,650,000 | - | - | $ | 1,650,000 | - | $ | 5,250,000 | - | - | |||||||||||||||||||||
Long-Term Incentive Compensation | ||||||||||||||||||||||||||||||||
Performance Share Vesting(3) | $ | 16,737,886 | - | $ | 16,737,886 | $ | 16,737,886 | - | $ | 16,737,886 | $ | 16,737,886 | $ | 16,737,886 | ||||||||||||||||||
Stock Appreciation Rights Vesting(4) | $ | 3,332,018 | - | $ | 3,332,018 | $ | 3,332,018 | - | $ | 3,332,018 | $ | 3,332,018 | $ | 3,332,018 | ||||||||||||||||||
Benefits & Perquisites | ||||||||||||||||||||||||||||||||
Payout of Deferred Compensation(5) | $ | 14,213,824 | $ | 14,213,824 | $ | 14,213,824 | $ | 14,213,824 | $ | 14,213,824 | $ | 14,213,824 | $ | 14,213,824 | $ | 14,213,824 | ||||||||||||||||
Health, Life, and Welfare Benefits Continuation | $ | 30,414 | - | - | $ | 30,414 | - | $ | 45,621 | - | - | |||||||||||||||||||||
Excise Tax & Gross-Up | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Outplacement Services | - | - | - | - | - | 123,750 | - | - | ||||||||||||||||||||||||
Earned Vacation | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Total | $ | 37,614,142 | $ | 14,213,824 | $ | 34,283,728 | $ | 37,614,142 | $ | 14,213,824 | $ | 42,178,099 | $ | 34,283,728 | $ | 34,283,728 |
(1) | Mr. Dinges was retirement eligible on December 31, |
(2) | Amounts in this column representing accelerated vestings of long-term incentive compensation will occur immediately upon the change in control event, pursuant to the terms of the awards. |
(3) | The amounts set forth in this row represent a payout at achievement of 100% of pre-established performance objectives. |
34
The following table shows the potential payments upon termination for Scott C. Schroeder, Vice President, CFO and Treasurer.
Scott C. Schroeder | ||||||||||||||||||||||||||||
Executive Benefit and Payments Upon Separation | Voluntary Termination | Retirement (1) | Involuntary Not For Cause Termination | For Cause Termination | Change In Control | Disability | Death | |||||||||||||||||||||
Compensation | ||||||||||||||||||||||||||||
Multiple of Salary (0x, 2x or 3x) | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 1,140,000 | $ | 0 | $ | 0 | ||||||||||||||
Multiple of Bonus (0x, 2x or 3x) | 0 | 0 | 0 | 0 | 2,203,500 | 0 | 0 | |||||||||||||||||||||
Long-Term Incentive Compensation | ||||||||||||||||||||||||||||
Performance Share Vesting (2) | 0 | 0 | 0 | 0 | 7,089,136 | 7,089,136 | 7,089,136 | |||||||||||||||||||||
Stock Appreciation Rights Vesting | 0 | 0 | 0 | 0 | 1,436,209 | 1,436,209 | 1,436,209 | |||||||||||||||||||||
Benefits & Perquisites | ||||||||||||||||||||||||||||
Payout of Deferred Compensation (3) | 4,698,917 | 4,698,917 | 4,698,917 | 4,698,917 | 4,698,917 | 4,698,917 | 4,698,917 | |||||||||||||||||||||
Health, Life, and Welfare Benefits Continuation | 0 | 0 | 0 | 0 | 76,932 | 0 | 0 | |||||||||||||||||||||
Excise Tax & Gross-Up | 0 | 0 | 0 | 0 | 3,645,949 | 0 | 0 | |||||||||||||||||||||
Outplacement Services | 0 | 0 | 0 | 0 | 57,000 | 0 | 0 | |||||||||||||||||||||
Earned Vacation | 43,841 | 43,841 | 43,841 | 43,841 | 43,841 | 43,841 | 43,841 | |||||||||||||||||||||
Total | $ | 4,742,758 | $ | 4,742,758 | $ | 4,742,758 | $ | 4,742,758 | $ | 20,391,484 | $ | 13,268,103 | $ | 13,268,103 |
The value of the SARs was computed using the difference between the closing price of the Company’s common stock on December 31, 2013 of $38.76 and the grant price of the SARs, which was the average of the high and low prices of the Company’s common stock on the dates of grant of the SARs. | |
(5) | Amounts in this row represent earned compensation voluntarily deferred by the NEO under the terms of the |
-2014 Proxy Statement44
SCOTT C. SCHROEDER, EXECUTIVE VICE PRESIDENT, CFO AND TREASURER
35
The following table shows the potential payments upon termination for Jeffrey W. Hutton, Vice President, Marketing.
Involuntary | Change In | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Jeffrey W. Hutton | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Executive Benefit and Payments Upon Separation | Voluntary Termination | Retirement (1) | Involuntary Not For Cause Termination | For Cause Termination | Change In Control | Disability | Death | |||||||||||||||||||||||||||||||||||||||||||||||||
Executive Benefit and Payments | Voluntary | Retirement | Not For Cause | For Cause | Control | |||||||||||||||||||||||||||||||||||||||||||||||||||
Upon Separation | Termination | (1) | Termination | Termination | (2) | Disability | Death | |||||||||||||||||||||||||||||||||||||||||||||||||
Compensation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Multiple of Salary (0x, 2x or 3x) | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 822,000 | $ | 0 | $ | 0 | ||||||||||||||||||||||||||||||||||||||||||
Multiple of Bonus (0x, 2x or 3x) | 0 | 0 | 0 | 0 | 939,700 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||
Multiple of Salary (0x or 3x) | - | - | - | - | $ | 1,350,000 | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
Multiple of Bonus (0x or 3x) | - | - | - | - | $ | 3,150,000 | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
Long-Term Incentive Compensation | Long-Term Incentive Compensation | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Performance Share Vesting (2) | 0 | 2,781,431 | 0 | 0 | 2,781,431 | 2,781,431 | 2,781,431 | |||||||||||||||||||||||||||||||||||||||||||||||||
Stock Appreciation Rights Vesting | 0 | 562,457 | 0 | 0 | 562,457 | 562,457 | 562,457 | |||||||||||||||||||||||||||||||||||||||||||||||||
Performance Share Vesting(3) | - | - | - | - | $ | 6,734,085 | $ | 6,734,085 | $ | 6,734,085 | ||||||||||||||||||||||||||||||||||||||||||||||
Stock Appreciation Rights Vesting(4) | - | - | - | - | $ | 1,243,532 | $ | 1,243,532 | $ | 1,243,532 | ||||||||||||||||||||||||||||||||||||||||||||||
Benefits & Perquisites | Benefits & Perquisites | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Payout of Deferred Compensation (3) | 706,787 | 706,787 | 706,787 | 706,787 | 706,787 | 706,787 | 706,787 | |||||||||||||||||||||||||||||||||||||||||||||||||
Payout of Deferred Compensation(5) | $ | 9,610,418 | $ | 9,610,418 | $ | 9,610,418 | $ | 9,610,418 | $ | 9,610,418 | $ | 9,610,418 | $ | 9,610,418 | ||||||||||||||||||||||||||||||||||||||||||
Health, Life, and Welfare Benefits Continuation | 0 | 0 | 0 | 0 | 35,072 | 0 | 0 | - | - | - | - | $ | 80,279 | - | - | |||||||||||||||||||||||||||||||||||||||||
Excise Tax & Gross-Up | 0 | 0 | 0 | 0 | 1,517,837 | 0 | 0 | - | - | - | - | $ | 5,418,828 | - | - | |||||||||||||||||||||||||||||||||||||||||
Outplacement Services | 0 | 0 | 0 | 0 | 41,100 | 0 | 0 | - | - | - | - | $ | 67,500 | - | - | |||||||||||||||||||||||||||||||||||||||||
Earned Vacation | 23,843 | 23,843 | 23,843 | 23,843 | 23,843 | 23,843 | 23,843 | $ | 35,697 | $ | 35,697 | $ | 35,697 | $ | 35,697 | $ | 35,697 | $ | 35,697 | $ | 35,697 | |||||||||||||||||||||||||||||||||||
Total | $ | 730,630 | $ | 4,074,518 | $ | 730,630 | $ | 730,630 | $ | 7,430,227 | $ | 4,074,518 | $ | 4,074,518 | $ | 9,646,115 | $ | 9,646,115 | $ | 9,646,115 | $ | 9,646,115 | $ | 27,690,339 | $ | 17,623,732 | $ | 17,623,732 |
(1) | Mr. |
(2) | Amounts in this column representing accelerated vestings of long-term incentive compensation will occur immediately upon the change in control event, pursuant to the terms of the awards. |
(3) | The amounts set forth in this row represent a payout at achievement of 100% of pre-established performance objectives. |
The value of the SARs was computed using the difference between the closing price of the Company’s common stock on December 31, 2013 of $38.76 and the grant price of the SARs, which was the average of the high and low prices of the Company’s common stock on the dates of grant of the SARs. | |
(5) | Amounts in this row represent earned compensation voluntarily deferred by the NEO under the terms of the |
-2014 Proxy Statement45
JEFFREY W. HUTTON, SENIOR VICE PRESIDENT, MARKETING
36
The following table shows the potential payments upon termination for G. Kevin Cunningham, Vice President and General Counsel.
Involuntary | Change In | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
G. Kevin Cunningham | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Executive Benefit and Payments Upon Separation | Voluntary Termination | Retirement (1) | Involuntary Not For Cause Termination | For Cause Termination | Change In Control | Disability | Death | |||||||||||||||||||||||||||||||||||||||||||||||||
Executive Benefit and Payments | Voluntary | Retirement | Not For Cause | For Cause | Control | |||||||||||||||||||||||||||||||||||||||||||||||||||
Upon Separation | Termination | (1) | Termination | Termination | (2) | Disability | Death | |||||||||||||||||||||||||||||||||||||||||||||||||
Compensation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Multiple of Salary (0x, 2x or 3x) | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 870,000 | $ | 0 | $ | 0 | ||||||||||||||||||||||||||||||||||||||||||
Multiple of Bonus (0x, 2x or 3x) | 0 | 0 | 0 | 0 | 812,000 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||
Multiple of Salary (0x or 3x) | - | - | - | - | $ | 1,020,000 | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
Multiple of Bonus (0x or 3x) | - | - | - | - | $ | 1,740,000 | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
Long-Term Incentive Compensation | Long-Term Incentive Compensation | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Performance Share Vesting (2) | 0 | 0 | 0 | 0 | 973,038 | 973,038 | 973,038 | |||||||||||||||||||||||||||||||||||||||||||||||||
Stock Appreciation Rights Vesting | 0 | 0 | 0 | 0 | 178,332 | 178,332 | 178,332 | |||||||||||||||||||||||||||||||||||||||||||||||||
Restricted Stock Vesting | 379,500 | 379,500 | 379,500 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Performance Share Vesting(3) | - | $ | 2,256,995 | - | - | $ | 2,256,995 | $ | 2,256,995 | $ | 2,256,995 | |||||||||||||||||||||||||||||||||||||||||||||
Stock Appreciation Rights Vesting(4) | - | $ | 445,041 | - | - | $ | 445,041 | $ | 445,041 | $ | 445,041 | |||||||||||||||||||||||||||||||||||||||||||||
Benefits & Perquisites | Benefits & Perquisites | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Payout of Deferred Compensation (3) | 37,162 | 37,162 | 37,162 | 37,162 | 37,162 | 37,162 | 37,162 | |||||||||||||||||||||||||||||||||||||||||||||||||
Payout of Deferred Compensation(5) | $ | 814,660 | $ | 814,660 | $ | 814,660 | $ | 814,660 | $ | 814,660 | $ | 814,660 | $ | 814,660 | ||||||||||||||||||||||||||||||||||||||||||
Health, Life, and Welfare Benefits Continuation | 0 | 0 | 0 | 0 | 38,315 | 0 | 0 | - | - | - | - | $ | 35,733 | - | - | |||||||||||||||||||||||||||||||||||||||||
Excise Tax & Gross-Up | 0 | 0 | 0 | 0 | 0 | 0 | 0 | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Outplacement Services | 0 | 0 | 0 | 0 | 43,500 | 0 | 0 | - | - | - | - | $ | 51,000 | - | - | |||||||||||||||||||||||||||||||||||||||||
Earned Vacation | 2,370 | 2,370 | 2,370 | 2,370 | 2,370 | 2,370 | 2,370 | $ | 21,740 | $ | 21,740 | $ | 21,740 | $ | 21,740 | $ | 21,740 | $ | 21,740 | $ | 21,740 | |||||||||||||||||||||||||||||||||||
Total | $ | 39,532 | $ | 39,532 | $ | 39,532 | $ | 39,532 | $ | 3,334,217 | $ | 1,570,402 | $ | 1,570,402 | $ | 836,400 | $ | 3,538,436 | $ | 836,400 | $ | 836,400 | $ | 6,385,169 | $ | 3,538,436 | $ | 3,538,436 |
(1) | Mr. |
(2) | Amounts in this column representing accelerated vestings of long-term incentive compensation will occur immediately upon the change in control event, pursuant to the terms of the awards. |
(3) | The amounts set forth in this row represent a payout at achievement of 100% of pre-established performance objectives. |
The value of the SARs was computed using the difference between the closing price of the Company’s common stock on December 31, 2013 of $38.76 and the grant price of the SARs, which was the average of the high and low prices of the Company’s common stock on the dates of grant of the SARs. | |
(5) | Amounts in this row represent earned compensation voluntarily deferred by the NEO under the terms of the |
-2014 Proxy Statement46
G. KEVIN CUNNINGHAM, VICE PRESIDENT AND GENERAL COUNSEL
37
The following table shows the potential payments upon termination for Lisa A. Machesney, Vice President, Managing Counsel and Corporate Secretary.
Involuntary | Change In | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Lisa A. Machesney | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Executive Benefit and Payments Upon Separation | Voluntary Termination | Retirement (1) | Involuntary Not For Cause Termination | For Cause Termination | Change In Control | Disability | Death | |||||||||||||||||||||||||||||||||||||||||||||||||
Executive Benefit and Payments | Voluntary | Retirement | Not For Cause | For Cause | Control | |||||||||||||||||||||||||||||||||||||||||||||||||||
Upon Separation | Termination | (1) | Termination | Termination | (2) | Disability | Death | |||||||||||||||||||||||||||||||||||||||||||||||||
Compensation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Multiple of Salary (0x, 2x or 3x) | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 813,000 | $ | 0 | $ | 0 | ||||||||||||||||||||||||||||||||||||||||||
Multiple of Bonus (0x, 2x or 3x) | 0 | 0 | 0 | 0 | 918,500 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||
Multiple of Salary (0x or 3x) | - | - | - | - | $ | 1,005,000 | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
Multiple of Bonus (0x or 3x) | - | - | - | - | $ | 1,522,500 | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
Long-Term Incentive Compensation | Long-Term Incentive Compensation | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Performance Share Vesting (2) | 0 | 2,541,739 | 0 | 0 | 2,541,739 | 2,541,739 | 2,541,739 | |||||||||||||||||||||||||||||||||||||||||||||||||
Stock Appreciation Rights Vesting | 0 | 511,721 | 0 | 0 | 511,721 | 511,721 | 511,721 | |||||||||||||||||||||||||||||||||||||||||||||||||
Performance Share Vesting(3) | - | - | - | - | $ | 2,125,831 | $ | 2,125,831 | $ | 2,125,831 | ||||||||||||||||||||||||||||||||||||||||||||||
Stock Appreciation Rights Vesting(4) | - | - | - | - | $ | 400,586 | $ | 400,586 | $ | 400,586 | ||||||||||||||||||||||||||||||||||||||||||||||
Restricted Stock Vesting | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Benefits & Perquisites | Benefits & Perquisites | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Payout of Deferred Compensation (3) | 394,971 | 394,971 | 394,971 | 394,971 | 394,971 | 394,971 | 394,971 | |||||||||||||||||||||||||||||||||||||||||||||||||
Payout of Deferred Compensation(5) | $ | 147,094 | $ | 147,094 | $ | 147,094 | $ | 147,094 | $ | 147,094 | $ | 147,094 | $ | 147,094 | ||||||||||||||||||||||||||||||||||||||||||
Health, Life, and Welfare Benefits Continuation | 0 | 0 | 0 | 0 | 80,947 | 0 | 0 | - | - | - | - | $ | 38,529 | - | - | |||||||||||||||||||||||||||||||||||||||||
Excise Tax & Gross-Up | 0 | 0 | 0 | 0 | 0 | 0 | 0 | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Outplacement Services | 0 | 0 | 0 | 0 | 40,650 | 0 | 0 | - | - | - | - | $ | 50,250 | - | - | |||||||||||||||||||||||||||||||||||||||||
Earned Vacation | 3,518 | 3,518 | 3,518 | 3,518 | 3,518 | 3,518 | 3,518 | $ | 161 | $ | 161 | $ | 161 | $ | 161 | $ | 161 | $ | 161 | $ | 161 | |||||||||||||||||||||||||||||||||||
Total | $ | 398,489 | $ | 3,451,949 | $ | 398,489 | $ | 398,489 | $ | 5,305,049 | $ | 3,451,949 | $ | 3,451,949 | $ | 147,255 | $ | 147,255 | $ | 147,255 | $ | 147,255 | $ | 5,289,951 | $ | 2,673,672 | $ | 2,673,672 |
(1) |
(2) | Amounts in this column representing accelerated vestings of long-term incentive compensation will occur immediately upon the change in control event, pursuant to the terms of the awards. |
(3) | The amounts set forth in this row represent a payout at achievement of 100% of pre-established performance objectives. |
The value of the SARs was computed using the difference between the closing price of the Company’s common stock on December 31, 2013 of $38.76 and the grant price of the SARs, which was the average of the high and low prices of the Company’s common stock on the dates of grant of the SARs. | |
(5) | Amounts in this row represent earned compensation voluntarily deferred by the NEO under the terms of the |
-2014 Proxy Statement47
PHILLIP L. STALNAKER, VICE PRESIDENT AND REGIONAL MANAGER, NORTH REGION
Involuntary | Change In | |||||||||||||||||||||||||||
Executive Benefit and Payments | Voluntary | Retirement | Not For Cause | For Cause | Control | |||||||||||||||||||||||
Upon Separation | Termination | (1) | Termination | Termination | (2) | Disability | Death | |||||||||||||||||||||
Compensation | ||||||||||||||||||||||||||||
Multiple of Salary (0x or 3x) | - | - | - | - | $ | 900,000 | - | - | ||||||||||||||||||||
Multiple of Bonus (0x or 3x) | - | - | - | - | $ | 1,290,000 | - | - | ||||||||||||||||||||
Long-Term Incentive Compensation | ||||||||||||||||||||||||||||
Performance Share Vesting(3) | - | - | - | - | $ | 1,810,789 | $ | 1,810,789 | $ | 1,810,789 | ||||||||||||||||||
Stock Appreciation Rights Vesting(4) | - | - | - | - | $ | 302,726 | $ | 302,726 | $ | 302,726 | ||||||||||||||||||
Benefits & Perquisites | ||||||||||||||||||||||||||||
Payout of Deferred Compensation(5) | $ | 236,399 | $ | 236,399 | $ | 236,399 | $ | 236,399 | $ | 236,399 | $ | 236,399 | $ | 236,399 | ||||||||||||||
Health, Life, and Welfare Benefits Continuation | - | - | - | - | $ | 81,208 | - | - | ||||||||||||||||||||
Excise Tax & Gross-Up | - | - | - | - | $ | 2,201,864 | - | - | ||||||||||||||||||||
Outplacement Services | - | - | - | - | $ | 45,000 | - | - | ||||||||||||||||||||
Earned Vacation | $ | 7,716 | $ | 7,716 | $ | 7,716 | $ | 7,716 | $ | 7,716 | $ | 7,716 | $ | 7,716 | ||||||||||||||
Total | $ | 244,115 | $ | 244,115 | $ | 244,115 | $ | 244,115 | $ | 6,875,702 | $ | 2,357,630 | $ | 2,357,630 |
38
(1) | Mr. Stalnaker was not retirement eligible on December 31, 2013. |
(2) | Amounts in this column representing accelerated vestings of long-term incentive compensation will occur immediately upon the change in control event, pursuant to the terms of the awards. |
(3) | The amounts set forth in this row represent a payout at achievement of 100% of pre-established performance objectives. Under normal conditions, the actual payout of the TSR performance awards will occur at the end of the relevant performance period, and may be higher or lower than 100% (up to a maximum of 200%) depending on the Company’s actual Total Shareholder Return ranking for the performance period. However, in the event of a change in control, the performance period will be shortened and payout will occur immediately following the change in control based on the greater of (i) Total Shareholder Return through the end of the month prior to the change in control, or (ii) Total Shareholder Return through the end of the month prior to the change in control using the value realized by shareholders in the change in control event. For hybrid performance shares, receipt of the full payout will occur at the original vesting dates set forth in the award agreements only if the relevant operating income targets are achieved, except in the case of a change in control, in which case full payout will be made immediately upon the change in control. These values were computed using the closing price of the Company’s common stock on December 31, 2013 of $38.76. |
(4) | The value of the SARs was computed using the difference between the closing price of the Company’s common stock on December 31, 2013 of $38.76 and the grant price of the SARs, which was the average of the high and low prices of the Company’s common stock on the dates of grant of the SARs. |
(5) | Amounts in this row represent earned compensation voluntarily deferred by the NEO under the terms of the deferred compensation plan. For more information, see “2013 Nonqualified Deferred Compensation” above. For termination of employment due to retirement, payment of the deferred compensation is based upon the NEO’s election at the time of deferral. For all other terminations of employment, payment of the deferred compensation is in a lump sum six months from the date of termination. |
Equity Compensation Plan InformationEQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 31, 20112013 regarding the number of shares of Common Stock that may be issued under the Company’s 2004 Incentive Plan, which is the only equity compensation plans. All of the Company’s equity compensation plans have beenplan with awards outstanding. The 2004 Incentive Plan was approved by stockholders. The table does not include information regarding the Company’s stockholders.2014 Incentive Plan, which was approved by our Board of Directors in February 2014, subject to stockholder approval at the Annual Meeting. Shares and share prices discussed in this proxy statement have been adjusted to reflect our two-for-one stock split, in the form of a stock dividend, effective as of January 26, 2012.August 14, 2013.
Plan Category | (a) Number of securities to be | (b) Weighted-average | (c) Number of securities remaining | |||
Equity compensation plans approved by security holders | 1,288,130 | $16.04 | 3,560,650(1) | |||
Equity compensation plans not approved by security holders | n/a | n/a | n/a | |||
Total | 1,288,130 | $16.04 | 3,560,650(1) |
Plan Category | (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights | (b) Weighted-average exercise price of outstanding options, warrants and rights | (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |||||||||
Equity compensation plans approved by security holders | 4,202,963 | (1) | $ | 12.63 | (2) | 1,731,635 | (3) | |||||
Equity compensation plans not approved by security holders | n/a | n/a | n/a | |||||||||
Total | 4,202,963 | (1) | $ | 12.63 | (2) | 1,731,635 | (3) |
(1) | |
(2) | Price is only with respect to the 667,764 SARs outstanding because all other outstanding awards were issued without an exercise price. The outstanding SARs have a weighted average remaining term of 4.3 years. |
(3) | Includes: 27,806 shares of restricted stock, the restrictions on which lapse on various dates in 2014, 2015 and 2016; and 1,703,829 shares that are available for future grants under the 2004 Incentive Plan. On April 29, 2014, the 2004 Incentive Plan expires and no additional shares may be granted under that plan. |
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The Audit Committee is composed of fourthree independent, non-employee directors. The Board of Directors has made a determination that the members of the Audit Committee satisfy the requirements of the NYSE listing standards as to independence, financial literacy and experience. The Board determined that one of the members of the Audit Committee, Mr. Kelley, is an “audit committee financial expert” as defined by rules of the SEC. The responsibilities of the Audit Committee are set forth in the Audit Committee Charter, which was adopted in December 2003 andas amended from time to time by the Board of Directors, andwhich is included on the Company’s website atwww.cabotog.com. The function of the Audit Committee is to review and report to the Board of Directors with respect to various auditing and accounting matters, including overseeing the integrity of the financial statements of the Company, the compliance by the Company with legal and regulatory requirements, the selection, independence, qualifications, performance and compensation of the Company’s independent registered public accounting firm and the performance of the Company’s internal audit function. The Audit Committee also reviews its charter annually. This is a report on the Audit Committee’s activities relating to 2011.2013.
Review of Audited Financial Statements with Management
The Audit Committee reviewed and discussed the audited financial statements and management’s discussion and analysis of the Company’s financial condition and results of operations with the management of the Company.
Review of Financial Statements and Other Matters with Independent Registered Public Accounting Firm
The Audit Committee discussed with the independent registered public accounting firm the matters required to be discussed as described in Statement on Auditing Standards (“SAS”) No. 61-Communication16 - Communication with Audit Committees, as updated by SAS No. 89-Audit Adjustments, and SAS No. 90-Audit Committee Communications.Committees. The Audit Committee has received and reviewed the written disclosures and the letter from PricewaterhouseCoopers LLP (“PWC”), the Company’s independent registered public accounting firm, required by applicable Public Company Accounting Oversight Board
39
requirements regarding the firm’s communications with the Audit Committee concerning independence and has discussed with PWC the independent registered public accounting firm’s independence. These discussions included a review of all audit and non-audit services (including tax services) provided by PWC to the Company.
Recommendation that Financial Statements be Included in the Annual Report
Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year 2011 for filingended December 31, 2013 and filed with the SEC.
Audit Committee
Robert Kelley (Chairman)
Rhys J. Best
James R. Gibbs
Robert L. Keiser
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FEES BILLED BY INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FOR SERVICES IN 20112013 AND 20102012
Fee Type* | 2011 | 2010 | ||
Audit Fees | $1,350,000 | $1,361,500 | ||
Audit Related Fees | - | - | ||
Tax Fees (1) | $322,729 | $620,695 | ||
All Other Fees (2) | $1,500 | $1,500 |
* No pre-approved requirements were waived under thede minimisexception.
Fee Type* | 2013 | 2012 | ||||||
Audit Fees | $ | 1,525,000 | $ | 1,561,000 | ||||
Audit Related Fees(1) | $ | 80,185 | - | |||||
Tax Fees(2) | $ | 600,002 | $ | 257,256 | ||||
All Other Fees(3) | $ | 1,919 | $ | 1,919 |
No pre-approved requirements were waived under the de minimis exception. | |
(1) | Consists of audit-related fees associated with the divestiture of certain oil and gas properties during 2013. The Company was reimbursed for these fees by the purchaser of the properties. |
(2) | Consists of federal, |
Consists of an accounting research software license. |
PROPOSAL II
PROPOSAL 2 | APPOINTMENT OF INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM |
APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has approved and recommended the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm to examine the Company’s financial statements for 2012.2014. The persons named in the accompanying proxy will vote in accordance with the choice specified thereon, or, if no choice is properly indicated, in favor of the ratification of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Company. A representative of PricewaterhouseCoopers LLP is not expected to be in attendance at the Annual Meeting.
See “Audit Committee Report” above for further information.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTEFOR RATIFICATION OF THE APPOINTMENT OF THE FIRM OF PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE COMPANY FOR ITS 20122014 FISCAL YEAR.YEAR.
PROPOSAL III
PROPOSAL 3 | TO APPROVE, BY NON-BINDING ADVISORY VOTE, THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS |
The stockholdersshareholders of the Company are entitled to vote at the Annual Meeting to approve the compensation of the Company’s NEOs, as disclosed in this Proxy Statement. The stockholdershareholder vote on executive compensation is an advisory vote only, and it is not binding on the Company or the Board of Directors. Although the vote is non-binding, the Compensation Committee and the Board value the opinions of the stockholdersshareholders and will consider the outcome of the vote when making future compensation decisions.
40
As described more fully in the Compensation Discussion and Analysis section of this Proxy Statement, the Company’s executive compensation program is designed to:
Align executive compensation design and outcomes with business strategy;
• | Align executive compensation design and outcomes with business strategy; |
• | Encourage management to create sustained value for the shareholders while managing inherent business risks; |
• | Attract, retain, and engage talented executives; and |
Encourage management to create sustained value for the stockholders while managing inherent business risks;
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Attract, retain, and engage talented executives; and
The executive compensation program seeks to align executive compensation with stockholdershareholder value on an annual and long-term basis through a combination of base pay, annual cash incentive bonus and long-term equity award incentives. The annual cash incentive bonus is based on Company-wide performance for year-over-year oil and natural gas reserve and production growth, along with absolute levels for finding costs and unit production costs. For 2011,2013, the aggregate bonus award pool for the annual cash incentive bonus was limited to 250%225% of the target percentage opportunity.bonus.
In addition, in 2013 long-term incentive awards arewere comprised of (i) SARs,TSR performance shares, which are designed to link executive compensation with increased stockholder value over a seven year term and (ii) performance shares, one type which is based on operating cash flow and the other type which is based on total stockholdershareholder return relative to an industry peer group over a three-year performance period, and (ii) hybrid performance shares, which are based on annual operating cash flow and vest over a three year period.
At-risk compensation for the Chief Executive Officer isin 2013 was targeted at 80%89% and for the other NEOs was targeted at 70%an average of 81%. The Company also has several governance programs in place to align executive compensation with stockholdershareholder interests. These programs include: an annual advisory vote on executive compensation, stock ownership guidelines, an anti-hedging policy, limited perquisites and the use of wealth accumulation spreadsheets. For information on the Company’s 20112013 operational and financial accomplishments, see “Compensation Discussion and Analysis” above.
The advisory vote regarding the compensation of the NEOs described in this Proposal III shall3 will be approved if a majority of the shares present in person or by proxy at the meeting and entitled to vote on the proposal vote in favor of the proposal. Abstentions will have the same effect as votes against the proposal, but broker non-votes will not effect the outcome of the voting on the proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTEFORTHE APPROVAL OF THE COMPENSATION PAID TO OUR NAMED EXECUTIVE OFFICERS.
PROPOSAL IV
APPROVAL OF AN AMENDMENT TO THE COMPANY’S CERTIFICATE OF INCORPORATION
PROPOSAL 4 | APPROVAL OF AN AMENDMENT TO THE COMPANY’S CERTIFICATE OF INCORPORATION TO INCREASE THE AUTHORIZED SHARES OF COMMON STOCK |
The Board of Directors has approved and declared advisable, and is recommending to the stockholders for approval at the Annual Meeting, an amendment to Article IV of the Company’s Certificate of Incorporation, as amended, which sets forth the terms of the Company’s authorized capital stock. Article IV currently authorizes 240,000,000480,000,000 shares of Common Stock, as well as 5,000,000 shares of Preferred Stock, par value $.10 per share. The proposed amendment would increase the authorized Common Stock to 480,000,000960,000,000 shares of Common Stock. The authorized shares of Preferred Stock would remain 5,000,000. If adopted by the stockholders, this amendment would become effective upon filing of an appropriate Certificate of Amendment with the Secretary of State of the State of Delaware. The proposed amendment to Article IV of the Certificate of Incorporation would replace the first sentence of the Article with the following:
The aggregate number of shares of all classes of stock which the Company shall have authority to issue is 485,000,000,965,000,000, divided into 5,000,000 shares of Preferred Stock, par value $.10 per share (“Preferred Stock”), and 480,000,000960,000,000 shares of Common Stock, par value $.10 per share (the “Common Stock”).
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The additional shares of Common Stock authorized by the proposed amendment, if and when issued, would have the same rights and privileges as the shares of Common Stock currently authorized. The Common Stock has no preemptive rights to purchase Common Stock or other securities. In addition, under Delaware law, the Company’sour stockholders are not entitled to dissenters’ or appraisal rights in connection with the proposed increase in the number of shares of Common Stock authorized for issuance.
The Company
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Historical Stock Issuance
As of December 31, 2013, we had issued 104,638,350approximately 422,015,000 shares of common stock, over 92% of which (389,477,333 shares) have been issued since December 31, 2003. Of the shares issued during this ten-year period, over 90% have been issued as a result of stock splits, which are not dilutive to stockholders, as indicated in the chart below.
SHARES ISSUED SINCE DECEMBER 31, 2003 (389,477,333 SHARES)
Most recently, we issued 210,979,760 shares of Common Stock in connection with its January 2012our August 2013 two-for-one stock split. AtAs of February 1, 2012, 208,872,3002014, 416,620,608 shares of Common Stock were issued and outstanding and 10,723,3003,859,985 were reserved for issuance under the Company’s 2004 Incentive Plan. As a result, only approximately 2060 million shares are available for issuance for future purposes. In this light,purposes and the Board of Directors deems it advisable to increase the Company’sour authorized Common Stock. The additional Common Stock to be authorized would be available for possible stock dividends or splits, future financing and acquisition transactions, employee benefit plans and other corporate purposes. Having such shares available for issuance in the future would give the Company greater flexibility and allow shares of Common Stock to be issued without the expense and delay of a stockholders’ meeting. The additional shares of Common Stock would be available for issuance without further action by the stockholders unless such action is required by applicable law or the rules of any stock exchange on which the Common Stock may be listed. The New York Stock Exchange, on which the Common Stock is listed, currently requires stockholder approval as a prerequisite to listing shares in certain instances, including in connection with acquisition transactions where the present or potential issuance of shares could result in an increase in the number of shares of common stock outstanding of at least 20%.
The Company has
We have no present arrangements, commitments, understandings or pending negotiations for the issuance of additional shares of newly authorized Common Stock.
The Company
We have has not proposed the increase in the authorized number of shares of Common Stock with the intention of using the additional shares for anti-takeover purposes, although the Companywe could theoretically use the additional shares to make more difficult or to discourage an attempt to acquire control of the Company. The Company isWe are not aware of any pending or threatened efforts to acquire control of the Company.
Approval of the proposal to increase the number of authorized shares of Common Stock by amending the Company’s Certificate of Incorporation requires the affirmative vote of a majority of the shares outstanding on the record date and entitled to vote. Votes may be cast FOR or AGAINST the proposal, and stockholders may also ABSTAIN from voting on the proposal. Because shares represented by abstentions or broker non-votes are considered outstanding, abstentions and broker non-votes will have the same effect as a vote AGAINST the proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTEFOR APPROVAL OF THE PROPOSED AMENDMENT TO THE COMPANY’S CERTIFICATE OF INCORPORATION.
PROPOSAL V
APPROVAL OF AMENDMENTS TO OUR BY-LAWS TO ELIMINATE THE CLASSIFIED BOARD OF DIRECTORS -2014 Proxy Statement53
PROPOSAL 5 | APPROVAL OF THE 2014 INCENTIVE PLAN |
We are asking our stockholders to approve the Cabot Oil & Gas Corporation 2014 Incentive Plan (the “2014 Plan”). Our Board of Directors approved the 2014 Plan, subject to stockholder approval, on February 20, 2014, to replace our 2004 Incentive Plan (the “2004 Plan”), which expires on April 29, 2014, ten years after its initial approval by our stockholders. After that date, no additional awards may be granted under the 2004 Plan. The 2014 Plan is summarized below and the full text of the 2014 Plan is attached to this proxy statement as Appendix A.
The 2014 Plan is intended to replace our 2004 Plan and is needed to continue our equity compensation program. As of December 31, 2013, there were 1,703,829 shares of common stock remaining available for grant under the 2004 Plan, none of which will (i) be granted after the Annual Meeting or (ii) become available for grant under our 2014 Plan. Any previously granted awards that are outstanding under the 2004 Plan will remain outstanding in accordance with their terms. As of December 31, 2013 there were 4,230,769 shares of common stock subject to outstanding awards under the 2004 Plan.
If the 2014 Plan is approved by the stockholders, the Company will have 18 million shares of common stock available for future equity awards. If the 2014 Plan is not approved by the stockholders, we will not be able to fund our long-term incentive program and the Company may be required to increase significantly the cash component of our executive compensation program in order to remain competitive and adequately compensate our employees. Such a drastic change in our long-term incentive program could cause significant misalignment between executive and stockholder interests.
We believe that incentive awards are critical to attracting, retaining and engaging highly qualified employees and to aligning their financial interests with the financial interests of our stockholders. Our Board recommends that stockholders approve the 2014 Plan to allow us to continue to provide such incentives.
Stockholder approval of the 2014 Plan will also constitute approval for purposes of satisfying the stockholder approval requirements (i) under Section 162(m) of the Internal Revenue Code of 1986, as amended, or the rules and regulations thereunder, so that the Compensation Committee has the discretion to grant equity- and cash-based awards in the future under the 2014 Plan that meet the requirements of “performance-based compensation” under Section 162(m) and (ii) under Section 422 of the Internal Revenue Code so that the Compensation Committee may grant incentive stock options, or ISOs.
The Board believes that the 2004 Plan has been effective in attracting and retaining highly qualified employees and non-employee directors and has provided incentives that align the economic interests of participants with those of our shareholders. The 2014 Plan retains most of the material terms of the 2004
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Plan, with certain changes to better align our plan with current trends related to plan design and corporate governance, as illustrated by the table below:
2004 Plan | 2014 Plan | |||
Authorized Shares | 20,400,000 (adjusted for stock splits) | 18,000,000 | ||
Definition of Fair MarketValue | Generally, average of highest and lowest reported sales prices on a trading day | Generally, closing sales price on a trading day | ||
Available shares from priorplans | Shares reserved but not subject to awards under prior plans available for awards under 2004 Plan | No use of shares from prior plans | ||
Repricing of Options andSARS | Prohibited with respect to options, but silent as to SARs (no SARs were ever repriced) | Expressly prohibited with respect to options and SARs | ||
Plan-level limits for certaintypes of awards | Contains limits on number of shares used for stock awards that are non performance-based and for incentive stock options | Contains limit on number of shares used for awards of incentive stock options | ||
Dividends;Dividend Equivalents | Available on all types of awardsCould be paid on unvested awards | Not available for stock options or SARsCan be paid only on vested awards | ||
Clawbacks | Not expressly addressed | All awards will be subject to any clawback policy we adopt | ||
Expiration protection forOptions or SARs | Not expressly addressed | Extends term of outstanding stock options or SARs for additional 30 days if expires during trading blackout period under Company insider trading policy | ||
Automatic exercise of stock options and SARs if the exercise price is less than the fair market value at expiration |
Best Practice Features of the 2014 Plan
• | No Repricing of Options or SARs.Prohibits repricing, replacement and regranting of stock options and SARs at lower prices unless approved by our stockholders. |
• | No Discounted Options or SARs.Stock options and SARs may not be granted with an exercise price below the closing price of our Common Stock on the NYSE on the date of grant. |
• | No Dividends on Options or SARs.Dividends and dividend equivalents may not be paid or accrued on unvested stock options or SARs. |
• | Limited terms for Options and SARs.Stock options and SARs granted under the 2014 Plan are limited to 10 year terms. |
• | Awards may be subject to future clawback or recoupment.All awards granted under the 2014 Plan will be subject to any clawback policy we have or adopt. |
• | No Transferability.Awards generally may not be transferred, except by will or the laws of descent and distribution, unless approved by the Compensation Committee. |
• | No “Evergreen” Provision.Shares authorized for issuance under the 2014 Plan will not be automatically replenished. Any additional shares to be issued over and above the amount for which we are seeking authorization must be approved by the stockholders. |
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• | No Automatic Grants. There are no automatic grants to new participants or “reload” grants when outstanding awards are exercise, expire or are forfeited. |
• | No Tax Gross-ups.Participants do not receive taxgross-ups under the 2014 Plan. |
Key Historical Stock Usage Data
The Compensation Committee, which administers the 2004 Plan and will administer the 2014 Plan, if approved, believes it is important to strike a balance between stockholder concerns regarding the potential dilutive effect of equity awards and the ability to attract, retain and engage employees whose contributions are critical to the Company’s by-lawslong-term success. As shown in the chart below, the Company’s three-year average annual burn rate under the 2004 Plan is 0.35%, which is well below the Institutional Shareholder Services (ISS) 2013 mean burn rate and ISS burn rate cap for Russell 3000 companies in our industry of 2.18% and 4.57%, respectively.
In determining the number of shares to make available under the 2014 Plan, the Compensation Committee considered the key historical stock usage data under the 2004 Plan described above, the advice of Meridian Compensation Partners, LLP, its independent compensation consultant, and the estimated cost and dilution of the 2014 Plan. The Compensation Committee also considered the input of several of our largest stockholders as provided by published equity plan approval guidelines and in direct conversations between members of management and the stockholders. The Compensation Committee also considered many factors that affect the number of shares required for long-term incentive equity awards, such as changes in stock price over the life of the plan, the number of participants in the program and the size of awards to each participant. Considering all of these factors, the Compensation Committee determined that 18 million shares is a prudent amount to satisfy the long-term incentive goals of the 2014 Plan and also meet the expectations of the stockholders for minimal levels of dilution. None of the shares remaining available for grant
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under the 2004 Plan would be available for issuance under the 2014 Plan.
If the 2014 Plan is approved, the total dilution from all outstanding awards under the 2004 Plan as of December 31, 2013 and the 18 million shares requested for issuance under the 2014 Plan would be approximately 5.29% of the weighted average common shares outstanding as of December 31, 2013.
The 2014 Plan has been structured in a manner such that awards granted under it can satisfy the requirements for “performance-based” compensation within the meaning of Section 162(m) of the Internal Revenue Code; however, there can be no guarantee that amounts payable under the 2014 Plan will be treated as qualified “performance-based” compensation under Section 162(m). In general, under Section 162(m), in order for the Company to be able to deduct compensation in excess of $1,000,000 paid in any one year to the Company’s chief executive officer or any of the Company’s three other most highly compensated executive officers (other than the Company’s chief financial officer), such compensation must qualify as “performance-based.” One of the requirements of “performance-based” compensation for purposes of Section 162(m) is that the material terms of the performance goals under which compensation may be paid be disclosed to and approved by the Company’s shareholders every five years. For purposes of Section 162(m), the material terms include (i) the individuals eligible to receive compensation, (ii) a description of the business criteria on which the performance goal is based, and (iii) the maximum amount of compensation that can be paid to an individual under the performance goal. With respect to the various types of awards under the 2014 Plan, each of these aspects is discussed below, and shareholder approval of the 2014 Plan will be deemed to constitute approval of each of these aspects of the 2014 Plan for purposes of the approval requirements of Section 162(m).
The following summary of certain major features of the 2014 Plan is subject to the specific provisions contained in the full text of the 2014 Plan, which is attached to this proxy statement as Appendix A.
Purpose of the 2014 Incentive Plan
The 2014 Plan is intended to continue the success of the 2004 Plan in contributing to the Company’s ability to attract and retain talented employees, consultants and directors and to reward them for making contributions to the success of the Company, all while aligning the interests of the Company’s employees, consultants and directors to the interests of stockholders. The 2014 Plan is intended to provide a means to pay annual cash incentive compensation as well as long-term equity incentive compensation to our employees, consultants and directors. The 2014 Plan provides for the grant to the Company’s employees and consultants of stock options, stock appreciation rights, stock awards, which may include restricted stock or restricted stock units, performance awards and cash awards. See “Employee Awards” below. The 2014 Plan also provides for the grant of stock option and stock awards to nonemployee directors, as described below under “Nonemployee Director Awards.”
The 2014 Plan provides for the grant of any or all of the following types of awards:
• | stock options, including incentive stock options and non-qualified stock options; |
• | stock appreciation rights, either independent of, or in connection with, stock options; |
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• | restricted stock; |
• | restricted stock units; |
• | performance awards; and |
• | cash awards. |
Awards may be granted singly, in combination, or in tandem as determined by the Compensation Committee.
Employees, including executive officers, and consultants of the Company and its subsidiaries are eligible to be considered for awards under the 2014 Plan. All nonemployee directors are also eligible to be considered for awards under the 2014 Plan.
We currently providehave approximately 684 employees and six nonemployee directors. Approximately 200 employees and all directors are currently eligible to receive awards under the 2004 Plan.
A total of 18 million shares of Common Stock may be issued under the 2014 Plan. Under the 2014 Plan, no more than 10 million shares of Common Stock may be issued pursuant to incentive stock options. Shares of Common Stock will be made available either from authorized but unissued shares or from treasury shares that have been issued but reacquired by the Company. Shares subject to awards under the 2014 Plan that are forfeited, terminated, expire unexercised, settled in cash, withheld to satisfy tax obligations or otherwise lapse will become available for future awards under the 2014 Plan. In addition, shares tendered to satisfy the purchase price of an award or satisfy tax withholding obligations under the 2014 Plan will become available for future awards under the 2014 Plan. Shares delivered in settlement, assumption, or substitution of awards granted by another entity as a result of an acquisition or under an acquired entity’s plan will not reduce the number of shares available under the 2014 Plan to the extent allowed under the rules of the New York Stock Exchange.
The Board of Directors may make appropriate adjustments in the number of shares available under the 2014 Plan to reflect any stock split, stock dividend, recapitalization, reorganization, consolidation, merger, combination or exchange of shares, distribution to stockholders (including cash dividends that the Board of Directors is divided into three classes, with each class elected every three years. Ondetermines are not in ordinary course of business but excluding normal cash dividends) or other similar event.
The Board of Directors has designated the recommendationCompensation Committee to administer all employee and consultant awards under the 2014 Plan. The Compensation Committee has the discretion to determine the employees and consultants who will be granted awards, the sizes and types of such awards, and the terms and conditions of such awards, subject to the limitations set forth in the 2014 Plan. In addition, the Compensation Committee has full and final authority to interpret the 2014 Plan and may, from time to time, adopt rules and regulations in order to carry out the terms of the Corporate Governance2014 Plan.
Subject to certain restrictions contained in the 2014 Plan, the Compensation Committee has the discretion to extend the exercisability of an award, accelerate the vesting or exercisability of an award, or otherwise amend the award in a manner that is not materially adverse to, or is consented to by, the recipient of the award, except that no stock option or stock appreciation right may be repriced without stockholder approval.
The Board of Directors administers all director awards under the 2014 Plan and Nominating (“CGN”)has the same powers, duties, and authority with respect to director
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awards as the Compensation Committee retains with respect to employee awards. To the extent allowed by applicable law, the Board of Directors has approved and is submittingor the Compensation Committee may delegate to stockholders an amendment to the Company’s by-laws that provides for the phase out of the classified structureanother subcommittee of the Board of Directors soor to the Company’s Chief Executive Officer and/or another executive officer the authority to grant awards out of a specified pool of cash or shares under the 2014 Plan. The Board of Directors or the Compensation Committee may also delegate to the Chief Executive Officer and to other employees its administrative duties under the 2014 Plan (excluding its granting authority).
At the discretion of the Compensation Committee, employees may be granted awards under the 2014 Plan in the form of stock options, stock appreciation rights, stock awards, cash awards or performance awards. Such awards may be granted singly, in combination, or in tandem.
Stock Options
The 2014 Plan provides for the granting to employees of incentive stock options, which are intended to comply with Section 422 of the Internal Revenue Code, and non-qualified stock options.
A stock option is a right to purchase a specified number of shares of Common Stock at a specified grant price. All stock options granted under the 2014 Plan must have an exercise price per share that onceis not less than the amendmentfair market value (as defined in the 2014 Plan) of the Common Stock on the date of grant (and must also be greater than the par value of the Common Stock). All stock options granted under the 2014 Plan must have a term of no more than ten years. However, if the term of a non-qualified stock option expires when trading of the Common Stock is fully effective, all directorsprohibited by law or by the Company’s insider trading policy, then the term of such non-qualified stock option will expire on the 30thday after the expiration of such prohibition. The grant price, number of shares, terms and conditions of exercise, whether a stock option is intended to qualify as an incentive stock option under the Internal Revenue Code, and other terms of a stock option grant will be fixed by the Compensation Committee as of the grant date.
However, stock options may not include provisions that “reload” the option upon exercise, and, without stockholder approval, stock options may not be repriced, including by means of a substitute award with an exercise price that is less than the exercise price of the original stock option or payment of cash to that effect.
The exercise price of any stock option must be paid in full at or before the time the stock is delivered to the optionee. The price may be paid in cash or, if permitted by the Compensation Committee and elected eachby the participant, by means of tendering (either by actual delivery or by attestation) previously owned shares of Common Stock or shares issued pursuant to an award under the 2014 Plan. Unless otherwise provided in the applicable award agreement, upon the expiration of the term of the stock option if the stock option remains unexercised and the exercise price is less than the fair market value of a share of Common Stock, then the stock option will automatically be exercised by means of a cashless exercise method approved by the Compensation Committee. Dividends and/or dividend equivalents will not be paid with respect to any stock options.
Stock Appreciation Rights
The 2014 Plan also provides for the granting of stock appreciation rights, or SARs, to employees. A SAR is a right to receive a payment, in cash or Common Stock, equal to the excess of the fair market value of a specified number of shares of the Common Stock over a specified grant price. A SAR may be granted to the holder of a stock option with respect to all or a portion of the shares of Common Stock subject to such stock option (a “tandem” SAR) or may be granted separately. The holder of a tandem SAR may elect to exercise either the stock option or the SAR, but not both. If the term of a SAR expires when trading of the Common Stock is prohibited by law or by the Company’s insider trading policy, then the term of such SAR will expire on the 30thday after the expiration of such
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prohibition. Unless otherwise provided in the applicable award agreement, upon the expiration of the term of the SAR if the SAR remains unexercised and the exercise price is less than the fair market value of a share of Common Stock, then the SAR will be automatically exercised. All SARs granted under the 2014 Plan must have a grant price per share that is not less than the fair market value (as defined in the 2014 Plan) of a share of Common Stock on the date of grant and a term of no more than ten years. SARs may not include provisions that “reload” the SARs upon exercise and, without stockholder approval, SARs may not be repriced, including by means of a substitute award with an exercise price that is less than the original SAR or payment of cash to that effect. Dividends and/or dividend equivalents will not be paid with respect to any SARs.
Stock Awards
The 2014 Plan also provides for the granting of stock awards, stock units, restricted stock and restricted stock units to employees that consist of grants of Common Stock or units denominated in Common Stock. The terms, conditions and limitations applicable to any stock award will be decided by the Compensation Committee. At the discretion of the Compensation Committee, the terms of a stock award may include rights to receive dividends or dividend equivalents, provided that no dividends or dividend equivalents may be paid on unvested stock awards. Dividends or dividend equivalents may, in the discretion of the Compensation Committee, be accumulated on unvested stock awards and paid to the participants at the time such stock awards vest.
Cash Awards
The 2014 Plan also provides for the granting of cash awards to employees. The terms, conditions and limitations applicable to any cash awards granted pursuant to the 2014 Plan will be determined by the Compensation Committee.
Performance Awards
At the discretion of the Compensation Committee, any of the above-described employee awards may be made in the form of a performance award. A performance award is an award that is subject to the attainment of one or more future performance goals and that may or may not be intended to meet the requirements for “qualified performance-based compensation” under Section 162(m) of the Code. The terms, conditions and limitations applicable to any performance award are decided by the Compensation Committee.
In making awards intended to meet the standards of qualified performance-based compensation exempt from the deduction limitations set forth in Section 162(m) of the Code, the Compensation Committee may base a performance goal that may be applied to the employee, one or more business units, divisions or geographic regions of the Company, the Company as a whole, or by comparison to a peer group of companies, and will include one or more of the following:
• | revenue |
• | net income |
• | net income per share |
• | stock price |
• | market share |
• | earnings per share |
• | other earnings measures |
• | return on equity |
• | return on assets |
• | return on net assets |
• | costs |
• | stockholder value |
• | EBIT |
• | EBITDA |
• | funds from operations |
• | cash flow |
• | cash flow from operations |
• | increase in cash flow |
• | increase in cash flow from operations |
• | increase in cash flow return |
• | net cash flow |
• | net cash flow before financing activities |
• | other cash flow measures |
• | economic value added |
• | total stockholder return |
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• | return on investment |
• | return on capital |
• | return on invested capital |
• | operating income |
• | operating margin |
• | after-tax operating income |
• | debt reduction |
• | internal rate of return |
• | capital efficiency |
• | reserve additions |
• | proceeds from dispositions |
• | production volumes |
• | increase in production |
• | reserve replacement measures |
• | finding and development costs |
• | total market value |
• | petroleum reserve measures |
• | safety and environmental performance measures |
Performance goals need not be based upon an increase or positive result under a particular business criterion and could include, for example, maintaining the status quo or limiting economic losses. The Compensation Committee may provide that any such performance award may include or exclude any of the following events that occurs during a performance period: (a) asset write-downs, (b) litigation or claim judgments or settlements, (c) the effect of changes in tax laws, accounting principles, or other laws or provisions affecting reported results, (d) any reorganization and restructuring programs, (e) extraordinary items and/or nonrecurring, unusual or special items as described in management’s discussion and analysis of financial condition and results of operations appearing in the Company’s annual report to stockholders, Form 10-K or Form 10-Q for the applicable period, (f) acquisitions or divestitures, (g) foreign exchange gains and losses and (h) hedging activities.
Under the 2014 Plan, no employee may be granted during any calendar year:
• | stock options and/or SARs covering more than 5,000,000 shares of Common Stock; |
• | stock awards covering more than 2,000,000 shares of Common Stock; or |
• | cash awards (including performance awards) in respect of any calendar year having a value determined on the grant date in excess of $20,000,000. |
The Compensation Committee may make non-qualified stock options, stock appreciation rights, stock awards, performance awards or cash awards available under the 2014 Plan to a consultant providing services to the Company or one of its subsidiaries.
At the discretion of the Board of Directors, nonemployee directors may be granted awards under the 2014 Plan in the form of stock options or stock awards. These discretionary awards to directors may be granted singly, in combination, or in tandem. No nonemployee director may be granted discretionary awards consisting of stock options or stock awards covering or relating to more than 84,000 shares of Common Stock during any calendar year.
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At the discretion of the Compensation Committee, amounts payable in respect of awards granted under the 2014 Plan may be deferred. Any deferred payment may be forfeited if and to the extent that the terms of the applicable award so provide.
Amendment, Modification, and Termination
The Board of Directors may amend, modify, suspend, or terminate the 2014 Plan at any time for the purpose of addressing changes in legal requirements or for other purposes permitted by law. However, no amendment will be effective prior to approval by stockholders of the Company if such approval is required by law or the requirements of the exchange on which the Common Stock is listed. Furthermore, without the prior approval of stockholders of the Company, stock options and stock appreciation rights issued under the 2014 Plan will not be repriced.
If the amendment2014 Plan is approved at the Annual Meeting:
• | the 2014 Plan will be effective as of the date of the approval; |
• | no awards will be made under the 2014 Plan ten years or more after such approval; and |
• | no further awards will be granted under the 2004 Incentive Plan. |
Federal Income Tax Consequences
The following is a brief summary of the federal income tax aspects of awards that may be made under the 2014 Plan based on existing U.S. federal income tax laws. This summary is general in nature and does not address issues related to the tax circumstances of any particular participant. This summary is not complete and does not attempt to describe any state, local or non-U.S. tax consequences.
Stock Options and SARs.Participants will not realize taxable income upon the grant of a non-qualified stock option or SAR. Upon the exercise of a non-qualified stock option or SAR, the participant will recognize ordinary income (subject, in the case of employees, to withholding) in an amount equal to the excess of: the fair market value on the date of exercise of the Common Stock received (plus the amount of any cash received) over the exercise price paid upon the exercise of the non-qualified stock option or SAR. The participant will generally have a tax basis in any shares of Common Stock received on the exercise of a SAR, or on the cash exercise of a non-qualified stock option, that equals the fair market value of such shares on the date of exercise. Subject to the discussion under “Certain Tax Code Limitations on Deductibility” below, the Company will be entitled to a deduction for U.S. federal income tax purposes that corresponds as to timing and amount with the compensation income recognized by the stockholders, persons elected as directorsparticipant.
Employees will not have taxable income upon the grant of an incentive stock option. Upon the exercise of an incentive stock option, the employee will not have taxable income, although the excess of the fair market value of the shares of Common Stock received upon exercise of the incentive stock option over the exercise price will increase the alternative minimum taxable income of the employee, which may cause such employee to fill expiring termsincur alternative minimum tax. The payment of any alternative minimum tax attributable to the exercise of an incentive stock option would be electedallowed as a credit against the employee’s regular tax liability in a later year to the extent the employee’s regular tax liability is in excess of the alternative minimum tax for one-year terms beginningthat year.
Upon the disposition of stock received in connection with the exercise of an incentive stock option that has been held for the requisite holding period
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(generally, at least two years from the date of grant and one year from the date of exercise of the incentive stock option), the employee will generally recognize capital gain or loss equal to the difference between the amount received in the disposition and the exercise price paid by the employee for the stock. However, if an employee disposes of stock that has not been held for the requisite holding period, the employee will recognize ordinary income in the year of the disqualifying disposition to the extent that the fair market value of the stock at the 2013 Annual Meetingtime of Stockholders. Noneexercise of the current directors,incentive stock option (or, if less, the amount realized in the case of an arm’s-length disqualifying disposition to an unrelated party) exceeds the exercise price paid by the employee for such stock. The employee would also recognize capital gain (or, depending on the holding period, additional ordinary income) to the extent the amount realized in the disqualifying disposition exceeds the fair market value of the stock on the exercise date. If the exercise price paid for the stock exceeds the amount realized in the disqualifying disposition (in the case of an arm’s-length disposition to an unrelated party), such excess would ordinarily constitute a capital loss.
The Company will generally not be entitled to any federal income tax deduction upon the grant or exercise of an incentive stock option, unless the nominees for director standing for electionemployee makes a disqualifying disposition of the stock. If an employee makes such a disqualifying disposition, the Company will then, subject to the discussion below under “Certain Tax Code Limitations on Deductibility,” be entitled to a tax deduction that corresponds as to timing and amount with the compensation income recognized by the employee under the rules described in the preceding paragraph.
Cash Awards; Stock Unit Awards; Stock Awards.An employee will recognize ordinary compensation income upon receipt of cash pursuant to a cash award or performance award or, if earlier, at the 2012 Annual Meeting, wouldtime such cash is otherwise made available for the employee to draw upon it. An employee will not have their termstaxable income upon the grant of office shorteneda stock award in the form of units denominated in Common Stock but rather will generally recognize ordinary compensation income at the time the employee receives Common Stock or cash in satisfaction of such stock unit award in an amount equal to the then fair market value of the Common Stock or cash received. In general, a participant will recognize ordinary compensation income as a result of the amendments. Accordingly, regardlessreceipt of whetherCommon Stock pursuant to a stock award or performance award in an amount equal to the amendmentfair market value of the Common Stock when such stock is approved,received; provided, however, that if the directors electedstock is not transferable and is subject to a substantial risk of forfeiture when received, the participant will recognize ordinary compensation income in an amount equal to the fair market value of the Common Stock when it first becomes transferable or is no longer subject to a substantial risk of forfeiture, unless the participant makes an election to be taxed on the fair market value of the Common Stock when such stock is received.
An employee will be subject to withholding for federal, and generally for state and local, income taxes at the 2012 Annual Meetingtime the employee recognizes income under the rules described above with respect to Common Stock or cash received pursuant to a cash award, performance award, stock award or stock unit award. The tax basis of a participant in the Common Stock received will equal the amount recognized by the employee as compensation income under the rules described in the preceding paragraph, and the employee’s holding period in such shares will commence on the date income is so recognized.
Subject to the discussion under “Certain Tax Code Limitations on Deductibility” below, the Company will be electedentitled to three-year terms expiring ata deduction for U.S. federal income tax purposes that corresponds as to timing and amount with the 2015 Annual Meeting,compensation income recognized by the participant under the foregoing rules.
Certain Tax Code Limitations on Deductibility.Section 162(m) of the Code provides that certain compensation received in any year by a “covered employee” in excess of $1,000,000 is non-deductible by the Company for federal income tax purposes. Section 162(m) provides an exception, however, for “performance-based compensation.” The 2014 Plan permits the Compensation Committee to structure grants and awards made under the 2014 Plan to “covered employees” as performance-based compensation that is exempt from the limitation of Section 162(m) of the Code. However, the Compensation Committee may award compensation that is or may become non-deductible, and expects to consider whether it believes such grants are in the Company’s best interest, balancing tax efficiency with long-term strategic objectives.
Code Section 409A.Section 409A of the Code generally provides that any deferred compensation arrangement must satisfy specific requirements, both in operation and in form, regarding (i) the timing of payment, (ii) the election of deferrals and (iii) restrictions on the acceleration of payment. Failure to comply with Section 409A may result in
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the early taxation (plus interest) to the participant of deferred compensation and the directors elected atimposition of a 20% tax on the 2010 and
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2011 Annual Meetings will serve out their terms that expire atparticipant of the 2013 Annual Meeting anddeferred amounts included in the participant’s income. The Company intends to structure awards under the 2014 Annual Meeting, respectively. The amendment will not affect the Board’s ability under the by-laws to fill vacancies on the Board for the full term of the director whose departure from the Board created the vacancy. The phasing out of the classified board overPlan in a three-year periodmanner that is designed to allow directors elected priorbe exempt from or comply with Section 409A.
Because awards under the 2014 Plan are granted at the discretion of the Compensation Committee, it is not possible for the Company to determine the amount of awards that may be granted to the named executive officers or to any of the other plan participants if the plan is approved by stockholders. No awards or grants have been made under the 2014 Plan that are contingent on stockholder approval of the amendments to serve out the term to which they were elected, ensuring a smooth transition to annual elections2014 Plan.
Required Vote and Recommendation of all of our directors.
In determining whether to adopt the proposed amendment, the Board of Directors considered the advantages and disadvantages of both a classified and a declassified board.
The Company has had a classified board structure since inception and has retained such a structure because the Board of Directors believed that the classified board structure promoted the continuity and stability of the Board in pursuing the Company’s business strategies and policies, facilitated independence of the directors from management and improved the Board’s negotiating position if confronted with an unsolicited bidder for control of the Company. Many investors believe, however, that the election of directors is the primary means for stockholders to influence corporate governance policies and hold management accountable for implementing those policies. In approving the amendment and recommending it to the stockholders, the Board of Directors considered that a growing number of public companies have eliminated their classified board structures. After carefully weighing the considerations, the Board determined that it is in the best interest of the Company and the stockholders to amend its by-laws to eliminate the classified board.
Although the by-laws generally may be amended by theaffirmative vote of the majority of the directors in office, the amendment of Article IX of the by-laws, which contains the provisions regarding the classified board of directors, requires the approval of the holders of a majority of the outstanding shares of Common Stock. Ifpresent in person or by proxy at the stockholders approvemeeting and entitled to vote on the amendment, the stockholder approval will no longer beproposal is required for any future amendments to Article IXapproval of the by-laws. The Board recommends thatmaterial terms of performance goals under the 2014 Plan.Brokers do not have discretion to vote on this proposal without instruction. If you do not instruct your broker how to vote in favoron this proposal, your broker will deliver a non-vote on this proposal. Abstentions will have the same effect as votes against the proposal, but broker non-votes will not affect the outcome of the voting on the proposal.
The text of the proposed amendment is attached as Annex A to this Proxy Statement.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTEFOR APPROVALTHE ADOPTION OF THE PROPOSED AMENDMENT TO THE COMPANY’S BY-LAWS.2014 PLAN.
PROPOSAL VI6 SHAREHOLDER PROPOSAL
STOCKHOLDER PROPOSAL
Amalgamated Bank’s LongView Large Cap 500 Index Fund, 275 Seventh Avenue,Comptroller of the City of New York, John C. Liu, as custodian and trustee of the New York 10001,City Employees’ Retirement System, the New York City Fire Department Pension Fund, the New York City Teachers’ Retirement System, and the New York City Police Pension Fund and as custodian of the New York City Board of Education Retirement System (the “Systems”), has notified us that it intends to present the following proposal at the Annual Meeting. The proponent has furnished evidence of ownership by the Systems of at least $2,000 in market value of the Company’s common stock for at least one year prior to the date the proposal was submitted. The proponent’s proposal is quoted verbatim below.The Company is not responsible for the contents of this proposal or the supporting statement.statement and recommends that you voteAGAINST the following shareholder proposal for the reasons set forth in the Company’s opposition statement following the proposal.
RESOLVED: Thethat the shareholders of Cabot Oil & Gas Corporation (“Cabot” or the “Company”) askhereby request that the Company provide a report, updated semiannually disclosing the Company’s:
1. | Policies and procedures for making, with corporate funds or assets, contributions and expenditures (direct or indirect) to (a) participate or intervene in any political campaign on behalf of (or in opposition to) any candidate for public office, or (b) influence the general public, or any segment thereof, with respect to an election or referendum. |
2. | Monetary and non-monetary contributions and expenditures (direct and indirect) used in the manner described in section 1 above, including: |
a. | The identity of the recipient as well as the amount paid to each; and | |
b. | The title(s) of the person(s) in the Company responsible for decision-making. |
The report shall be presented to the board of directors or relevant board committee and posted on the Company’s website.
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STOCKHOLDER SUPPORTING STATEMENT
As long-term shareholders of Cabot, we support transparency and accountability in corporate spending on political activities. These include any activities considered intervention in any political campaign under the Internal Revenue Code, such as direct and indirect contributions to adopt a policy that incentive compensationpolitical candidates, parties, or organizations; independent expenditures; or electioneering communications on behalf of federal, state or local candidates.
Disclosure is in the best interest of the company and its shareholders and critical for senior executives should include a rangecompliance with federal ethics laws. Moreover, the Supreme Court’sCitizens Uniteddecision recognized the importance of non-financial measures based on sustainability principlespolitical spending disclosure for shareholders when it said, “[D]isclosure permits citizens and reducing any negative environmental impacts relatedshareholders to Company operations. For purposes of this resolution, “sustainability” refersreact to the methods by which environmental, socialspeech of corporate entities in a proper way. This transparency enables the electorate to make informed decisions and economic considerations are integrated into long-term corporate strategy.
SUPPORTING STATEMENT
As shareholders, we support executive compensation policies that motivategive proper weight to different speakers and reward senior executives for actions that contributemessages.” Gaps in transparency and accountability may expose the company to a company’s long-term growth.
An important element of senior executive compensation is incentive compensation, including both annual cash bonusesreputational and long-term incentive awards. At-risk pay is the predominant form of compensation for Cabot’s senior executives. According to last year’s proxy statement, such pay comprised 67% to 89% of the total compensation for the five most senior executives that year.
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Considering the significance of incentive pay in Cabot’s compensation policies, we believe it is important for the board of directors to ensure that compensation incentives are aligned with business strategies for creating sustainable, long-term shareholder value and mitigating risks that could have a detrimental impactthreaten long-term shareholder value.
Cabot contributed at least $108,600 in corporate funds since the 2002 election cycle. (CQ: http://moneyline.cq.com and National Institute on value creation. Accordingly, we believe the board should consider and disclose a variety of factorsMoney in determining incentive pay, including metrics that promote sustainable value creation and reduce negative environmental impacts.State Politics: http://followthemoney.org)
Although Cabot’s board has a Safety and Environmental Affairs Committee, the 2010 proxy
However, relying on publicly available data does not indicate that safety and environmental factors enter into the board’s deliberations on executive compensation. Indeed, that proxy statement indicates that at-risk compensation focuses on financial and operating goals and total shareholder return. In contrast, approximately two-thirdsprovide a complete picture of the 42 energy firms inCompany’s political spending. For example, the S&P 500 index reference non-financial factors, such as environmental performanceCompany’s payments to trade associations used for political activities are undisclosed and worker safety, inunknown. In some cases, even management does not know how trade associations use their 2010 proxies.
We believe that the need for a greater emphasis on sustainability factors in incentive pay is illustrated by BP’s 2010 Deepwater Horizon oil spill, where a single incident caused significant losses to shareholders.
We believe that Cabot’s operations are vulnerable to environmental risks, as illustrated by the recent history of regulatory action, fines, and disruptions to its business operations due to environmental incidents. We note the statement in Cabot’s 2010 annual report that its transition zone and shallow-water areas of the Gulf Coast are “ecologically sensitive.” Moreover, various spills, leaks and water contamination involving Cabot’s Dimock gas wells led to a 2010 consent decree with the State of Pennsylvania under whichcompany’s money politically. The proposal asks the Company agreed to cap three wellsdisclose all of its political spending, including payments to trade associations and pay fines. One media report describedother tax exempt organizations used for political purposes. This would bring our Company in line with a growing number of leading companies, including Exelon, ConocoPhillips, and Noble Energy that support political disclosure and accountability and present this information on their websites.
The Company’s Board and its shareholders need comprehensive disclosure to be able to fully evaluate the settlement as “among the most punitive in Pennsylvania’s history.” Later that year Cabot entered into a superseding global settlement with the State under which Cabot would pay $4.2 million to certain affected households, plus $500,000 to cover the State’s costs in pursuing the matter, and would remediate two wells.
political use of corporate assets. We urge you to vote FORyour support for this proposal.critical governance reform.
CABOT’S STATEMENT IN OPPOSITION TO PROPOSAL VI
Our Board of Directors has carefully considered this proposal and, while it agrees with the Proponent that the long-term interests of shareholders are best served by companies that operate their business in a sustainable manner focused on long-term value creation, the Board believes that adopting the proposal is unnecessary and would not be in the best interests of the Company or our stockholders. As a responsible corporate citizen, we are fully committed to conducting our business operations in an ethical and socially and environmentally sustainable manner and to being good community partners where we operate.
Our Board and management have demonstrated their commitment to sustainability in numerous ways. In March 2011, the Compensation Committee of the Board of Directors determined that it may use environmental and safety performance, among other factors, when determining whether to add any discretionary payment to the formula generated bonus plan payout. The Company’s website also provides detailed information about our sustainable practices, including steps we take to ensure our operations protect water and air resources, which exceed regulatory requirements in some parts of our operations. The website also contains important information on our natural gas production activities and hydraulic fracturing, a Q&A regarding how we manage our contractor’s health, safety and environmental practices, and various videos on our environmental stewardship in the gas well pad site preparation and reclamation process and the gas well drilling process. Commencing in 2011, the Company also began voluntarily posting to the websitewww.fracfocus.org the chemical make-up of our hydraulic fracturing fluid on a natural gas well-by-well basis. “FracFocus” is a hydraulic fracturing chemical registry website and is a joint project of the Ground Water Protection Council and the Interstate Oil and Gas Compact Commission. The chemical data presented on this site is submitted on a voluntary basis by the participating oil and gas companies, including the Company, who has agreed to disclose the information in the public interest. All of these practices are a strong indication of the commitment of our Board and management to sustainable business practices.
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Our Board and management agree with the proponent of this proposal that the efficient and sustainable deployment and use of our resources are in the best interests of our shareholders and the global community. However, we do not believe that making sustainability a distinct performance measure under our executive compensation programs is an appropriate design to drive long-term shareholder value. Although the Board agrees that sustainability is extremely important, the Board believes that this overly prescriptive shareholder proposal is not in the best interests of our shareholders. Rather, the Board believes that the Company’s existing executive compensation program, which has a strong pay for performance philosophy and pay programs that result in awards to executives that are sensitive to the long-term value they produce for shareholders, promotes the best interest of our shareholders over time.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTEAGAINST APPROVAL OF THE STOCKHOLDER PROPOSAL.
PROPOSAL VII
STOCKHOLDER PROPOSAL
Lowell Glaser Miller, acting through Miller/Howard Investments, Inc., 324 Upper Byrdcliffe Road, Woodstock, New York, 12498, has notified us that he intends to present the following proposal at our Annual Meeting. The Company is not responsible for the contents of this proposal or supporting statement.
WHEREAS: We believe tracking and reporting on environmental, social and governance (ESG) business practices makes a company more responsive to a global business environmental which is characterized by finite natural resources, changing legislation, and heightened public expectations for corporate accountability. Reporting also helps companies better integrate and gain value from existing ESG / sustainability efforts, identify gaps and opportunities in products and processes, publicize innovative practices, and recruit and retain employees.
Corporate reporting on sustainability is quickly becoming common practice. 79% of Fortune Global 500 companies produce sustainability reports; more than three out of four of these reports are based on the global reporting Initiative (GRI) Guidelines. In 2010, approximately 20% of U.S. Fortune 500 companies issued reports using the GRI framework, up from only 5% in 2006, according to the Governance and Accountability Institute.
The Carbon Disclosure Project (CDP), representing 551 institutional investors globally with $71 trillion in assets, has for years requested greater disclosure from companies on their climate change management programs. Over 3,000 organizations in some 60 countries around the world now measure and disclose their greenhouse gas emissions, water management and climate change strategies through CDP, in order that they can set reduction targets and make performance improvements.
We are concerned that Cabot Oil & Gas corporation may be falling behind its peers in disclosure and management of ESG issues. Companies like Chevron and Apache Corporation already offer shareholders much of this important information through annual, GRI-based sustainability reports and by responding to the CDP.
Today, comprehensive ESG data on individual companies appears on Bloomberg terminals used by thousands of institutional investors around the world, including signatories to the Principles for Responsible Investment (PRI). PRI launched in 2006 and now has over 900 institutional signatories who collectively manage approximately $25 trillion, and who publicly pledge to “incorporate ESG issues into investment analysis and decision-making processes,” and to “ask for standardized reporting on ESG issues (using tools such as the Global Reporting Initiative).”
Furthermore, in January 2010, the SEC issued interpretive guidance clarifying that companies should disclose material risks associated with climate change. The sustainability reporting process can help companies to analyze and mitigate these risks.
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RESOLVED: Shareholders request that the Board of Directors prepare a sustainability report describing the company’s short- and long-term responses to ESG-related issues, including plans to manage green house gas (GHG) emissions, policies and initiatives that address environmental impacts of operations, disclosure of material water risks, and plans to mitigate those risks. The report, prepared at reasonable cost and omitting proprietary information, should be published and made available to the public by the end of 2012.
SUPPORTING STATEMENT:
We encourage the use of the GRI Guidelines (G3). The GRI (www.globalreporting.org) is a globally accepted reporting framework considered the gold standard of reporting. The GRI also provides a flexible reporting system that allows companies to report incrementally over time.
CABOT’S STATEMENT IN OPPOSITION TO PROPOSAL VII
The Board of Directors has carefully considered this proposal and believes that approval of the proposed resolution is not in the best interest of the CompanyCabot or itsour shareholders. The Company recognizes the importance, as both an ethicalBoard has approved a Policy on Political Contributions and a business responsibility, of addressing the environmental and social impacts ofActivities, which is contained in our business. Our Code of Business Conduct postedfound on our website reflects our commitment to conduct business in accordance withatwww.cabotog.com/about-cabot/governance. As a result of this policy and the letter and spirit of all applicable laws, rules, and regulations.
Our governance policies and practices make clear sustainability is our corporate foundation. In 2010,additional information discussed below, the Board of Directors adopted majority voting in all director elections. In 2011,believes that the Board of Directors recommended and the stockholders adopted an annual advisory say-on-pay vote. Today the Board of Directors is recommending that shareholders declassify the board so that all directors are elected annually. These actions show that our governance policies are ones that encourage accountability and sustainability.
The Company’s Board of Directors has a Safety and Environmental Affairs Committee with the responsibility to oversee the Company’s safety and environmental management programs and review the nature and extent of Company spending for safety and environmental compliance. In 2012, this committee increased its number of meetings to four times per year to bolster its involvement with management’s safety and environmental programs.
Posted on our website under “Industry Education” is important information concerning steps we take to ensure our operations protect water and air resources, including our going beyond regulatory requirements in some parts of our operations. Also on the website is important information on natural gas production activities and hydraulic fracturing. We provide a Q&A regarding how we manage our contractor’s health, safety and environmental practices. The website also hosts various videos on our environmental stewardship in the gas well pad site preparation and reclamation process and the gas well drilling process.
In 2012, the Company is developing a formal health, safety and environmental (HSE) management system to compliment the already existing, and to allow audit of, the Company’s HSE compliance policies and procedures. This demonstrates the high priority the Company places on conducting business in a sustainable manner, while protecting the health and safety of our employees, partners, vendors and the communities in which we operate.
The Company is in the process of converting many of its fleet trucks to be fueled with compressed natural gas, which runs cleaner than diesel and currently costs less. It also allows the United States to reduce its dependence on imported oil. The Company is also in the process of building a compressed natural gas fueling station in Pennsylvania. In many locations, our gas wells are drilled using a closed-loop drilling system, eliminating the need for open pits. In many locations, we recycle 100% of our hydraulic fracturing fluid flowback water and production flowback water.
Commencing in 2011, the Company began posting to the websitewww.fracfocus.org the chemical make-up of our hydraulic fracturing fluid on a natural gas well-by-well basis. “FracFocus” is a hydraulic fracturing chemical registry website.
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The website is a joint project of the Ground Water Protection Council and the Interstate Oil and Gas Compact Commission. The chemical data presented on this site is submitted on a voluntary basis by the participating oil and gas companies, including the Company, who have agreed to disclose the information in the public interest.
As required by the Environmental Protection Agency (“EPA), we are collecting greenhouse gas emissions data at all required locations. This data will be submitted to the EPA in a timely fashion.
The proposal does not convey the burden on human resources or the considerable expense involved in preparing a sustainability report, which would require the engagement of consultants with specialized expertise. The proposed report would require the Company to greatly expand the variety of information we currently gather, analyze and disclose, significantly exceeding any requirements of the Securities and Exchange Commission, state and local oil and gas regulatory bodies, as well as additional disclosure requirements expected to be enacted in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Company prefers, in the exercise of our business judgment, to prudently allocate our resources and assets to the initiatives already undertaken and described above.
We believe that our existing corporate practices, including programs and activities to ensure compliance with applicable legal requirements, existing corporate social responsibility programs, our dedication to the health and welfare of the communities in which we operate, and our environmental efforts adequately address the matters raised by the proposal. Therefore, conducting a special review and preparing a sustainabilityrequested report is an unnecessary and an ineffectiveunproductive use of the Company’s, and ultimately the shareholders’, resources.
We operate in an industry that is heavily regulated and as such, deeply affected by the political and legislative process. We strongly believe that Cabot’s long-term value to our shareholders is enhanced by a business environment that protects and supports the oil and gas industry. While our primary focus in this area is on compliance with state and federal laws governing our activities, rather than on active participation in the political or legislative process, from time to time Cabot supports organizations that are active in the public policy and political engagement processes as they affect the exploration, production and transportation of natural gas and oil. In so doing, Cabot strictly adheres to our Policy on Political Contributions and Activities, referenced above, and to all U.S. and state laws and regulations that govern political engagement for U.S. public companies.
As evidenced by publicly-available filings referenced in the proponent’s own statement in support of the proposal, Cabot’s political contributions originating from corporate funds over the last ten years arede minimusin amount, as are political contributions originating from the Cabot Oil & Gas Political Action Committee (“PAC”), which is funded through voluntary contributions by eligible Cabot employees. For example, in 2013, Cabot’s political contributions totaled $25,000. As we discussed with the proponent after receiving their proposal and prior to filing this proxy statement, our Board believes the shareholders as a whole would not benefit from Company resources and time being spent on reporting these minor expenditures that could only be considered immaterial by reasonable investors.
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Consistent with our policy, we are also members of business and industry trade groups that engage in educational initiatives regarding issues that affect our industry. Some of these associations also engage in lobbying activities that seek to promote legislative solutions that, in our judgment, are sound and responsible and appropriately advance not inonly Cabot’s business, but the bestgoals and interests of our stockholders.industry as a whole. A list of our business and trade association memberships can be found on our website atwww.cabotog.com/social-responsibility/environment-safety. Our Chairman of the Board and CEO approves the Company’s participation in, and levels of contributions to, all business and trade associations.
Since the primary reason for membership in trade associations is to further business goals and initiatives, and not to fund political activities, the Board believes it is not necessary to report all payments to such associations, as requested by the proponent. A few of the trade associations in which we participate have notified us that a small portion of our dues paid in 2013 may be classified as non-deductible lobbying expenses to us because of the use to which the association puts the funds. Once again, Cabot’s participation in the political process indirectly through trade associations isde minimusin amount and could only be considered immaterial by reasonable investors. The total non-deductible portion of our dues paid to all business and trade associations in which we participated in 2013, as reported to us by those associations, was less than $110,000.
For the reasons stated above, and the fact that this information is already summarized on our website atwww.cabotog.com/about-cabot/governance, the Board believes that requesting the Company to provide the additional disclosure in a report outlined in the proposal would result in unnecessary and unproductive use of the Company’s time and resources.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTEAGAINST APPROVAL OF THE STOCKHOLDERSHAREHOLDER PROPOSAL.
CONFLICT OF INTEREST AND RELATED PERSON POLICIES
Under the Company’sour Code of Business Conduct, directors, officers and employees are required to avoid situations that present a potential conflict between their personal interests and the interests of the Company. The Code requires that, at all times, directors, officers and employees make a prompt disclosure in writing to the Company’s Corporate Secretary of any fact or circumstance that may involve an actual or potential conflict of interest, as well as any information necessary to determine the existence or likely development of conflicts of interest. This specifically includes any material transaction or relationship that could reasonably be expected to give rise to a conflict of interest. This requirement includes situations that create even the appearance of a conflict of interest.
For executive officers of the Company other than the CEO, the Corporate Secretary reviews the written disclosure described above with the CEO, and a determination is made whether to approve the transaction resulting in the conflict of interest or potential conflict of interest. The CEO and the Corporate Secretary may refer the matter to the Company’sour Board of Directors as circumstances require. If the transaction involves the CEO or a member of the Board of Directors, the matter is referred to the full Board of Directors for review and approval. In each case the standard applied in approving the transaction is the best interests of the Company without regard to the interests of the individual officer or director involved in the transaction. These procedures for reviewing and approving conflict of interest transactions are based on the Company’s past practice and are not contained in writing.any written policy.
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Mineral and Royalty Interest Plan
In 2006, the Companywe implemented itsa Mineral, Royalty and Overriding Royalty Interest Plan (“Plan”), under which the Companywe may offer to a number of itsour employees, including itsour executive officers, the opportunity to purchase a portion of the mineral, participating and non-participating royalty and overriding royalty interests acquired by the Company from time to time for cash at a price determined using the same cost basis as the Companywe acquired such interests. In 2006,accordance with the Plan, the Company makes all determinations with respect to the acquisition, exploration, development, maintenance and operation of any property subject to an interest under the Plan using the same criteria (or criteria less favorable to the property subject to an interest) as it would use were such property not subject to such an interest (that is, the Company will not favor properties subject to interests under the Plan over properties not subject to such interests when allocating Company resources in the acquisition, exploration, development, maintenance and operation of its properties).
In 2006, we offered to 73 participants, including ten officers, whose participation was approved by the Compensation Committee, the opportunity to purchase an aggregate of $2.3 million of the mineral, royalty and overriding royalty interests acquired by the Company in the McCampbell Field, located in Aransas Pass, Texas. Interests were offered to the key professional employees in the region in which the interest was located and to management level employees in the other regions and the corporate office. Participants were offered an interest commensurate with their level of responsibility and their income. Each participant
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was offered an interest in the same property. Each of the officers participating in the Plan, including each NEO other than Mr. Cunningham who was not employed at the time, purchased interests in the field. No individual officer purchased in excess of $115,000 of the interests offered.
In 2010, the Companywe offered to 85 participants, including ten officers, whose participation was approved by the Compensation Committee, the opportunity to purchase an aggregate of $1.4 million of the mineral, royalty and overriding royalty interests acquired by the Company from Guardian Oil & Gas, Inc. and located in Shelby, San Augustine and Nacogdoches Counties, Texas. Similar to the McCampbell Field, interests were offered to key professional employees in the region in which the interest was located and to management level employees in the other region and the corporate office. Participants were offered an interest commensurate with their level of responsibility and their income. Each participant was offered an interest in the same property. Each of the officers participating in the Plan, including each NEO, purchased interests in the field. No individual officer purchased in excess of $102,000 of the interest offered.
In accordance2012, we offered to 66 participants, including 11 officers, whose participation was approved by the Compensation Committee, the opportunity to purchase an aggregate of approximately $608,000 of the mineral, royalty and overriding royalty interests acquired by the Company from the period of October 2011 to July 2012, located in Frio, Atascosa and McMullen counties, Texas, in the Buckhorn operating area. All of the properties are operated by the Company. Similar to the previous offerings, interests were offered to key professional employees in the region in which the interest was located and to management level employees in the other region and the corporate office. Participants were offered an interest commensurate with their level of responsibility and their income. Each participant was offered an interest in the same property. Each of the officers participating in the Plan, the Company makes all determinations with respect to the acquisition, exploration, development, maintenance and operation of any property subject to an interest under the Plan using the same criteria (or criteria less favorable to the property subject to an interest) as it would use were such property not subject to such an interest (that is, the Company will not favor properties subject toincluding each NEO, purchased interests under the Plan over properties not subject to such interests when allocating Company resources in the acquisition, exploration, development, maintenance and operationfield. No individual officer purchased in excess of its properties). $44,000 of the interest offered.
No interests were offered under the Plan to participants in 2011.2013.
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COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
No
During 2013, no member of the Compensation Committee was during 2011, an officer or employee of the Company or any of its subsidiaries, or formerly an officer of the Company or any of its subsidiaries. During 20112013, the Company had no compensation committee interlocks.
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s executive officers and directors to file initial reports of ownership and reports of changes in ownership of Company Common Stock with the SEC and, pursuant to rules promulgated under Section 16(a), such individuals are required to furnish the Company with copies of Section 16(a) reports they file. Based solely on a review of the copies of such reports furnished to the Company, and written representations that those reports accurately reflect all reportable transactions and holdings, the Company is aware of no failures to comply with the Section 16(a) reporting requirements during 2011.
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BENEFICIAL OWNERSHIP OF OVER FIVE PERCENT OF COMMON STOCK
The following table reports beneficial ownership of the Common Stock by holders of more than five percent of the Company’s Common Stock. Unless otherwise noted, all ownership information is based upon filings made by such persons with the SEC, except that the number of shares owned have been adjusted to reflect our two-for-one stock split, in the form of a stock dividend, effective as of January 26, 2012.
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BENEFICIAL OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table reports, as of February 1, 2012, beneficial ownership of Common Stock by each director and nominee for director, by each named executive officer listed in the 2011 Summary Compensation Table and by all directors, nominees and executive officers as a group. Unless otherwise indicated, the persons below have sole voting and investment power with respect to the shares of Common Stock shown as beneficially owned by them.
Name of Beneficial Owner | Number of Outstanding Shares of Common Stock Held | Number of Shares of Common Stock Beneficially Owned | Percent Class | |||||||
Rhys J. Best | 5,000 | 34,130 | (1) | * | ||||||
David M. Carmichael | 0 | 48,724 | (1) | * | ||||||
James R. Gibbs | 0 | 15,132 | (1) | * | ||||||
Robert L. Keiser | 50,110 | 98,834 | (1) | * | ||||||
Robert Kelley | 161,826 | 227,750 | (1) | * | ||||||
P. Dexter Peacock | 115,520 | 181,444 | (1) | * | ||||||
W. Matt Ralls | 0 | 4,172 | (1) | * | ||||||
William P. Vititoe | 45,688 | 111,612 | (1) | * | ||||||
Dan O. Dinges | 1,230,844 | 1,908,795 | (2)(3) | 1.0% | ||||||
Scott C. Schroeder | 476,636 | 720,815 | (2)(3) | * | ||||||
Jeffrey W. Hutton | 216,710 | 329,600 | (2)(3)(4) | * | ||||||
Lisa A. Machesney | 191,068 | 268,516 | (2)(3)(4) | * | ||||||
G. Kevin Cunningham | 0 | 11,812 | (2)(3)(4) | * | ||||||
All directors, nominees and executive officers as a group |
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(17 individuals) |
| 4,280,334 | (1)(2)(3)(4)(5) | 2.0% |
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Any stockholder proposal intended for inclusion in the proxy statement for the 20132015 Annual Meeting of Stockholders of the Company, and otherwise eligible, should be sent to Ms. Deidre L. Shearer, Corporate Secretary and Managing Counsel, and Corporate Secretary, Cabot Oil & Gas Corporation, 840 Gessner Road, Suite 1400, Houston, Texas 77024 and must be received by November 26, 2012.20, 2014.
The by-laws of the Company require timely advance written notice of stockholder nominations of director candidates and of any other business to be presented by a stockholder at an annual meeting of stockholders.
To be timely, the by-laws require advance written notice be delivered to the Company’s Secretary at the principal executive offices of the Company not later than the close of business on the 90th 90thday, nor earlier than the close of business on the 120th 120thday, prior to the anniversary of the preceding year’s annual meeting (with certain exceptions if the date of the annual meeting is different by more than specified amounts from the anniversary date). The deadline for submission for the 20132015 Annual Meeting of Stockholders is currently January 31, 2013.2015. To be valid, a notice must set forth certain information specified in the by-laws.
The cost of soliciting proxies in the enclosed form will be borne by the Company. In addition to solicitation by mail, officers, employees or agents of the Company may solicit proxies personally. The Company may request banks and brokers or other similar agents or fiduciaries to transmit the proxy material to the beneficial owners for their voting instructions and will reimburse them for their expenses in so doing. Georgeson Inc.AST Phoenix Advisors has been retained to assist the Company in the solicitation of proxies at a fee estimated not to exceed $10,500,$10,000, plus expenses.
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The Company’s management does not know of any matters to be presented at the Annual Meeting other than those set forth in the Notice of Annual Meeting of Stockholders. However, if any other matters properly come before the Annual Meeting, the persons named in the enclosed proxy intend to vote the shares to which the proxy relates on such matters in accordance with their best judgment unless otherwise specified in the proxy.