COMPENSATION DISCUSSION AND ANALYSIS
Introductory note: The following discussion of executive compensation contains descriptions of various employee benefit plans and
employment-related agreements. These descriptions are qualified in their entirety by reference to the full text or detailed descriptions of the plans and agreements, which are filed or incorporated by reference as exhibits to our Annual Report on
Form 10-K
for the year ended December 31, 2018.
This Compensation Discussion and
Analysis describes our executive compensation program for 2018. In particular, it explains how our Compensation Committee made its compensation decisions for 2018 for our executive officers identified in the following table, consisting of our CEO,
Chief Financial Officer (which we refer to as CFO) and three other most highly compensated executive officers as of December 31, 2018. We refer to the below group of executive officers collectively as our named executive officers.
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Name
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Title
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Marc Edwards
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President and CEO (our principal executive officer)
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Ronald Woll
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Executive Vice President and Chief Commercial Officer
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Scott L. Kornblau
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Senior Vice President and CFO (our principal financial officer)
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David L. Roland
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Senior Vice President, General Counsel and Secretary
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Thomas M. Roth
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Senior Vice PresidentWorldwide Operations
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Executive Summary
With one exception described below, the objectives and major components of our executive compensation program did not materially change
from 2017 to 2018. While we regularly review and refine our compensation program, we believe consistency in our compensation program and philosophy is important to effectively motivate and reward
top-level
management performance and for the creation of stockholder value. We continue to provide our named executive officers with total annual compensation that includes three principal elements: base salary, performance-based annual incentive cash
compensation and long-term equity-based incentive awards. In addition, in 2018 we awarded long-term cash incentive awards to our named executive officers. Major elements of our compensation program continue to be performance-based, and a significant
portion of each executives total annual compensation is at risk and dependent upon our companys achievement of specific, measurable performance goals. Our performance-based pay is designed to align our executive officers interests
with those of our stockholders and to promote the creation of stockholder value, without encouraging excessive risk-taking.
At our
annual meeting of stockholders held in May 2018, our stockholders approved all of our director nominees and proposals, including a
non-binding
advisory
(say-on-pay)
vote to approve the compensation of our executive officers. In the
say-on-pay
vote, over 85% of the votes cast on
the proposal voted in favor of our compensation practices and policies. After our 2018 annual meeting, our Compensation Committee considered these results of the
say-on-pay
vote in its review of our compensation policies. Our general goal since our 2018 annual meeting has been to continue to act consistently with the established
practices that were overwhelmingly approved by our stockholders and to take appropriate actions to further link pay and performance when advisable. We believe that we have accomplished those goals during 2018.
With the exception of increases related to promotions, base salaries for our named executive officers did not increase in 2018, and we
do not plan to increase base salaries for our named executive officers for 2019. Since 2015, depressed market conditions in the oil and gas industry have caused us to undertake numerous cost-cutting measures, including substantial
reductions-in-force
as well as general freezes on salary increases and new hiring.
In recognition of the critical need to retain key company leaders who are instrumental to achieving our business and strategic plans,
particularly in depressed market conditions, in January 2017 our Board adopted an
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executive retention plan (which we refer to as the 2017 Retention Plan) upon the recommendation of our Compensation Committee and made retention awards under the 2017 Retention Plan to Messrs.
Edwards and Woll. The 2017 Retention Plan provided for us to pay each participating executive a cash retention payment if the executive remained actively employed through January 1, 2018 and another payment if the executive remains actively
employed through January 1, 2019. To qualify for a payment, the executive was required to also remain actively employed by us through the payment date, not be on a leave (other than a legally protected leave), not be subject to any performance
improvement plan and have complied with all company agreements and policies. The retention payments were paid to Messrs. Edwards and Woll in February 2018 and 2019. As a result of the continuation of the depressed market conditions, in June 2018 we
entered into an extended retention arrangement with Mr. Woll to cover 2019 under the same terms as the 2017 Retention Plan. As a result of the 2019 extension, Mr. Woll will be paid $750,000 during the first quarter of 2020 if he remains
actively employed through January 1, 2020 and meets the other conditions for the payment.
Payments under our annual cash
incentive awards for 2018 reflected our companys performance and level of achievement of our 2018 plan performance goals. As discussed further in this proxy statement under the heading
Annual Cash Incentive Awards,
our 2018
adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (which we refer to as EBITDA) exceeded the target adjusted EBITDA established at the beginning of 2018 for our 2018 annual cash incentive awards, despite the negative impact on
our business from the steep decline in oil prices, the continued dramatic reduction in capital spending by our oil and gas customers and the oversupply of offshore drilling rigs in the market. As a result, annual cash incentive awards paid to our
named executive officers for 2018 were generally comparable to 2017 and other recent years where we exceeded the applicable incentive plan target performance criteria.
When our previous CFO resigned, Scott L. Kornblau, our then-Vice President and Treasurer, was appointed as our acting CFO. In
recognition of his increased duties and responsibilities as acting CFO, Mr. Kornblau received supplemental payments of $17,000 for each month that he served in such interim capacity. Mr. Kornblau was appointed Senior Vice President and CFO
on July 1, 2018.
On April 1, 2018, each of our named executive officers received an award of restricted stock units, or
RSUs, and long-term cash incentive awards. The RSUs and long-term cash incentive awards granted to our CEO in 2018 vest solely upon the level of attainment against a designated three-year financial performance goal. Most of the RSUs and long-term
cash incentive awards granted to our other named executive officers in 2018 vest upon the level of attainment of the same three-year financial performance goal, and the remainder of the RSUs and long-term cash incentive awards granted to our other
named executive officers time-vest (half two years after the grant date and half three years after the grant date). The RSU and long-term cash incentive award agreements for all named executive officers obligate the officer to comply with certain
restrictive covenants, including obligations of confidentiality,
non-solicitation
and noncompetition.
Compensation Program Objectives
Through our executive compensation program, we seek to achieve the following general goals:
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Attract and retain highly qualified and productive executives by striving to provide total compensation generally
comparable to compensation paid by other companies in the energy industry (although we do not benchmark our compensation to any particular group of companies);
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Motivate our executives to achieve strong financial and operational performance for our stockholders;
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Structure compensation to create meaningful links between corporate and individual performance and financial rewards;
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Align the interests of our executives with those of our stockholders by providing a significant portion of total
compensation in the form of stock-based incentives;
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Encourage long-term commitment to our company; and
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Limit corporate perquisites.
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We do not rely on formula-driven plans when determining the aggregate amount of compensation for each named executive officer. The
primary factor in setting compensation is our evaluation of the individuals performance in the context of our companys performance and our compensation objectives, policies and practices. Our Compensation Committee considers individual
performance factors, including the committees view of the individuals performance, the responsibilities of the individuals position and the individuals contribution to our company and to our financial and operational
performance for the most recently-completed fiscal year.
Role of Management in Establishing and Awarding Compensation
. On an
annual basis, Mr. Edwards, with the assistance of our Human Resources department, recommends to the Compensation Committee any proposed annual or long-term cash incentive awards, equity awards and increases in base salary for our executive
officers other than him. No executive officer is involved in determining any element of his or her own compensation. Mr. Edwards recommendations are reviewed with and are acted upon by the Compensation Committee in accordance with its
charter. At least once a year, the Compensation Committee reviews the compensation of Mr. Edwards and, following discussions with the Chairman of the Board, considers any necessary adjustments to his compensation level. Mr. Edwards
annual base salary has not increased since his hire in March 2014.
Internal Pay Equity
. We strive to pay our executive
officers levels of compensation that reflect their individual responsibilities to our company, while providing incentives to achieve our business and financial objectives. While comparisons to market data can be useful in assessing competitiveness
of compensation, we believe that our executive compensation also should be internally consistent. Each year, the Compensation Committee reviews the total compensation paid to our CEO and our other executive officers, which allows a comparison for
internal pay equity purposes and allows the committee to analyze both the individual elements of compensation (including the compensation mix) as well as the aggregate total amount of compensation.
Market Considerations
. When making compensation decisions, we have also looked at the compensation of our executive officers
relative to the compensation paid to executives of
comparably-sized
companies engaged in businesses similar to ours (although we do not benchmark our compensation to any particular group of companies). In
doing so, we have considered executive compensation surveys and other information related to compensation levels and practices. We believe, however, that any such comparison should be merely a point of reference and not the determinative factor for
our executives compensation. The purpose of the comparison is to inform, but not supplant, the analyses of internal pay equity and individual performance that we consider when making compensation decisions. Accordingly, the Compensation
Committee has discretion in determining the nature and extent of its use of comparative compensation information.
When reviewing
executive compensation, the committee may also consider our companys performance during the persons tenure and the anticipated level of compensation that would be required to replace the person with someone of comparable experience and
skill. In addition to our periodic compensation review, we also regularly monitor market conditions and may adjust compensation levels as necessary to remain competitive and retain valuable employees.
These principles apply to compensation policies for all of our executive officers. We do not follow the principles in a mechanistic
fashion; rather, we apply experience and judgment in determining the appropriate mix of compensation for each individual.
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When our previous CFO resigned, Scott L. Kornblau, our then-Vice President and
Treasurer, was appointed as our acting CFO. In recognition of his increased duties and responsibilities as acting CFO, Mr. Kornblau received supplemental payments of $17,000 for each month that he served in such interim capacity.
Mr. Kornblau was appointed Senior Vice President and CFO on July 1, 2018, and the Compensation Committee approved an increase in Mr. Kornblaus annual base salary from $222,784 to $410,000, to reflect the promotion.
On January 1, 2019, Ronald Woll was promoted from Senior Vice President and Chief Commercial Officer to Executive Vice President
and Chief Commercial Officer, and the Compensation Committee approved a corresponding increase in annual base salary for Mr. Woll from $435,435 to $515,630.
Annual Cash Incentive Awards
Our
Incentive Compensation Plan is intended to promote company performance objectives and to recognize certain employees who contributed to the companys achievements. The plan provides the opportunity to earn cash compensation that is
at-risk
on an annual basis and is contingent on achievement of high individual performance and an annual company financial performance goal, in addition to applicable award caps and the exercise of negative
discretion by the Compensation Committee, as described below.
For annual incentive awards under our Incentive Compensation Plan,
performance is measured with respect to the designated plan fiscal year. The annual performance goal under the plan and the cap on each participating executives award are established by the Compensation Committee during the first calendar
quarter of the performance year. Annual incentive award payments under the plan are paid in cash in an amount reviewed and approved by the committee and are ordinarily made in the first quarter following the completion of the performance year, after
the actual financial results for that year have been determined and the committee has determined whether applicable performance goals have been met.
Our Incentive Compensation Plan specifies an overall general cap that limits the maximum amount payable under the plan to any
participant to $7.5 million per year. However, as described below, the Compensation Committee also establishes a lower separate cap on the amount of annual cash incentive award that can be paid to an executive officer in any given year. In
addition, the committee retains the authority under the plan to reduce or eliminate these awards, a concept called negative discretion, when the committee deems appropriate.
Under our Incentive Compensation Plan, participants who cease to be employed by us before the end of a performance period due to
retirement (defined in the plan as termination without cause at age 60 or older), death or disability are eligible to receive an annual cash incentive award that is prorated to the employment termination date but based upon the actual performance
for the entire performance period.
Historically, the performance goal under our Incentive Compensation Plan has required attainment
of a
pre-determined
level of adjusted EBITDA during the applicable plan year. Under the plan, the committee employs factors that are both quantitative (attainment of the performance goal) and qualitative (the
committees assessment of the individuals performance and the committees exercise of negative discretion). For 2018, the committee established a performance goal for executive officers under the plan expressed as an amount of target
adjusted EBITDA. The committee selected adjusted EBITDA as the appropriate financial performance measure for 2018 because adjusted EBITDA generally tracks our financial performance and establishes a clear and consistent link between our executive
officer cash incentive compensation and our companys performance.
In addition, the adjusted EBITDA formula includes
adjustments to remove the positive or negative impact of unusual or
one-time
events that tend to obscure the core operational performance of our company. For purposes of determining the 2018 adjusted EBITDA
performance goal under our Incentive Compensation Plan, adjusted EBITDA was defined as an amount equal to consolidated net income (excluding the cumulative effect
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of any change in accounting principle), for 2018, plus or minus, as applicable, the following to the extent excluded in calculating such consolidated net income:
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Plus an amount equal to interest expense in accordance with GAAP, for 2018,
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Plus or minus the provision for tax expense or benefit accrued for 2018,
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Plus the amount of depreciation and amortization expense for 2018,
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Minus, without duplication, interest income for 2018, as determined in accordance with GAAP, and
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Plus or minus, without duplication, the amount of
non-operating
expenses or
income for 2018, all as determined in accordance with GAAP,
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in each case excluding (i) the effects of any asset impairments
recorded during 2018, (ii) any gain or loss on the sale of assets during 2018, (iii) any rig margindefined as rig revenue less controllable expensesassociated with an asset acquired during 2018, (iv) any expenses (other than capital
expenditures) incurred in relation to reactivating any rigs that have been warm- or cold-stacked and (v) the negative financial impact on such year of any transaction entered into with any customer that has the effect of reducing the amount of
EBITDA during 2018 in exchange for a commensurate material benefit to be received by the company, such as a drilling contract blend and extend transaction. In addition, the Compensation Committee reserved the right to make equitable
adjustments to the target adjusted EBITDA or the calculation of the target adjusted EBITDA in recognition of unusual or
non-recurring
events affecting the company, in response to changes in applicable laws or
regulations, or to account for items of gain, loss or expense determined to be extraordinary or unusual in nature or infrequent in occurrence or related to the disposal of a segment of a business or related to a change in accounting principles or
any other unusual transaction or event occurring after approval of the target adjusted EBITDA.
During the first calendar quarter of
2018, the Compensation Committee approved for our executive officers (including our CEO) a 2018 target adjusted EBITDA goal under our Incentive Compensation Plan of $271 million. The target adjusted EBITDA goal established for 2018 was lower
than the target goal applicable to 2017 as a result of the continuing negative impact on our business caused by the steep decline in oil prices and customer capital spending and the market oversupply of offshore drilling rigs. For all participating
executive officers other than Mr. Edwards, the maximum amount of each annual cash incentive award for 2018 was determined using the following formula approved by the committee during the first calendar quarter of 2018:
A x D
(B + C)/2
A = Eligible Annual Base Salary for 2018
B = $271,000,000 (target adjusted EBITDA for 2018)
C = $561,000,000 (actual adjusted EBITDA for 2017)
D = Actual Adjusted EBITDA for 2018
but in any event the 2018 annual cash incentive award could not exceed the officers eligible annual base salary for 2018.
In recognition of his leadership role in setting company policy and strategic planning, during the first calendar quarter of 2018 the
Compensation Committee determined that Mr. Edwards annual cash incentive award for 2018 would be calculated differently than other executive officers. Mr. Edwards was eligible to receive an annual cash incentive award of up to
$500,000 upon achievement of 50% of the target goal, up to $1,500,000 upon achievement of the target goal and a maximum of up to $2,500,000 upon achievement of 150% or more of the target goal.
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As a result of the continuation of the depressed market, in June 2018 we entered into an extended
retention arrangement with Mr. Woll to cover 2019 under the same general terms as the 2017 Retention Plan. Pursuant to the 2019 extended arrangement, Mr. Woll will be paid $750,000 in a lump sum in cash during the first quarter of 2020 if
he remains actively employed through January 1, 2020 and meets the other conditions for the payment.
Long-Term Stock-Based and Cash-Incentive Awards
We have structured our long-term incentive compensation to achieve an appropriate balance between rewarding performance and
encouraging employee retention and stock ownership. Stock-based awards and long-term cash incentive awards to the named executive officers are designed to reward them for taking actions that benefit the long-term performance of our company and
enhance stockholder value. Because the awards will be forfeited in most circumstances if an executive voluntarily leaves our company before the awards vest, these awards are also designed to promote the retention of our executive officers during the
vesting period. As a result, these awards recognize performance over a longer term and encourage executive officers to continue their employment with us. In addition, the stock-based awards directly link the ultimate value of the awards to the price
of our common stock. All of these elements further serve to align the executives interest with those of our stockholders. The Compensation Committee reviews our long-term incentive program each year to ensure that the key elements of this
program continue to meet the objectives described above.
There is no
pre-established
policy
or target for the allocation between either cash or
non-cash
or short-term and long-term incentive compensation; however, at executive management levels, the Compensation Committee intends for a significant
portion of compensation to be performance-based and linked to longer-term incentives.
Approval and Granting Process
. The
Compensation Committee reviews and approves all RSU and long-term cash incentive awards made to executive officers, regardless of amount. In accordance with our Equity Plan, the Compensation Committee has granted to Mr. Edwards the authority to
approve and grant to any employee, other than an executive officer, time-vesting RSUs with a grant date value of $25,000 or less, under terms that have been approved by the committee. We believe that this delegation is beneficial because it enables
smaller awards to be made more efficiently, which is particularly important with respect to attracting, hiring and retaining
non-executive
employees. With the exception of significant promotions, new hires or
unusual circumstances, we intend to make most awards of RSUs and other long-term awards to employees on April 1 of each year to enable consideration of individual and company performance from the previous year.
Award of RSUs and Long-Term Performance Cash Incentives to CEO in 2018
. In April 2018, Mr. Edwards was awarded a target
number of 115,207 performance-vesting RSUs, which was determined based on a target grant date value of $1,750,000, as determined by the Compensation Committee, and the volume-weighted average price per share of our common stock on the NYSE for the
10 consecutive trading days immediately preceding the date of grant, which we refer to as VWAP. RSUs are contractual rights to receive shares of our common stock in the future if the applicable vesting conditions are met. RSUs were deemed by the
committee to be advantageous because they align the interests of named executive officers with achievement of longer-term financial objectives that enhance stockholder value and further strengthen our link between pay and performance. The value of
an RSU is equal to the market value of one share of our common stock; as a result, RSUs can be effective incentives for our superior performers to remain with the company and continue performing during periods of stock market fluctuations. The
vesting of RSU awards can be dependent on a number of factors, including continued employment over a specified period and/or the attainment of specified performance targets over a specified period, which we believe further incentivizes our executive
officers and aligns their interests more closely with those of our stockholders. The RSUs awarded to Mr. Edwards in 2018 cliff vest in three years subject to our level of achievement of a specified target of average ratio of Adjusted EBITDA to
Adjusted Net PP&E (as such terms are defined below) for each of 2018, 2019 and 2020, as set forth in
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the table below and subject to the negative discretion of the Compensation Committee to reduce or eliminate the number of the RSUs that would otherwise be eligible to vest:
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Performance
Level
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Performance as a
Percentage of Target
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RSUs
Vesting (#)
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Below Threshold
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Less than 50%
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0
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Threshold
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50%
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77,189 (67% of target)
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Target
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100%
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115,207 (100% of target)
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Maximum
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150% or greater
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153,225 (133% of target)
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In April 2018, Mr. Edwards also received a performance-vesting long-term cash incentive award with
a target value of $1,750,000. The award cliff vests in three years subject to our level of achievement of the same target of average ratio of Adjusted EBITDA to Adjusted Net PP&E (as such terms are defined below) for each of 2018, 2019 and 2020,
as set forth in the table below and subject to the negative discretion of the Compensation Committee to reduce or eliminate the amount that would otherwise be eligible to vest:
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Performance
Level
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Performance as a
Percentage of Target
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Dollar Amount
Vesting ($)
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Below Threshold
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Less than 50%
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0
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Threshold
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50%
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1,172,500 (67% of target)
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Target
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100%
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1,750,000 (100% of target)
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Maximum
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150% or greater
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2,327,500 (133% of target)
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In the event of performance falling between the levels stated above, linear interpolation will be applied to determine
the amount of the award eligible to vest.
For purposes of the performance-vesting RSU awards and performance-vesting long-term cash
incentive awards granted in 2018, Adjusted EBITDA means, for any calendar year, an amount equal to consolidated net income (excluding the cumulative effect of any change in accounting principle) for such year plus or minus, as
applicable, the following to the extent excluded in calculating such consolidated net income: (a) plus an amount equal to interest expense for such year, (b) plus or minus the provision for accrued tax expense or benefit accrued for such
year, (c) plus the amount of depreciation and amortization expense for such year, (d) minus, without duplication, interest income for such year, (e) plus or minus, without duplication, the amount of
non-operating
expenses or income for such year, and (f) excluding (i) the effects of any asset impairments recorded during such year, (ii) any gain or loss on the sale of assets during such year,
(iii) any rig margin defined as rig revenue less controllable expensesassociated with an asset acquired during the performance period, (iv) any expenses (other than capital expenditures) incurred in relation to reactivating any
rigs that have been warm- or cold-stacked and (v) the negative financial impact on such year of any transaction entered into with any customer that has the effect of reducing the amount of EBITDA during such year in exchange for a commensurate
material benefit to be received by the company, such as a drilling contract blend and extend transaction.
For purposes
of the performance-vesting RSU awards and performance-vesting long-term cash incentive awards granted in 2018, Adjusted Net PP&E means, at any date of determination, on a consolidated basis, an amount equal to the net book value of
all property, plant and equipment (including, without limitation, land, mineral rights, buildings, structures, machinery and equipment), plus an amount equal to the net book value of all property, plant and equipment (including, without limitation,
land, mineral rights, buildings, structures, machinery and equipment) classified on our balance sheet as held for sale, in each case excluding, over the elapsed portion of the performance period to the date of such determination, (i) the
effects of any impairment of assets and (ii) the net book value added to or removed from net property, plant and equipment or assets held for sale as a result of any asset acquired or sold during such period.
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The target value of the performance-vesting long-term cash incentive award and the
value of the time-vesting long-term cash incentive award granted to Mr. Kornblau in July 2018 were as follows:
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Target Value of
Performance-Vesting
Cash Incentives
($)
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Value of Time-Vesting
Cash Incentives ($)
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52,500
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35,000
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As an additional condition to the vesting of RSUs and long-term cash incentives awarded to
Mr. Kornblau in July 2018, he is required to remain employed by us through the vesting date, except that upon termination without Cause on or after July 1, 2020, Mr. Kornblau will receive 50% of his performance-vesting
RSUs and performance-vesting long-term cash incentive award that eventually vest upon attainment of the performance goals after the end of the
3-year
performance period.
The RSUs do not have voting rights. We reserve the right to settle any vested RSU by cash payment in lieu of stock. If we pay a special
cash dividend in respect of our common stock prior to vesting of an RSU award, each officer will be credited with a dollar amount equal to the special cash dividend multiplied by the total number of his unvested RSUs that are outstanding on the
record date for the dividend (based on the target number of RSUs with respect to performance-vesting RSUs). Any dividend equivalent rights credited as described in the foregoing sentence are payable in cash and are subject to the same vesting,
payment and other terms, conditions and restrictions as the original RSUs to which they relate. No crediting of dividend equivalent rights will be made with respect to any regular or ordinary cash dividends. We did not declare any special cash
dividends during 2018.
The RSU and long-term cash incentive award agreements also obligate the above officers to comply with
certain restrictive covenants, including obligations of confidentiality, a prohibition on solicitation of our employees for a period of two years after termination of employment and a prohibition on competition for a period of one year after
termination of employment.
Performance-Vesting RSUs Realized for the Performance Period Ending in 2018
. The
performance-vesting RSUs that were granted by the Compensation Committee to our named executive officers in April 2016 for the three-year performance period beginning January 1, 2016 and ending December 31, 2018 vested on February 7,
2019 upon determination of the level of attainment of the performance goals and the number of RSUs eligible to vest. These RSUs cliff vested subject to our level of achievement of a target average ratio of 5.8% of Adjusted EBITDA (as defined in the
applicable grant agreement) to Adjusted Net PP&E (as defined above) for each of 2016, 2017 and 2018, subject to the negative discretion of the Compensation Committee to reduce the number of the RSUs that would otherwise be eligible to vest.
Following the end of the performance period, the Compensation Committee evaluated our companys performance for the three-year period and determined performance to be 8.5%, which was above the target. After giving effect to the committees
exercise of negative discretion with respect to each such award, the committee determined to vest the RSUs at target level and the following number of performance-vesting RSUs vested for each named executive officer: Mr. Edwards, 155,857 RSUs;
Mr. Woll, 16,031 RSUs; Mr. Kornblau, 1,781 RSUs; Mr. Roland, 8,683 RSUs; and Mr. Roth, 5,650 RSUs.
Personal Benefits, Perquisites and
Employee Benefits
We do not offer many perquisites traditionally offered to executives of
similarly-sized
companies. Perquisites and any other similar personal benefits generally offered to our executive officers are substantially the same as those generally available on a
non-discriminatory
basis to all of our full-time salaried employees, such as medical and dental insurance, life insurance, disability insurance, a 401(k) plan with a company match and other customary employee
benefits. We make contributions for group term life insurance, spouse/dependent life insurance, and long-term disability insurance for our employees, including our named executive officers, as indicated in the
2018 Summary Compensation Table
below. Business-related relocation benefits may be reimbursed on a
case-by-case
basis.
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OTHER MATTERS
While management has no reason to believe that any other business will be presented, if any other matters should properly come before
the Annual Meeting, the proxies will be voted as to such matters in accordance with the best judgment of the proxy holders.
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By Order of the Board of Directors
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DAVID L. ROLAND
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Senior Vice President, General Counsel and Secretary
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AnnUAL meeTing OF DiAmOnD OFFshORe DRiLLing, inc. Annual Meeting of Diamond
Offshore Drilling, Inc. (the “Company”) Date: May 15, 2019 to be held on Wednesday, May 15, 2019 Time: 8:30 a.m. (Eastern Time) Place: Loews Corporation for Holders as of March 20, 2019 667 Madison Avenue This proxy is being solicited on
behalf of the Board of Directors New York, New York 10065 Please make your marks like this: Use dark black pencil or pen only VOTE BY: inTeRneT TeLePhOne Call The Board of Directors recommends a vote FOR the following nominees: Go To 866-895-6890
www.proxypush.com/DO 1: Election of Directors • Use any touch-tone telephone. Directors • Cast your vote online. OR Recommend • Have your Proxy Card/V oting Instruction Form ready. For Against Abstain• View Meeting Documents.
• Follow the simple recorded instructions. 01 James S. Tisch For mAiL For 02 Marc Edwards • Mark, sign and date your Proxy Card/V oting Instruction Form. OR 03 Anatol Feygin For • Detach your Proxy Card/V oting Instruction Form.
For 04 Paul G. Gaffney II • Return your Proxy Card/V oting Instruction Form in the postage-paid envelope provided. For 05 Edward Grebow For 06 Kenneth I. Siegel The undersigned hereby appoints Marc Edwards and David L. Roland, and each or
either of them, as the true and For lawful attorneys of the undersigned, with full power of substitution and revocation, and authorizes them, and each of 07 Clifford M. Sobel them, to vote all the shares of capital stock of the Company which the
undersigned is entitled to vote at said meeting 08 Andrew H. Tisch For and any adjournment thereof upon the matters specified and upon such other matters as may be properly brought before the meeting or any adjournment thereof, conferring authority
upon such true and lawful attorneys to vote in their The Board of Directors recommends a vote FOR proposals 2 and 3. discretion on such other matters as may properly come before the meeting and revoking any proxy heretofore given. THE SHARES
REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, For Against Abstain SHARES WILL BE VOTED FOR THE ELECTION OF THE DIRECTORS IN ITEM 1 AND FOR THE PROPOSALS IN ITEMS 2 AND 3, AND IN ACCORDANCE WITH THE DISCRETION OF
THE PERSONS APPOINTED ABOVE WITH 2: To approve, on an advisory basis, executive For RESPECT TO ANY OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE MEETING. compensation. All votes by 401(k) Plan participants must be received by 5:00 P.M., Eastern
Time, May 13, 2019. 3: T o ratify the appointment of Deloitte & For Touche LLP as the independent auditor for our company and its subsidiaries for fiscal year 2019. PROXY TABULATOR FOR NOTE: Such other business as may properly come before the
annual meeting or any DiAmOnD OFFshORe DRiLLing, inc. adjournments thereof. P.O. BOX 8016 cARY, nc 27512-9903 Authorized Signatures - This section must be completed for your Instructions to be executed. Please Sign Here Please Date Above Please Sign
Here Please Date Above Please sign exactly as your name(s) appears on your stock certificate. If held in joint tenancy, all persons should sign. Trustees, administrators, etc., should include title and authority. Corporations should provide full
name of corporation and title of authorized officer signing the proxy. Please separate carefully at the perforation and return just this portion in the envelope provided.AnnUAL meeTing OF DiAmOnD OFFshORe DRiLLing, inc. Annual Meeting of Diamond
Offshore Drilling, Inc. (the “Company”) Date: May 15, 2019 to be held on Wednesday, May 15, 2019 Time: 8:30 a.m. (Eastern Time) Place: Loews Corporation for Holders as of March 20, 2019 667 Madison Avenue This proxy is being solicited on
behalf of the Board of Directors New York, New York 10065 Please make your marks like this: Use dark black pencil or pen only VOTE BY: inTeRneT TeLePhOne Call The Board of Directors recommends a vote FOR the following nominees: Go To 866-895-6890
www.proxypush.com/DO 1: Election of Directors • Use any touch-tone telephone. Directors • Cast your vote online. OR Recommend • Have your Proxy Card/V oting Instruction Form ready. For Against Abstain• View Meeting Documents.
• Follow the simple recorded instructions. 01 James S. Tisch For mAiL For 02 Marc Edwards • Mark, sign and date your Proxy Card/V oting Instruction Form. OR 03 Anatol Feygin For • Detach your Proxy Card/V oting Instruction Form.
For 04 Paul G. Gaffney II • Return your Proxy Card/V oting Instruction Form in the postage-paid envelope provided. For 05 Edward Grebow For 06 Kenneth I. Siegel The undersigned hereby appoints Marc Edwards and David L. Roland, and each or
either of them, as the true and For lawful attorneys of the undersigned, with full power of substitution and revocation, and authorizes them, and each of 07 Clifford M. Sobel them, to vote all the shares of capital stock of the Company which the
undersigned is entitled to vote at said meeting 08 Andrew H. Tisch For and any adjournment thereof upon the matters specified and upon such other matters as may be properly brought before the meeting or any adjournment thereof, conferring authority
upon such true and lawful attorneys to vote in their The Board of Directors recommends a vote FOR proposals 2 and 3. discretion on such other matters as may properly come before the meeting and revoking any proxy heretofore given. THE SHARES
REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, For Against Abstain SHARES WILL BE VOTED FOR THE ELECTION OF THE DIRECTORS IN ITEM 1 AND FOR THE PROPOSALS IN ITEMS 2 AND 3, AND IN ACCORDANCE WITH THE DISCRETION OF
THE PERSONS APPOINTED ABOVE WITH 2: To approve, on an advisory basis, executive For RESPECT TO ANY OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE MEETING. compensation. All votes by 401(k) Plan participants must be received by 5:00 P.M., Eastern
Time, May 13, 2019. 3: T o ratify the appointment of Deloitte & For Touche LLP as the independent auditor for our company and its subsidiaries for fiscal year 2019. PROXY TABULATOR FOR NOTE: Such other business as may properly come before the
annual meeting or any DiAmOnD OFFshORe DRiLLing, inc. adjournments thereof. P.O. BOX 8016 cARY, nc 27512-9903 Authorized Signatures - This section must be completed for your Instructions to be executed. Please Sign Here Please Date Above Please Sign
Here Please Date Above Please sign exactly as your name(s) appears on your stock certificate. If held in joint tenancy, all persons should sign. Trustees, administrators, etc., should include title and authority. Corporations should provide full
name of corporation and title of authorized officer signing the proxy. Please separate carefully at the perforation and return just this portion in the envelope provided.
Please separate carefully at the perforation and return just this portion
in the envelope provided. Proxy — Diamond Offshore Drilling, inc. (the “company”) Annual meeting of stockholders to be held on Wednesday, may 15, 2019 at 8:30 a.m. (eastern Time) This Proxy is solicited on Behalf of the Board of
Directors The undersigned appoints Marc Edwards and David L. Roland (the “Named Proxies”) and each of them as proxies for the undersigned, with full power of substitution, to vote the shares of common stock of the Company that the
undersigned is entitled to vote at the Annual Meeting of Stockholders of the Company to be held at the at the offices of Loews Corporation, 667 Madison Avenue, New York, New York 10065, on Wednesday, May 15, 2019 at 8:30 a.m. (Eastern Time) and all
adjournments thereof. The purpose of the Annual Meeting is to take action on the following: 1. T o elect eight directors, each to serve until the next annual meeting of stockholders and until their respective successors are elected and qualified or
until their earlier resignation or removal; 2. To approve, on an advisory basis, executive compensation; and 3. To ratify the appointment of Deloitte & Touche LLP as the independent auditor for our company and its subsidiaries for fiscal year
2019; 4. To transact such other business as may properly come before the annual meeting or any adjournments thereof. The eight directors nominated for re-election are: James S. Tisch, Marc Edwards, Anatol Feygin, Paul G. Gaffney II, Edward Grebow,
Kenneth I. Siegel, Clifford M. Sobel and Andrew H. Tisch. The Board of Directors of the Company recommends a vote “FOR” all nominees for director and “FOR” the items in proposals 2 and 3. This proxy, when properly executed,
will be voted in the manner directed herein. if no direction is made, this proxy will be voted “FOR” all nominees for director and “FOR” the items in proposals 2 and 3. in their discretion, the named Proxies are authorized to
vote upon such other matters that may properly come before the Annual meeting or any adjournment or postponement thereof. You are encouraged to specify your choice by marking the appropriate box (see ReVeRse siDe) but you need not mark any box if
you wish to vote in accordance with the Board of Directors’ recommendation. The named Proxies cannot vote your shares unless you sign and return this card. To attend the meeting and vote your shares in person, please mark this box.Please
separate carefully at the perforation and return just this portion in the envelope provided. Proxy — Diamond Offshore Drilling, inc. (the “company”) Annual meeting of stockholders to be held on Wednesday, may 15, 2019 at 8:30 a.m.
(eastern Time) This Proxy is solicited on Behalf of the Board of Directors The undersigned appoints Marc Edwards and David L. Roland (the “Named Proxies”) and each of them as proxies for the undersigned, with full power of substitution,
to vote the shares of common stock of the Company that the undersigned is entitled to vote at the Annual Meeting of Stockholders of the Company to be held at the at the offices of Loews Corporation, 667 Madison Avenue, New York, New York 10065, on
Wednesday, May 15, 2019 at 8:30 a.m. (Eastern Time) and all adjournments thereof. The purpose of the Annual Meeting is to take action on the following: 1. T o elect eight directors, each to serve until the next annual meeting of stockholders and
until their respective successors are elected and qualified or until their earlier resignation or removal; 2. To approve, on an advisory basis, executive compensation; and 3. To ratify the appointment of Deloitte & Touche LLP as the independent
auditor for our company and its subsidiaries for fiscal year 2019; 4. To transact such other business as may properly come before the annual meeting or any adjournments thereof. The eight directors nominated for re-election are: James S. Tisch, Marc
Edwards, Anatol Feygin, Paul G. Gaffney II, Edward Grebow, Kenneth I. Siegel, Clifford M. Sobel and Andrew H. Tisch. The Board of Directors of the Company recommends a vote “FOR” all nominees for director and “FOR” the items
in proposals 2 and 3. This proxy, when properly executed, will be voted in the manner directed herein. if no direction is made, this proxy will be voted “FOR” all nominees for director and “FOR” the items in proposals 2 and
3. in their discretion, the named Proxies are authorized to vote upon such other matters that may properly come before the Annual meeting or any adjournment or postponement thereof. You are encouraged to specify your choice by marking the
appropriate box (see ReVeRse siDe) but you need not mark any box if you wish to vote in accordance with the Board of Directors’ recommendation. The named Proxies cannot vote your shares unless you sign and return this card. To attend the
meeting and vote your shares in person, please mark this box.