UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
SCHEDULE 14A
Proxy Statement
Pursuant to Section 14(a) of the Securities
Exchange Act
of 1934
Filed
by the Registrant [X]
Filed by a Party
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box:
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Preliminary
Proxy Statement
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Confidential,
for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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[X]
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Definitive
Proxy Statement
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Definitive
Additional Materials
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Soliciting
Material under Exchange Act Rule 14a-12
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FORUM ENERGY
TECHNOLOGIES, INC.
(Name of Registrant
as Specified In Its Charter)
(Name of Person(s)
Filing Proxy Statement if other than the Registrant)
Payment
of Filing Fee (Check the appropriate box):
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[ ]
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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1)
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Title
of each class of securities to which transaction applies:
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Aggregate
number of securities to which transaction applies:
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3)
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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):
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4)
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Proposed
maximum aggregate value of transaction:
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Fee
paid previously with preliminary materials.
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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
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Form,
Schedule or Registration Statement No.:
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2018
PROXY STATEMENT
AND NOTICE OF
ANNUAL MEETING
OF STOCKHOLDERS
LETTER FROM THE
CHAIRMAN OF THE BOARD TO OUR STOCKHOLDERS
April 2, 2018
Dear Fellow Stockholders:
On
behalf of your board of directors and management, I am pleased to invite you to attend the annual meeting of stockholders of Forum
Energy Technologies, Inc. (the “Company” or “Forum”), which will be held at 8:00 a.m., Central Daylight
Time, on May 15, 2018, at our offices located at 920 Memorial City Way, Suite 1000, Houston, Texas 77024.
The
year in review
U.S. onshore drilling and completion
activity increased markedly during 2017, as oil prices continued to modestly recover from the collapse that occurred from mid-2014
until mid-2016. The improvement in oil prices, however, has not yet been sufficient to significantly impact offshore or international
activity. As a result, Forum’s business segments oriented to the U.S. onshore market, including Completions and Production
& Infrastructure, improved substantially in 2017 compared to 2016. These business segments are positioned well for further
improvement in 2018. Highlighted below are some of Forum’s most noteworthy successes achieved during 2017. I encourage you
to review the entire proxy statement for a more comprehensive look at our achievements.
Continued to deliver growth, strong
balance sheet and long-term shareholder return
During 2017, we continued to execute
our acquisition strategy, successfully completing the acquisition of Multilift Wellbore Technology Limited, Multilift Welltec,
LLC, our joint venture partner’s and management’s interests in Global Tubing, LLC, Innovative Valve Components and
substantially all of the assets of Cooper Valves, LLC, and entering into a new joint venture with Ashtead Technology through the
contribution of our subsea rentals business. In addition, we amended our bank credit facility, increasing lender commitments from
$140 million to $300 million. Forum has come through the worst industry downturn in thirty years in excellent shape, and we are
well positioned for the future.
Alignment of compensation and performance
Our compensation program continues to
appropriately reward employees for producing sustainable growth consistent with our long-term goals. We believe strongly in the
link between pay and long-term performance, and align our executive compensation program with long-term shareholder interests.
In 2017, approximately 85% of total executive compensation was at-risk and tied to the Company’s performance.
Executive succession planning
Effective May 16, 2017, I retired from
the chief executive officer position and Mr. Prady Iyyanki became President and Chief Executive Officer, and a member of our board
of directors. In addition, on December 31, 2017, I transitioned from Executive Chairman to non-executive Chairman of the Board.
Recently, as another step toward executing our succession plan, Mr. Pablo G. Mercado was appointed as Senior Vice President and
Chief Financial Officer to allow Mr. James W. Harris, our former Chief Financial Officer, to transition to serve on a full-time
basis as Executive Vice President – Drilling and Subsea. Mr. Mercado has held various leadership roles in our finance organization
and has been an integral part of Forum’s development, including assisting with our initial public offering and managing
the completion of over twelve merger and acquisition transactions during his tenure at Forum. I have the highest level of confidence
in his ability to create shareholder value and help drive profitable growth.
Looking forward
It has been our strategy to be an early-cycle,
activity-driven and scalable company with a strong balance sheet and low capital intensity. We believe the Company is positioned
to take advantage of the improved market conditions over the prior year. I am proud of all that we have achieved during what was
a very long market downturn, our culture, and the hard work and dedication of our employees. Thank you for your continued support
and interest in Forum Energy Technologies.
Sincerely,
C. Christopher
Gaut
Chairman of the Board
FORUM ENERGY
TECHNOLOGIES, INC.
NOTICE OF 2018
ANNUAL MEETING OF STOCKHOLDERS
To Be Held on
May 15, 2018
The
annual meeting of stockholders of Forum Energy Technologies, Inc. will be held at 8:00 a.m., Central Daylight Time, on May 15,
2018, at our offices located at 920 Memorial City Way, Suite 1000, Houston, Texas 77024, for the following purposes:
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Description:
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Board
Recommendation:
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Proposal
1
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To
elect the four persons named in this proxy statement to serve as directors for terms of three years.
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FOR
ALL
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Proposal
2
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To
approve, on a non-binding, advisory basis, the compensation of our named executive officers.
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FOR
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Proposal
3
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To ratify the appointment
of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2018.
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FOR
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Attached
to this notice is a proxy statement setting forth information with respect to the above items and certain other information. Whether
or not you plan to attend the annual meeting, please sign, date and return the proxy card in the accompanying envelope. If you
do attend the meeting and desire to vote in person, you may do so even though you have previously submitted your proxy.
Forum’s
board of directors has established March 19, 2018 as the record date for the determination of stockholders entitled to notice
of and to vote at the annual meeting. For a period of 10 days prior to the annual meeting, a complete list of stockholders of
record entitled to vote at the annual meeting will be available at our executive offices for inspection by stockholders during
ordinary business hours for proper purposes.
We
are utilizing the Securities and Exchange Commission rules that allow issuers to furnish proxy materials to their stockholders
over the Internet. We believe these rules allow us to provide our stockholders with the information they need, while lowering
the costs of delivery and protecting the environment. On or about the date hereof, we are mailing to our stockholders a Notice
of Internet Availability of Proxy Materials containing instructions on how to access our 2018 proxy statement and our annual report
on Form 10-K for the year ended December 31, 2017. The notice provides instructions on how you can request a paper copy of these
documents if you desire. Stockholders, whether or not they expect to be present at the meeting, are urged to vote their shares
as promptly as possible by following the instructions in the Notice of Internet Availability of Proxy Materials. Any person giving
a proxy has the power to revoke it at any time, and stockholders present at the meeting may withdraw their proxies and vote in
person.
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By order of the Board
of Directors,
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John
C. Ivascu
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Secretary
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April 2, 2018
920 Memorial City
Way, Suite 1000
Houston, Texas
77024
IMPORTANT
INFORMATION REGARDING THE ANNUAL MEETING OF STOCKHOLDERS
Registration will
begin at 7:30 a.m. Please note that space limitations make it necessary to limit attendance at the meeting to stockholders, though
each stockholder may be accompanied by one guest. Please bring photo identification, such as a driver’s license or passport,
and if you hold your shares in brokerage accounts, a copy of a brokerage statement reflecting stock ownership as of the record
date. Please keep in mind that cameras, recording devices and other electronic devices are not permitted at the meeting.
Table of Contents
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Page
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QUORUM, VOTE REQUIRED AND REVOCATION OF PROXIES
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1
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COST AND METHOD OF PROXY SOLICITATION
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2
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PROPOSAL 1: ELECTION OF DIRECTORS
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3
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OUR DIRECTORS
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3
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SECURITY OWNERSHIP
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8
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DIRECTOR COMPENSATION
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10
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CORPORATE GOVERNANCE
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12
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CONFLICTS OF INTEREST AND RELATED PERSON TRANSACTIONS
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17
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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18
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PROPOSAL 2: ADVISORY RESOLUTION TO APPROVE EXECUTIVE COMPENSATION
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COMPENSATION DISCUSSION AND ANALYSIS
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COMPENSATION COMMITTEE REPORT
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EXECUTIVE COMPENSATION
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EQUITY COMPENSATION PLAN INFORMATION
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PROPOSAL 3: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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AUDIT COMMITTEE REPORT
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ADDITIONAL INFORMATION
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FORUM
ENERGY TECHNOLOGIES, INC.
920 Memorial
City Way, Suite 1000
Houston, Texas
77024
PROXY
STATEMENT
FOR
2018
ANNUAL MEETING OF STOCKHOLDERS
This
proxy statement is furnished in connection with the solicitation of proxies by our board of directors for use at the 2018 Annual
Meeting of Stockholders of Forum Energy Technologies, Inc. (“Forum” or the “Company”) to be held on May
15, 2018, or at any adjournment or postponement thereof, at the time and place and for the purposes specified in the accompanying
notice of annual meeting.
We
have elected to provide access to our proxy materials over the Internet and are sending a Notice of Internet Availability of Proxy
Materials (the “Notice”) to our stockholders of record. All stockholders will have the ability to access the proxy
materials. Instructions on how to access the proxy materials over the Internet, or to request a printed copy, may be found on
the Notice.
All
properly executed written proxies delivered pursuant to this solicitation, and not later revoked, will be voted at the annual
meeting in accordance with the instructions given in the proxy. When voting regarding the election of directors, stockholders
may vote in favor of all nominees, withhold their votes as to all nominees or withhold their votes as to specific nominees. When
voting regarding the approval of the compensation of our named executive officers and the ratification of the appointment of our
independent registered public accounting firm, stockholders may vote for or against the proposal or may abstain from voting. Stockholders
should vote their shares on the proxy card. If no choice is indicated, proxies that are signed and returned will be voted as recommended
by our board of directors.
All
shares of our common stock represented by properly executed and unrevoked proxies will be voted if such proxies are received in
time for the meeting.
QUORUM, VOTE
REQUIRED AND REVOCATION OF PROXIES
The
board of directors has established March 19, 2018 as the record date for the determination of stockholders entitled to
notice of and to vote at the annual meeting. As of the record date, 108,782,551 shares of common stock were outstanding.
Each share of common stock is entitled to one vote upon each matter to be voted on at the meeting. The presence, in person or
by proxy, of the holders of a majority of the outstanding shares of common stock at the annual meeting is necessary to
constitute a quorum.
The
four nominees for director who receive the greatest number of votes cast at the meeting will be elected as directors. If any nominee
for director receives a greater number of votes “withheld” than votes “for” such election, our board of
directors requires that such person must tender his or her resignation. Cumulative voting is not permitted in the election of
directors. The approval of the compensation of our named executive officers on an advisory basis and the ratification of the appointment
of our independent registered public accounting firm is subject to the approval of a majority of the shares of common stock present
in person or by proxy at the meeting and entitled to vote on the matter.
Brokers
holding shares of our common stock 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. The New
York Stock Exchange, however, precludes brokers from exercising voting discretion on certain proposals without specific instructions
from the beneficial owner. Under New York Stock Exchange Rules (“NYSE”) rules, brokers holding shares in “street
name” for their beneficial holder clients will have discretion to vote only on the ratification of the appointment of our
independent registered public accounting firm. Brokers cannot vote on the other matters to be considered at the meeting without
instructions from the beneficial owners. If you do not instruct your broker how to vote on those matters, your broker will not
vote on your behalf.
Abstentions
and broker non-votes 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 indicated that it does not have discretionary authority to vote, these
shares will be treated as not present with respect to that question, even though those shares are considered present for quorum
purposes and may be entitled to vote on other questions. Because the four nominees for director who receive the greatest number
of votes cast at the meeting will be elected as directors, abstentions and broker non-votes will not affect the outcome of the
voting on the elections. Because the approval of the compensation of our named executive officers on an advisory basis and the
ratification of the appointment of our independent registered public accounting firm requires the approval of a majority of the
shares of common stock present in person or by proxy at the meeting and entitled to vote on the matter, abstentions will have
the same effect as votes against these proposals. Broker non-votes, on the other hand, will not affect the outcome of the voting
with respect to such proposals.
Any
holder of our common stock has the right to revoke his or her proxy at any time prior to the voting thereof at the annual meeting
by: (1) filing a written revocation with the Secretary prior to the voting of such proxy, (2) giving a duly executed proxy bearing
a later date, or (3) attending the annual meeting and voting in person. Attendance by a stockholder at the annual meeting will
not itself revoke his or her proxy. If you hold your shares in the name of a bank, broker or other nominee, you should follow
the instructions provided by your bank, broker or nominee in revoking your previously granted proxy.
If
your properly executed proxy does not indicate how you wish to vote your common stock, the persons named on the proxy card will
vote as follows:
Proposal
1: “FOR ALL”;
Proposal
2: “FOR”; and
Proposal
3: “FOR”.
COST AND METHOD
OF PROXY SOLICITATION
We
will bear the cost of the solicitation of proxies. In addition to solicitation by mail, our directors, officers and employees
may solicit proxies from stockholders by telephone or facsimile or in person. Proxy materials will be furnished without cost to
brokers, dealers and other custodian nominees and fiduciaries to forward to the beneficial owners of shares held in their names.
PROPOSAL 1:
ELECTION OF DIRECTORS
The
board of directors comprises ten members. The ten members are divided into three classes with two members in Class I and four
members in each of Classes II and III. Each class is elected for a term of three years, so that the term of one class of directors
expires at each annual meeting of stockholders. The term of the four Class III directors will expire at the 2018 annual meeting.
The terms of the Class I directors expire at the annual meeting of stockholders to be held in 2019 and the terms of the Class
II directors expire at the annual meeting of stockholders to be held in 2020. In March 2018, Mr. Franklin Myers retired as a director,
and our board of directors resolved to decrease its size from eleven to ten directors, effective upon Mr. Myers’s retirement.
Our board of directors believes that the current number of directors is appropriate for the Company’s current revenue level
and profitability.
Nominees for
Election
The
board of directors, upon the recommendation of the Governance Committee, has nominated for submission to the stockholders Messrs.
McShane, O’Toole, Raspino and Schmitz as Class III directors for a term of three years, each to serve until the annual meeting
of stockholders in 2021 or until his successor is elected and qualified. If any of the nominees becomes unavailable for any reason,
which is not anticipated, the board of directors, in its discretion, may designate a substitute nominee. If you have filled out
the accompanying proxy card, your vote will be cast for the substitute nominee. Our board of directors has determined that Messrs.
McShane, O’Toole, Raspino and Schmitz are “independent” as that term is defined by the applicable NYSE listing
standards.
Vote Required
and Board Recommendation
If
a quorum is present at the annual meeting, the four nominees receiving the greatest number of votes cast will be elected as directors.
Your board of directors unanimously recommends a vote “FOR ALL” of the aforementioned four director nominees.
OUR DIRECTORS
Set
forth below are the names of, and certain information as of March 19, 2018 with respect to, the four nominees for election as
Class III directors and the other members of the board of directors.
Nominees –
Class III Directors
Michael McShane
– Age: 63, Positions: Lead Independent Director; Compensation Committee, Member
Mr.
McShane was appointed as a director of Forum in September 2010 and currently serves as a member of the Compensation
Committee and Lead Independent Director of the board of directors. Mr. McShane also currently serves as an Operating Partner
to Advent International, an international private equity fund. Mr. McShane was a director of Spectra Energy Corp, a natural
gas infrastructure company, from April 2008 until February 2017, and has served as a director of Enbridge, Inc., an energy
infrastructure company, since the completion of Enbridge’s acquisition of Spectra Energy Corp in February 2017. He was
also a director of Complete Production Services, Inc., a provider of specialized oil and gas completion and production
services, from March 2007 until February 2012, and has served as a director of Superior Energy Services, Inc., a provider of
specialized oilfield services and equipment, since the completion of Superior Energy Services' acquisition of Complete
Production Services in February 2012. Mr. McShane has also been a director of Oasis Petroleum Inc., an exploration and
production company, since May 2010. Previously, Mr. McShane served as a director, and President and Chief Executive Officer,
of Grant Prideco, Inc., a manufacturer and supplier of oilfield drill pipe and other drill stem products, from June 2002
until April 2008, having also served as Chairman of the Board from May 2003 through April 2008. Prior to joining Grant
Prideco, Mr. McShane was Senior Vice President — Finance and Chief Financial Officer and director of BJ Services
Company, a provider of pressure pumping, cementing, stimulation and coiled tubing services for oil and gas operators, from
1990 to June 2002, and Vice President — Finance from 1987 to 1990 while BJ Services was a division of Baker
Hughes Incorporated. Mr. McShane joined BJ Services in 1987 from Reed Tool Company, where he was employed for seven
years in various financial management positions.
The
board of directors is nominating Mr. McShane because of his expansive knowledge of the oil and gas industry, as well as relationships
with chief executives and other senior management at oil and natural gas companies and oilfield service companies throughout the
world. He brings to the board of directors his experience as a senior leader and chief financial officer within the oilfield services
industry, as well as his leadership as chairman and chief executive officer of a leading North American drill bit technology and
drill pipe manufacturer. In addition, Mr. McShane’s service on the board of directors of other listed companies informs
his ability to act as Lead Independent Director. Mr. McShane also provides the board of directors with a producer perspective
that is valuable in strategic discussions.
Terence
M. O’Toole – Age: 59, Positions: Compensation Committee, Member
Mr.
O’Toole was appointed as a director of Forum in April 2012 and currently serves as a member of the Compensation Committee.
Mr. O’Toole is the founder of Macanta Investments LLC and co-founder of Fremont Macanta LLC, both private investment entities.
He is a Vice President of Tinicum Incorporated, the management company of each of Tinicum L.P., Tinicum Capital Partners II, L.P.,
and Tinicum Capital Partners II Add-On, L.P. (and each of their affiliated partnerships), together all such partnerships referred
to herein are the “Tinicum Partnerships”. Prior to joining the Tinicum Partnerships in January 2006, Mr. O’Toole
spent twenty-one years at Goldman, Sachs & Co., where he was a partner, a member of the investment committee and the partnership
committee, and the chief operating officer of the principal investment area. Mr. O’Toole is currently a member of the board
of directors of various privately held companies in which Tinicum has an investment, including Skyway Towers Holdings II LLC,
a developer, owner and operator of wireless communications towers in the United States; F&W Media, Inc., a content and e-commerce
company to enthusiast communities; Pontos Aqua Holdings, LLC, an aquaculture company; and Ashby Street Outdoor Holdings, LLC,
an owner and operator of outdoor advertising structures.
The
board of directors is nominating Mr. O’Toole because his experience in evaluating and completing numerous acquisitions,
and his extensive knowledge of financial markets, make him well qualified to serve on our board of directors. In addition, Mr.
O’Toole’s experience serving on the boards of directors of other companies provides him with exposure to a variety
of governance practices and has proven valuable in board deliberations.
Louis A.
Raspino – Age: 65, Positions: Compensation Committee, Chairperson
Mr.
Raspino was elected as a director of Forum in January 2012 and currently serves as the Chairperson of the Compensation Committee.
He currently serves as Director, Chairman and Audit Committee member of Gulfmark Offshore, Inc., and as Director
and member of the Compensation and Audit Committees of American Bureau of Shipping, a private company. He served as Chairman of
Clarion Offshore Partners LLC, a Blackstone affiliate, from October 2015 to October 2017. Mr. Raspino has been a private investor
and consultant from June 2011 to present. Mr. Raspino was named President, Chief Executive Officer and a director of Pride International,
Inc., a contract drilling company, in June 2005 and served in that capacity until its acquisition by Ensco plc in May 2011. He
joined Pride International in December 2003 as Executive Vice President and Chief Financial Officer. From July 2001 until December
2003, he served as Senior Vice President, Finance and Chief Financial Officer of Grant Prideco, Inc. From February 1999 until
March 2001, he held various senior financial positions, including Vice President of Finance for Halliburton Company. From October
1997 until July 1998, he was a Senior Vice President at Burlington Resources, Inc. From 1978, until its merger with Burlington
Resources in 1997, he held a variety of positions of increasing responsibility at Louisiana Land and Exploration Company,
most recently as Senior Vice President, Finance and Administration and Chief Financial Officer.
The
board of directors is nominating Mr. Raspino because his significant experience as an executive officer of other energy companies,
service as a member of other boards of directors, and operational, strategic and financial expertise in the oil and gas business
make him well qualified to serve on our board of directors.
John Schmitz
– Age: 57, Positions: Audit Committee, Member
Mr.
Schmitz was appointed as a director of Forum in September 2010 and serves as a member of the Audit Committee. Mr. Schmitz currently
serves as the Executive Chairman of Select Energy Services, Inc., an oil and gas services company, a position he has held since
November 2017. Prior to this, Mr. Schmitz served as Chairman and Chief Executive Officer of Select Energy Services, beginning
in 2007. In addition to his Board service at Forum and Select Energy Services, Inc., Mr. Schmitz serves on the boards of Silver
Creek Oil & Gas, LLC (the surviving entity of the merger of Alta Natural Resources, LLC and HEP Oil Company, Ltd.), CP Energy
Holdings, LLC, and Synergy Energy Holdings, LLC, among others. Prior to his current involvement at Select Energy Services,
Mr. Schmitz served as the North Texas Division Manager for Complete Production Services, Inc., a provider of specialized services
and products focused on helping oil and gas companies develop hydrocarbon reserves, reduce costs and enhance production. Mr. Schmitz
is also the President of Sunray Capital GP, LLC, a Texas limited liability company, the general partner of Sunray Capital, LP,
and President of Schmitz & Schmitz Properties, Inc., a Texas limited partnership, the general partner of B-29 Investments,
LP.
The
board of directors is nominating Mr. Schmitz because his keen insight into emerging trends in North American shale plays and the
types of equipment needed to service producers’ requirements makes him well qualified to serve on our board of directors.
He also has knowledge of other manufacturers’ capabilities and their reputations for quality and deliverability, providing
a valuable perspective on our evaluation of potential acquisitions.
Class I and Class II Members
C. Christopher
Gaut – Age: 61, Positions: Chairman of the Board
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Mr.
Gaut has served as Forum’s Chairman of the Board since December 2017. Prior to that, from May 2017 to December 2017,
he served as Executive Chairman of the Board, and as Chief Executive Officer from May 2016 to May 2017. From August 2010
to May 2016, he served as President, Chief Executive Officer and Chairman of the Board, and as one of our directors since
December 2006. He served as a consultant to L.E. Simmons & Associates, Incorporated (“LESA”), the ultimate
general partner of SCF-V, L.P., SCF-VI, L.P., SCF 2012B, L.P. and SCF-VII, L.P. (collectively, “SCF”), our
largest stockholder, from November 2009 to August 2010, and currently serves as an industry advisor to LESA. Mr. Gaut
served at Halliburton Company, a leading diversified oilfield services company, as President of the Drilling and Evaluation
Division and prior to that as Chief Financial Officer, from March 2003 through April 2009. From April 2009 through November
2009, Mr. Gaut was a private investor. Prior to joining Halliburton in 2003, Mr. Gaut was Co-Chief Operating
Officer of Ensco International, a provider of offshore contract drilling services. He also served as Ensco's Chief Financial
Officer from 1988 until 2003. Mr. Gaut is currently a member of the board of directors of Ensco plc, the successor to
Ensco International; Key Energy Services Inc., a well services provider; and EOG Resources, Inc., an independent crude
oil and natural gas company.
Mr. Gaut’s
experience as our chief executive officer; previous executive leadership roles with energy companies; operational and
financial expertise in the oil and gas business; knowledge of the demands and expectations of our customers; and service
as a board member of other public companies make him well qualified to serve on our board of directors.
Evelyn
M. Angelle – Age: 50, Positions: Audit Committee, Chairperson
Ms.
Angelle was appointed as a director of Forum in February 2011 and currently serves as the Chairperson of the Audit
Committee. Ms. Angelle served as Executive Vice President and Chief Financial Officer of BJ Services Company LLC, a
provider of North American land pressure pumping services, from January 2017 to November 2017. From November
2017 to the present, and from January 2015 to December 2016, Ms. Angelle has served as a private
investor and philanthropist. From January 2014 through January 2015, Ms. Angelle served as Senior
Vice President — Supply Chain for Halliburton Company, responsible for global procurement, materials,
logistics and manufacturing. From April 2003 through December 2013, Ms. Angelle served in various finance and
accounting roles for Halliburton, including Senior Vice President and Chief Accounting Officer, and Vice President of
Investor Relations. Before joining Halliburton in April 2003, Ms. Angelle worked
for 15 years in the audit department of Ernst &
Young LLP, where she specialized in serving large, multinational public
companies and provided technical accounting and consultation to clients and
other professionals. She is a certified public accountant in Texas and a
certified management accountant. Ms. Angelle serves on various
charitable organizations, including on the board of
directors and on the executive committees of Junior Achievement of
Southeast Texas and Junior Achievement USA.
As a result of her significant
professional experience and her particular knowledge in financial, internal controls and public company disclosure compliance,
she is considered an audit committee financial expert. In addition, she brings to the board of directors added judgment
about supply chain, investor relations and the financial management of large oilfield corporations.
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David C. Baldwin
– Age: 55, Positions: Governance Committee, Member
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Mr.
Baldwin was appointed as a director of Forum in May 2005 and currently serves as a member of the Governance Committee.
Mr. Baldwin is Co-President of LESA, and has been an officer of that company since 1991. Prior to joining LESA, Mr. Baldwin
was a drilling and production engineer with Union Pacific Resources Group Inc., an independent natural gas and oil exploration
and production company. Mr. Baldwin serves as a director of Select Energy Solutions, Inc., a public energy services
company; Nine Energy Service, Inc., a public energy services company; Oil Patch, Inc., a private energy services
company; and BCCK, Inc., a private energy services company; and served as a director of Complete Production Services,
Inc., a provider of specialized oil and gas completion and production services.
Mr. Baldwin
assists the board of directors through his extensive experience in identifying strategic growth trends in the energy industry
and evaluating potential transactions. Further, his service as Co-President of the general partner of our largest stockholder
provides a valuable perspective into its insights and interests.
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John A. Carrig–
Age: 66, Positions: Governance Committee, Chairperson; Audit Committee, Member
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Mr.
Carrig was appointed as a director of Forum in July 2011 and currently serves as the Chairperson of the Governance Committee,
and as a member of the Audit Committee. He retired from ConocoPhillips on March 1, 2011, having most recently served as
President and Chief Operating Officer since 2008, where he was responsible for global Exploration and Production, Refining
and Marketing, Commercial, Project Development and Procurement and the Health, Safety and Environment functions. Mr. Carrig
served as Executive Vice President, Finance, and Chief Financial Officer from 2002 to 2008. Prior to the merger with Conoco
Inc. in 2002, Mr. Carrig was with Phillips Petroleum Company, where he was named Senior Vice President and Chief Financial
Officer in 2001. In 2000, he joined Phillips’ management committee as Senior Vice President and Treasurer. From
1996 to 2000, he was Vice President and Treasurer. Mr. Carrig served as Treasurer in 1995 and Assistant Treasurer in 1994.
He joined Phillips in 1978 as a tax attorney. He has been a private investor and engaged in charitable endeavors since
his retirement from ConocoPhillips. Mr. Carrig serves on the board of directors of Skanska AB, a construction and development
company, and WPX Energy, Inc., an oil, natural gas and natural gas liquids producer.
The
board of directors selected Mr. Carrig because of the length and breadth of his experience in the oil and gas industry,
the perspective he brings as a result of his long service as an executive of a major public company with global reach
and his strategic, financial and management acumen. In addition, Mr. Carrig brings valuable insight as a result of his
long history as a customer for oilfield equipment and services. As a result of his significant professional experience
and particular knowledge in finance, accounting, treasury and tax, he is considered an audit committee financial expert.
Prady
Iyyanki– Age: 47, Positions: President and Chief Executive Officer
Mr.
Iyyanki has served as President and Chief Executive Officer, and as a member of our board of directors, since May 2017.
From May 2016 to May 2017, Mr. Iyyanki served as President and Chief Operating Officer, and from January 2014 to May 2016,
he served as Executive Vice President and Chief Operating Officer. Mr. Iyyanki was a private investor from March 2013
through December 2013. From April 2011 to March 2013, Mr. Iyyanki served as Vice President of GE Oil and Gas, a manufacturer
of capital equipment and service provider for the oil and gas industry, and from April 2011 to December 2012, he served
as President and Chief Executive Officer of the GE Oil and Gas Turbo Machinery business. From June 2006 to April 2011,
Mr. Iyyanki served as President and Chief Executive Officer of the GE Power and Water Gas Engines business.
Mr.
Iyyanki’s experience as our Chief Executive Officer, strategic operations and manufacturing expertise, long service
as an executive in various roles with a Fortune 50 manufacturing company and global operations insight make him well qualified
to serve on our board of directors.
Andrew
L. Waite – Age: 57, Positions: Governance Committee, Member
Mr.
Waite was appointed as a director in August 2010 and currently serves as a member of the Governance Committee. Mr. Waite
is Co-President of LESA, and has been an officer of that company since 1995. He was previously Vice President of Simmons
& Company International, where he served from August 1993 to September 1995. From 1984 to 1991, Mr. Waite held a number
of engineering and project management positions with the Royal Dutch/Shell Group, an integrated energy company. Mr. Waite
currently serves on the board of directors of Atlantic Navigation Holdings, an operator of offshore vessels. He has also
served on the board of directors of Complete Production Services, Inc., a provider of specialized oil and gas completion
and production services, from 2000 to 2006, and Oil States International, Inc., a leading manufacturer of equipment for
deepwater production facilities and subsea pipelines and a leading service provider to the oil and gas industry, from
1995 to 2006.
|
Mr.
Waite’s extensive experience in identifying strategic growth trends in the energy industry and evaluating potential transactions
makes him well qualified to serve on our board of directors. Further, his service as Co-President of the general partner of our
largest stockholder provides a valuable perspective into its insights and interests.
SECURITY OWNERSHIP
The
following table sets forth information as of March 19, 2018 with respect to the beneficial ownership of our common stock by (1)
each of our stockholders who is known by us to be a beneficial owner of more than 5% of our common stock, (2) our directors and
director nominees and the persons named in the “Summary Compensation Table” below and (3) all of our current executive
officers and directors as a group. Unless otherwise indicated, all stock is owned directly, and the indicated person or
entity has sole voting and investment power.
|
Name
and Address
|
Number
of Shares
Beneficially
Owned
(1)
|
Percent
of Class
|
|
Stockholders
owning 5% or more:
|
|
|
SCF-V,
L.P. and Related Entities
600 Travis Street, Suite 6600
Houston, TX 77002
(2)
|
20,532,800
|
18.9%
|
The
Vanguard Group
100 Vanguard Blvd.
Malvern, PA 19355
(3)
|
6,530,184
|
6.0%
|
Q-GT
(V) Investment Partners, LLC
1401 McKinney Street, Suite 2700
Houston, TX 77010
(4)
|
5,787,933
|
5.3%
|
|
|
|
|
|
Directors
and Nominees:
|
|
|
|
C.
Christopher Gaut
(5)
|
4,306,019
|
3.9
|
|
Prady
Iyyanki
|
441,360
|
*
|
|
Evelyn
M. Angelle
(6)
|
102,287
|
*
|
|
David
C. Baldwin
(2)(7)
|
20,585,940
|
18.9
|
|
John
A. Carrig
(8)
|
96,415
|
*
|
|
Michael
McShane
|
114,131
|
*
|
|
Terence
M. O’Toole
(9)
|
2,719,806
|
2.5
|
|
Louis
A. Raspino
|
111,412
|
*
|
|
John
Schmitz
(10)
|
2,202,541
|
2.0
|
|
Andrew
L. Waite
(2)(11)
|
20,573,440
|
18.9
|
|
Other
Named Executive Officers:
|
|
|
|
Pablo
G. Mercado
|
177,657
|
*
|
|
James
W. Harris
|
734,002
|
*
|
|
James
L. McCulloch
|
625,518
|
*
|
|
Michael
D. Danford
|
230,568
|
*
|
|
All
current executive officers and directors as a group (15 persons)
|
32,669,252
|
30.0
|
|
|
*
|
Less than 1% of issued and
outstanding shares of common stock.
|
|
|
(1)
|
The
number of shares beneficially owned by the directors, director nominees and executive
officers listed in the table includes shares that may be acquired within 60 days of March
19, 2018 by exercise of stock options or vesting of restricted stock units is as follows:
Mr. Gaut —2,758,630; Mr. Iyyanki — 184,088; Ms. Angelle — 12,617; Mr.
Carrig — 6,549; Mr. McShane — 28,786; Mr. Raspino — 6,179; Mr. Mercado
– 121,712; Mr. Harris — 410,570; Mr. McCulloch — 276,110; Mr. Danford
— 165,943; and all current executive officers and directors as a group —
4,129,914.
|
|
|
(2)
|
SCF-V,
L.P. is the direct owner of 6,918,619 shares, SCF 2012A, L.P. is the direct owner of
1,941,403 shares, SCF-VI, L.P. is the direct owner of 4,046,515 shares, SCF 2012B, L.P.
is the direct owner of 1,113,543 shares and SCF-VII, L.P. is the direct owner of 6,512,720
shares. L.E. Simmons is the sole member and Chairman of the board of directors of LESA,
which is the ultimate general partner of SCF. L.E. Simmons may be deemed to beneficially
own the common stock beneficially owned or deemed to be beneficially owned by SCF and
may be deemed to have voting and investment control over the securities. Mr. Simmons
disclaims beneficial ownership of such shares.
|
|
|
(3)
|
The
number of shares reported is as of December 31, 2017 and is based on a Schedule 13G/A
filed with the U.S. Securities and Exchange Commission on February 9, 2018 by the Vanguard
Group, Inc. The Schedule 13G/A reports sole voting power for 86,649 shares of common
stock, shared voting power for 9,495 shares of common stock, sole dispositive power for
6,439,740 shares of common stock and shared dispositive power for 90,444 shares of common
stock.
|
|
|
(4)
|
The
number of shares reported is as of December 31, 2017 and is based on a Schedule 13G/A
filed with the U.S. Securities and Exchange Commission on February 12, 2018 by Q-GT (V)
Investment Partners, LLC. The Schedule 13G/A reports sole voting power for 5,787,933
shares of common stock, no shared voting power for shares of common stock, sole dispositive
power for 5,787,933 shares of common stock and no shared dispositive power for shares
of common stock.
|
|
|
(5)
|
Includes
561,256 shares held in trusts, half of which are held for the benefit of Mr. Gaut and
half of which are held for the benefit of his spouse. Mr. Gaut is the trustee of the
trusts that are for his benefit, and his spouse is the trustee of the trusts that are
for her benefit. Mr. Gaut disclaims beneficial ownership of all shares held in trust
for his spouse.
|
|
|
(6)
|
Includes
18,000 shares of common stock beneficially owned by Ms. Angelle’s spouse.
|
|
|
(7)
|
Mr.
Baldwin is the direct owner of 53,140 shares of common stock that were issued to him
in connection with his service on our board of directors. 12,500 of such shares are subject
to a one year vesting period measured from February 16, 2018, the date of grant. Mr.
Baldwin serves as Co-President of LESA and, as such, may be deemed to have voting and
investment power over the shares of common stock owned by SCF. Mr. Baldwin disclaims
beneficial ownership of such shares.
|
|
|
(8)
|
Includes
18,000 shares held in trust for the benefit of Mr. Carrig’s children. Mr. Carrig
serves as trustee of the trust and disclaims beneficial ownership of the shares held
by the trust.
|
|
|
(9)
|
Includes
53,140 shares of common stock that were issued to Mr. O’Toole in connection with
his service on our board of directors. 12,500 of such shares are subject to a one year
vesting period measured from February 16, 2018, the date of grant. In addition, Tinicum
FET, LLC (“Tinicum FET”) directly owns 2,666,666 shares of common stock.
The manager of Tinicum FET is Tinicum Lantern III L.L.C. (“Tinicum Lantern III”).
Mr. O’Toole is a co-managing member of Tinicum Lantern III. As such, Mr. O’Toole
may be deemed to have voting and investment power over Tinicum FET’s portfolio.
Mr. O’Toole disclaims beneficial ownership of the shares held by Tinicum FET.
|
|
|
(10)
|
Mr.
Schmitz is the direct owner of 71,194 shares of common stock that were issued to him
in connection with his service on our board of directors. 12,500 of such shares are subject
to a one year vesting period measured from February 16, 2018, the date of grant. The
remaining 2,131,347 shares of common stock are owned directly by B-29 Family Holdings,
LLC, a Texas limited liability company (“B-29 Holdings”). Mr. Schmitz maintains
a 90.69% membership interest in B-29 Holdings, which includes a 0.50% interest in B-29
Holdings directly held by each of Mr. Schmitz and Mr. Schmitz’s wife, and an 89.69%
interest in B-29 Holdings indirectly held by Mr. Schmitz, but over which he maintains
voting power. As such, Mr. Schmitz may be deemed to have voting and investment power
over the shares of common stock owned by B-29 Holdings. Mr. Schmitz disclaims beneficial
ownership of such shares, except to the extent of his pecuniary interest therein.
|
|
|
(11)
|
Mr.
Waite serves as Co-President of LESA and, as such, may be deemed to have voting and investment
power over the shares of common stock owned by SCF. Mr. Waite disclaims beneficial ownership
of such shares.
|
DIRECTOR COMPENSATION
|
♦
N
o increases in director compensation in 2015, 2016 or 2017. Market based increase for the
director
incentive award in 2018.
♦
Each director continues to retain all equity awards since joining the board of directors.
|
Generally
Our non-executive
director compensation program consists of an annual cash retainer and a value-based equity grant for all non-executive directors.
We believe the cash retainer and annual equity awards provide us with an essential and valuable tool to ensure that the board
of directors can recruit talented members and ensure that such directors’ interests are aligned with our stockholders. The
Compensation Committee periodically commissions Pearl Meyer & Partners (“Pearl Meyer”), its independent compensation
consultant, to conduct a market-based director compensation study. In December 2014 and December 2015, the study prepared by Pearl
Meyer indicated that total compensation for our directors was positioned below the compensation peer group median. It was Pearl
Meyer’s recommendation in December 2014 that the value-based equity grant be increased for each director to bring total
compensation into alignment with the median. The Compensation Committee determined, however, not to increase non-executive director
compensation in light of market conditions. In December 2017, the study prepared by Pearl Meyer once again indicated that total
compensation for our directors was positioned below the compensation peer group median. Following Pearl Meyer’s recommendation
and taking into account significantly improved market conditions over the course of 2017, in December 2017, the board of directors
determined that future annual non-executive director incentive awards would be equal to $150,000, a $25,000 increase from the
prior level, to create better alignment with the Company’s peers.
Directors’
fees
In
2017, all non-executive officer directors received an annual cash retainer of $70,000. Messrs. C. Christopher Gaut and Prady Iyyanki
did not receive an annual cash retainer or any other form of compensation for their service on the board of directors in 2017.
The Chairperson of the Audit Committee received an additional annual cash retainer of $20,000, and the other members of that committee
received an additional annual cash retainer of $10,000, in each case prorated as applicable for each member’s period of
service. The Chairperson of the Compensation Committee received an additional annual cash retainer of $15,000, and the other members
of that committee received an additional annual cash retainer of $7,500, in each case prorated as applicable for each member’s
period of service. The Chairperson of the Governance Committee received an additional annual cash retainer of $10,000, and the
other members of that committee received an additional annual cash retainer of $5,000, in each case prorated as applicable for
each member’s period of service. The Lead Independent Director received an additional annual cash retainer of $20,000, pro
rated for his period of service. Beginning in 2018, the Chairman of the Board receives a $120,000 annual cash retainer in addition
to the $70,000 retainer described above. We have not paid meeting fees to our directors.
Director
equity-based compensation
Each
non-executive director receives equity-based compensation in the form of restricted stock or restricted stock units. The form
of award to a director is at the election of that director. Awards of restricted stock and restricted stock units for 2017 are
more fully described in the table below. The annual award made in February 2017 totaled an amount equal to $125,000 (rounded up
to the nearest whole share), calculated based on the stock price at the close of trading on the grant date. The 2017 annual awards
vested twelve months from the date of grant. A director may elect to defer settlement of restricted stock units, in which case
such settlement will occur upon his or her termination from service or, if earlier, up to 10 years following the date of grant.
In February 2018, our independent, non-employee members of the board of directors authorized an annual award of $150,000 (rounded
up to the nearest whole share) for non-executive directors calculated in the same manner and on the same terms as described above.
The following table
provides information on Forum’s compensation for non-executive directors in 2017:
|
Non-Executive
Director Compensation for the year ended December 31, 2017
|
|
Name
|
Fees
Earned
or Paid
in
Cash
(1)
($)
|
Stock Awards
(2)
($)
|
Total ($)
|
|
Evelyn M.
Angelle
|
85,000
|
125,002
|
210,002
|
|
David C.
Baldwin
|
72,500
|
125,002
|
197,502
|
|
John A.
Carrig
|
78,750
|
125,002
|
203,752
|
|
Michael
McShane
|
91,250
|
125,002
|
216,252
|
|
Franklin
Myers
(3)
|
95,000
|
125,002
|
220,002
|
|
Terence
M. O’Toole
|
77,500
|
125,002
|
202,502
|
|
John Schmitz
|
80,000
|
125,002
|
205,002
|
|
Louis A.
Raspino
|
81,250
|
125,002
|
206,252
|
|
Andrew
L. Waite
|
72,500
|
125,002
|
197,502
|
|
|
(1)
|
Under the Deferred Compensation
Plan, directors may elect to defer the annual cash retainer earned for their service as a member of the board of directors. Ms.
Angelle elected to defer receipt of her annual cash retainer until the earlier of 10 years from the year such amount was earned
or her separation from service as a director. Mr. Carrig elected to defer receipt of fees over a five-year period beginning in
the year of his separation from service as a director. Mr. Myers elected to defer receipt of fees until his separation from service
as a director. Messrs. Gaut and Iyyanki were not eligible to receive retainer or committee fees given their positions as executive
officers during 2017.
|
|
|
(2)
|
The amounts in the “Stock
Awards” column represent the grant-date fair value in 2017 as determined in accordance with the FASB Accounting Standards
Topic 718. On February 17, 2017, Ms. Angelle and Messrs. Carrig and Waite received grants of restricted stock units, and Messrs.
Baldwin, McShane, O’Toole, Raspino and Schmitz received grants of restricted stock, each at the grant date price of $20.10.
For additional information, see Note 14 to our consolidated financial statements in our annual report on Form 10-K for the year
ended December 31, 2017.
|
|
|
(3)
|
In March 2018, Mr. Franklin
Myers retired as a member of our board of directors.
|
As
of December 31, 2017, the total number of shares of common stock subject to outstanding stock option awards, and restricted stock
or restricted stock unit awards held by each non-executive director is as follows:
|
Name
|
Option
Awards
|
Restricted
Stock Units/Restricted Stock
(1)
|
|
Evelyn M.
Angelle
|
12,617
|
39,158
|
|
David C.
Baldwin
|
—
|
6,219
|
|
John A.
Carrig
|
6,549
|
39,158
|
|
Michael
McShane
|
28,786
|
6,219
|
|
Franklin
Myers
(2)
|
—
|
6,219
|
|
Terence
M. O’Toole
|
—
|
26,224
|
|
John Schmitz
|
—
|
6,219
|
|
Louis A.
Raspino
|
6,179
|
6,219
|
|
Andrew
L. Waite
|
—
|
34,665
|
|
|
(1)
|
In 2017, Ms. Angelle and
Messrs. Carrig, O’Toole and Waite held vested grants of restricted stock units totaling 32,939, 32,939, 20,005, and 28,446,
respectively. Ms. Angelle elected to defer settlement of the restricted stock units until the earlier of 10 years from the date
of grant or her separation from service as a director. Messrs. O’Toole and Waite have each elected to defer settlement of
such restricted stock units until the date of his separation from service as a member of our board of directors. Mr. Carrig, with
respect to 20,005 restricted stock units, elected to defer settlement until the earlier of 10 years from the date of grant or
his separation from service as a director, and, with respect to 19,153 restricted stock units, elected to defer settlement until
the date of his separation from service as a member of our board of directors.
|
|
|
(2)
|
In March 2018, Mr. Franklin
Myers retired as a member of our board of directors.
|
Director
deferred compensation
Non-executive directors
are eligible to participate in our deferred compensation plan. The plan provides that a director may defer all or any portion
of his or her annual incentive award and cash retainer paid for services as a director. All deferred cash amounts are credited
with earnings through the date paid based on one or more benchmark rates selected by the Compensation Committee with a minimum
return rate equal to the prime rate as published in the Wall Street Journal plus one percentage point. The interest rate on deferred
compensation for 2017 was 7.5% per annum. Upon a “change of control” within the meaning of Internal Revenue Code Section
409A, all account balances will be fully vested. The definition of a change of control event is the same as the definition under
the Forum Energy Technologies, Inc. 2016 Stock and Incentive Plan (the “2016 Plan”).
CORPORATE GOVERNANCE
Board
of Directors
. The board of directors is responsible for oversight of our business and affairs. To assist it in carrying out
its duties, the board of directors has delegated certain authority to our Audit Committee, Compensation Committee and Governance
Committee. The board of directors also delegated, and may in the future delegate, certain authority to other committees of the
board of directors from time to time. During 2017, the board of directors held six meetings. Each director attended at least 75%
of the total number of meetings of the board of directors and committees of the board of directors on which he or she served.
Directors are expected to attend all meetings of the board of directors and meetings of committees on which they serve, and to
spend as much time and meet as frequently as necessary to properly discharge their responsibilities. In addition, directors are
encouraged to attend annual meetings of our stockholders. All of our directors attended the annual meeting of stockholders in
2017. The board of directors has established a culture that results in the arrival of decisions through meaningful and fulsome
discussion, where all views are considered and readily challenged. The directors hold management to the highest standards and
challenge them to ensure the maximization of shareholder value.
The chart below
explains the purpose of each level of hierarchy in our board of director’s leadership structure. More detail with regard
to the composition, meetings and activities of each of the committees can be found below under “—Board Committees”.
Code
of Conduct
. Our board of directors has adopted a Code of Conduct, which describes the responsibility of our employees, officers,
directors and agents to:
|
|
•
|
protect our assets and
customer assets;
|
|
|
•
|
foster a safe and healthy
work environment;
|
|
|
•
|
deal fairly with customers
and other third parties;
|
|
|
•
|
conduct international business
properly;
|
|
|
•
|
protect employees from
harassment and retaliation.
|
Employees,
officers and directors are required to annually certify that they have read, understand and will comply with the Code of Conduct.
The Code of Conduct is available on our website at
www.f-e-t.com
under “Corporate Governance” in the “Investors”
section.
Stock
Ownership Requirements.
To further align the interests of the directors with the long-term interests of stockholders, our
board of directors has adopted a Stock Ownership Requirements Policy that requires our non-executive directors to own shares equal
to five times the annual base cash retainer in effect as of January 1 of each year. Each of our current directors meets the requirements
set forth in the policy. All directors are expected to reach the requisite level of target ownership within five years of joining
our board of directors in an individual capacity (other than pursuant to an agreement with a stockholder of the Company). Actual
shares of stock, restricted stock, restricted stock units (including deferred stock units) and earned but unvested performance
shares may be counted in satisfying the stock ownership guidelines. In addition, as described more fully in the Compensation Discussion
& Analysis section under “Other practices, policies and guidelines,” our named executive officers are required
to own specified amounts of our stock, set at a multiple of each such officer’s base annual salary. Each of our named executive
officers satisfies the stock ownership requirements set forth in the policy. Given the very significant amount of shares required
to be held, we believe the policy is effective in aligning the interests of our directors and executive officers with those of
our stockholders without imposing a minimum holding period or other requirement after vesting.
Corporate
Governance Guidelines
. The board of directors is committed to sound principles of corporate governance and has established
Corporate Governance Guidelines that it believes are consistent with our values, and that assist the board of directors in effectively
exercising its responsibilities. The guidelines provide a framework for our company’s governance and the board of director’s
activities, covering such matters as determining director independence, director orientation and continuing education, director
responsibilities, director access to independent advisers and management, annual evaluations of the board of directors and other
corporate governance practices and principles. Our board of directors periodically, and at least annually, reviews and revises,
as appropriate, the guidelines to ensure they reflect the board of director’s corporate governance objectives and commitments.
The guidelines are available on our website at
www.f-e-t.com
under “Corporate Governance” in the “Investors”
section.
|
♦ Our
board of directors includes eight independent directors.
|
♦
Two
directors have been designated as audit committee financial experts, and all of our directors
are financially literate.
|
♦
We
have five directors who have or are serving as a Chief Executive Officer and five directors
who have served as a Chief Financial
Officer of an energy company.
|
Director
Independence.
Our Corporate Governance Guidelines provide that a majority of the members of the board of directors and all
of the members of the Audit Committee and the Compensation Committee must qualify as “independent directors” in accordance
with the NYSE listing standards. In addition, it is the policy of the board of directors that all the members of the Audit Committee
satisfy the criteria for independence under applicable provisions of the U.S. Securities Exchange Act of 1934 (the “Exchange
Act”) and applicable SEC rules. No director is considered independent unless the board of directors affirmatively determines
that he or she has no material relationship with us, either directly or as a partner, stockholder or officer of an organization
that has a relationship with us. 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 of directors must affirmatively determine that
each independent director has no material relationship with us, either directly or as a partner, stockholder or officer of an
organization that has a relationship with us. The board of directors considers all relevant facts and circumstances in making
independence determinations.
Our
board of directors has determined that eight of our current directors (Ms. Angelle and Messrs. Baldwin, Carrig, McShane, O’Toole,
Raspino, Schmitz and Waite) qualify as “independent directors” in accordance with the listing standards of the NYSE
and that each member of the Audit Committee and the Compensation Committee qualifies as “independent” under the Exchange
Act and applicable SEC rules. Mr. Gaut does not qualify as independent given his service as an executive officer of the Company
until December 31, 2017. In addition, Mr. Iyyanki does not qualify as independent given his current service as an executive officer
of the Company.
In
making its subjective determination that each such director is independent, the board of directors reviewed and discussed information
provided by the directors and us with regard to each director’s business and personal activities as they may relate to our
company and management. The board of directors considered the transactions in the context of the NYSE’s objective listing
standards, our Corporate Governance Guidelines, the additional standards established for members of audit committees and the SEC
standards for compensation committee members.
In
connection with its determination as to the independence of Messrs. Baldwin and Waite, our board of directors considered the relationships
between Forum and SCF and its affiliates, our largest stockholder. In addition, in connection with its determination as to the
independence of Mr. Schmitz, our board of directors considered the relationships between us and companies affiliated with Mr.
Schmitz. For a description of the agreements and transactions between us and each of SCF and its affiliates, and Mr. Schmitz’s
affiliates, please see “Conflicts of Interest and Related Person Transactions.” Our board of directors believes that
these transactions and relationships do not adversely affect Messrs. Baldwin’s, Schmitz’s or Waite’s ability
or willingness to act in the best interests of Forum and its stockholders or otherwise compromise each such director’s independence.
None of our directors serves as a director, executive officer or employee of a non-profit organization to which we made payments
or contributions in excess of $25,000 over the last three fiscal years.
Separation
of Chairman and CEO Roles.
Our bylaws give the board of directors the flexibility to determine whether the roles of Chairman
and Chief Executive Officer should be combined or separate. Effective May 16, 2017, the roles of Chairman of the Board and Chief
Executive Officer were separated. In connection with the separation of the two offices, the board of directors elected to continue
to utilize the services of a Lead Independent Director. Mr. McShane has served as our Lead Independent Director since May 2017.
Prior to Mr. McShane’s appointment, Mr. Franklin Myers served as our Lead Independent Director.
Executive
Sessions.
The non-management directors meet regularly in executive session without management participation after regularly
scheduled board of directors meetings. In addition, our Corporate Governance Guidelines provide that, if the group of non-management
directors includes a director who is not independent under NYSE listing standards, the independent directors will meet in executive
session at least once annually. As Lead Independent Director, Mr. McShane presides over these meetings of the independent directors.
Our Corporate Governance Guidelines provide that, if the Lead Independent Director ceases to be independent, then the presiding
director will be chosen by a vote of the non-management directors or independent directors, as the case may be. In 2017, our board
of directors held an executive session at each of its quarterly meetings.
Board’s
Role in Risk Oversight.
Our board of directors is actively involved in oversight of risks that could affect us and in ensuring
that regular assessments of risk are a priority. This oversight function is conducted primarily through committees of our board
of directors, but the full board of directors retains responsibility for general oversight of risks. The Audit Committee is charged
with oversight of our system of internal controls and risks relating to financial reporting, legal, regulatory and accounting
compliance. Our board of directors satisfies its oversight responsibility through full reports from the Audit Committee chairperson
regarding the committee’s considerations and actions, as well as through regular reports directly from officers responsible
for oversight of particular risks. Management has implemented an enterprise risk management process that is reviewed on a periodic
basis by the Governance Committee to ensure consistency of risk considerations in making business decisions. In addition, we have
internal audit systems in place to review adherence to policies and procedures that are supported by a separate internal audit
department reporting directly to the Audit Committee. The Compensation Committee also oversees risks related to our compensation
programs, management retention and development. The Governance Committee oversees the composition and leadership structure of
the board of directors and corporate governance risks. In addition, the Governance Committee is responsible for overseeing the
Company’s cybersecurity program. As part of its oversight, the Governance Committee receives regular reports from management
regarding cybersecurity policies, employee awareness and training programs, and strategies for combating cybersecurity threats.
Accounting
and Auditing Concerns.
The Audit Committee has established procedures to receive, retain and treat complaints regarding accounting,
internal accounting controls or auditing matters and to allow for the confidential and anonymous submission by employees of concerns
regarding questionable accounting or auditing matters.
Social
and Environmental Commitment.
Among the core values adopted by our entire organization is a commitment to ensuring that no
one gets hurt. The safety of our employees and customers is our first priority, coupled with a healthy respect for the environment
and our neighbors. Our board of directors, through the Governance Committee, oversees our health, safety and environmental (“HSE”)
program. In addition to receiving regular reports regarding the Company’s overall safety performance and the actions being
taken to achieve the highest level of safety for our employees and customers, the Governance Committee oversees the establishment
of programs and policies regarding matters affecting the environment. We believe our HSE programs and policies are appropriate
for our size, maturity as a publicly traded company and current market conditions. As we grow, we will continuously assess the
size and adequacy of our HSE programs and policies.
Communication
with the Board.
Stockholders and other interested parties may make their concerns known confidentially to the board of directors
or the non-management directors by submitting a communication in an envelope addressed to the “Board of Directors,”
a specifically named non-management director or the “Non-Management Directors” as a group, in care of the Secretary.
All such communications will be conveyed, as applicable, to the full board of directors, the specified non-management director
or the non-management directors as a group.
Organization
of the Committees of the Board of Directors
General.
In May 2017, the board of directors determined that it was in the Company’s best interests to dissolve the Nominating,
Governance and Compensation Committee and form a separate Compensation Committee and Governance Committee. In addition, the Board
realigned the responsibilities of the Audit Committee, Compensation Committee and Governance Committee, as described below.
Audit
Committee
. The Audit Committee currently consists of Ms. Evelyn M. Angelle (Chairperson) and Messrs. John Carrig and John
Schmitz. The board of directors has determined that Ms. Angelle and Mr. Carrig each is an “audit committee financial expert”
as defined by applicable SEC rules. The Audit Committee’s purposes are to assist the board of directors with overseeing:
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The integrity of our financial
statements;
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The qualifications, independence
and performance of our independent auditors; and
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The effectiveness and performance
of our internal audit function.
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The Audit Committee
held eight meetings during 2017. The board of directors has adopted a written charter for the Audit Committee, which is available
on our website at
www.f-e-t.com
as described above.
Compensation
Committee.
The Compensation Committee currently consists of Louis A. Raspino (Chairperson), Michael McShane and Terence M.
O’Toole. Each of Messrs. Raspino, McShane and O’Toole is a “non-employee director” as defined under Rule
16b-3 of the Exchange Act. The purposes of the Compensation Committee are, among others, to:
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Review, evaluate and approve
our agreements, plans, policies and programs to compensate our corporate officers and directors;
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Review and discuss with
our management the matters reported in the Compensation Discussion and Analysis included in this proxy statement and to determine
whether to recommend to the board of directors that analysis be included in this proxy statement, in accordance with applicable
rules and regulations; and
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Perform such other functions
as the board of directors may assign to the Compensation Committee from time to time.
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Since
its formation in May 2017, the Compensation Committee held two meetings. Prior to May 2017, the Nominating, Governance and Compensation
Committee oversaw the above responsibilities and had two meetings in 2017. The board of directors has adopted a written charter
for the Compensation Committee, which is available on our website at
www.f-e-t.com
as described above.
Governance
Committee.
The Governance Committee currently consists of John A. Carrig (Chairperson), David C. Baldwin and Andrew L. Waite.
The purposes of the Governance Committee are, among others, to:
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Advise the board of directors
and make recommendations regarding appropriate corporate governance practices, and assist the board of directors in implementing
those practices;
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Oversee our compliance with legal and regulatory requirements;
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Assist the board of directors
by identifying individuals qualified to become members of the board of directors, and recommending director nominees to the board
of directors;
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Advise the board of directors
about the appropriate composition of the board of directors and its committees; and
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Perform such other functions
as the board of directors may assign to the Governance Committee from time to time.
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Since
its formation in May 2017, the Governance Committee held one meeting. Prior to May 2017, the Nominating, Governance and Compensation
Committee oversaw the above responsibilities and had two meetings in 2017. The board of directors has adopted a written charter
for the Governance Committee, which is available on our website at
www.f-e-t.com
as described above.
Although
the board of directors does not have a formal diversity policy, the Governance Committee, when assessing the qualifications of
prospective nominees to the board of directors, considers diversity in its broadest sense, including persons diverse in perspectives,
personal and professional experiences, geography, gender, race and ethnicity. This process has resulted in a board of directors
that is comprised of highly qualified directors that reflect diversity as we define it.
Each
nominee’s personal and professional integrity, experience, skills, ability and willingness to devote the time and effort
necessary to be an effective board member, and commitment to acting in the best interests of our company and our stockholders,
are also factors. The board of directors does not select director nominees based on race, color, gender, national origin, citizenship,
marital status or religious affiliation.
The
Governance Committee will consider director candidates recommended by stockholders. If a stockholder wishes to recommend a director
for nomination by the Governance Committee, the stockholder should submit the recommendation in writing to the Chairperson, Governance
Committee, in care of the Secretary, Forum Energy Technologies, Inc., 920 Memorial City Way, Suite 1000, Houston, Texas 77024.
The recommendation should contain the following information:
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The name, age, business
address and residence address of the nominee and the name and address of the stockholder making the nomination;
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The principal occupation
or employment of the nominee;
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The number of shares of
each class or series of our capital stock beneficially owned by the nominee and the stockholder and the period for which those
shares have been owned; and
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Any other information the
stockholder may deem relevant to the committee’s evaluation.
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Candidates
recommended by stockholders are evaluated on the same basis as candidates recommended by our directors, executive officers, third-party
search firms or other sources.
Compensation
Committee Interlocks and Insider Participation
. During the fiscal year ended December 31, 2017, none of our executive officers
served as (1) a member of the compensation committee (or other board committee performing equivalent functions or, in the absence
of any such committee, the entire board of directors) of another entity, one of whose executive officers served on our Compensation
Committee, (2) a director of another entity, one of whose executive officers served on our Compensation Committee or (3) a member
of the compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee,
the entire board of directors) of another entity, one of whose executive officers served as one of our directors. In addition,
none of the members of our Compensation Committee (1) was an officer or employee of Forum during 2017, (2) was formerly an officer
of the Company, or (3) had any relationship requiring disclosure under any paragraph of Item 404 of Regulation S-K.
CONFLICTS OF
INTEREST AND RELATED PERSON TRANSACTIONS
Procedures for
approval of related person transactions
A
“related person transaction” is a transaction, arrangement or relationship in which we or any of our subsidiaries
was, is or will be a participant, the amount of which involved exceeds $120,000, and in which any related person had, has or will
have a direct or indirect material interest. A “related person” means:
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any person who is, or at
any time during the applicable period was, one of our executive officers or one of our directors;
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any person who is known
by us to be the beneficial owner of more than 5% of our common stock;
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any immediate family member
of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law or sister-in-law of a director, executive officer or a beneficial owner of more than
5% of our common stock and any person (other than a tenant or employee) sharing the household of such director, executive officer
or beneficial owner of more than 5% of our common stock; and
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any firm, corporation or
other entity in which any of the foregoing persons is a partner or principal or in a similar position or in which such person
has a 10% or greater beneficial ownership interest.
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Our
board of directors has adopted a written related person transactions policy, pursuant to which the Audit Committee reviews all
material facts of all related party transactions and either approves or disapproves entry into the transaction, subject to certain
limited exceptions. In determining whether to approve or disapprove entry into a related party transaction, the Audit Committee
takes into account, among other factors, the following: (1) whether the transaction is on terms no less favorable than terms generally
available to an unaffiliated third-party under the same or similar circumstances, (2) the extent of the related person’s
interest in the transaction and (3) whether the transaction is material to us.
SCF Registration
Rights Agreement
Demand
Registration Rights
. Under the Registration Rights Agreement dated August 2, 2010 we entered into with SCF (the “Registration
Rights Agreement”), SCF currently has the right to demand on four occasions that we register with the SEC all or any portion
of SCF’s Registrable Securities (as such term is defined in the Registration Rights Agreement) so long as the Registrable
Securities proposed to be sold on an individual registration statement have an aggregate gross offering price of at least $20
million (or at least $10 million if we are then eligible to register such sale on a Form S-3 registration statement (or any comparable
or successor form) (a “Demand Registration”). Holders of SCF’s Registrable Securities may not require us to
effect more than one Demand Registration in any six-month period. Any demand request by SCF with a reasonably anticipated aggregate
offering price of $100 million may be for a “shelf” registration statement pursuant to Rule 415 under the U.S. Securities
Act of 1933 (the “Securities Act”); provided that any such “shelf” registration statement demand request
will count as two demand requests.
Piggyback
Registration Rights
. If we propose to file a registration statement under the Securities Act, relating to an offering of our
common stock (other than a registration statement filed relating to securities offered in connection with benefit plans or acquisitions
or any registration statement filed in connection with an exchange offer or offering solely to our stockholders), holders of Registrable
Securities can request that we include in such registration, and any related underwriting, all or a portion of their Registrable
Securities.
Holdback
Agreements
. Each holder of Registrable Securities is subject to certain lock-up provisions that restrict transfer during the
period beginning 14 days prior to, and continuing for a period not to exceed 90 days from any underwritten public offering of
our equity securities, except as part of such registration (subject to an extension of such lock-up period in certain circumstances).
Registration
Procedures and Expenses
. The Registration Rights Agreement contains customary procedures relating to underwritten offerings
and the filing of registration statements. We have agreed to pay all registration expenses incurred in connection with any registration.
All underwriting discounts and selling commissions and stock transfer taxes applicable to securities registered by holders and
fees of counsel to any such holder (other than as described above) will be payable by holders of Registrable Securities.
Indemnification
and Contribution
. The Registration Rights Agreement also contains customary indemnification and contribution provisions by
us for the benefit of holders participating in any registration. Each holder participating in any registration agrees to indemnify
us in respect of information provided by such holder to us for use in connection with such registration; provided that such indemnification
will be limited to the net proceeds actually received by such indemnifying holder from the sale of Registrable Securities.
Tinicum Registration
Rights Agreement
Concurrently
with our initial public offering, we issued 2,666,666 shares of our common stock at the public offering price less the underwriting
discount in a private placement to Tinicum. In connection with the private placement, Tinicum obtained piggyback registration
rights on the same terms described above with respect to SCF.
Transactions
with our significant stockholders, directors and officers
During 2017, a
subsidiary of Forum sold certain products and equipment to Nine Energy Service, Inc., and Forum recognized revenue in an amount
totaling approximately $5.3 million. SCF owns a majority interest in Nine Energy Service, and Messrs. David C. Baldwin and Andrew
L. Waite are Co-President of LESA, the ultimate general partner of SCF. These sales were made based on arms-length terms between
the parties and represent less than 1% of Forum's consolidated gross revenues for 2017.
Also
during 2017, a subsidiary of Forum purchased products from and sold equipment to TEC Well Services, LLC and a subsidiary of
Synergy Energy Holdings, LLC in an amount totaling in the aggregate approximately $1.8 million and $0.19 million,
respectively. Mr. Schmitz is the Chairman of the board of directors of TEC Holdings, LLC, the parent company of TEC Well
Services, LLC, and the Chairman of the board of managers of Synergy Energy Holdings, LLC. These purchases were made on
arms-length terms between the parties and represent less than 1% of the consolidated gross revenues for 2017 for Forum and
Synergy Energy Holdings, and less than 15% of the consolidated gross revenues for 2017 for TEC Well Services, LLC.
SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of
the Exchange Act requires our executive officers and directors and beneficial owners of more than ten percent of any class of
equity securities to file initial reports of ownership and reports of changes in ownership of our common stock with the SEC and,
pursuant to rules promulgated under Section 16(a), such individuals are required to furnish us with copies of Section 16(a) reports
they file. Based solely on a review of the copies of such reports furnished to us during the year ended December 31, 2017 and
written representations from our officers and directors, all Section 16(a) reports applicable to our officers and directors and
any beneficial owners of ten percent or more of a class of equity securities were filed on a timely basis.
PROPOSAL 2:
ADVISORY RESOLUTION TO APPROVE EXECUTIVE COMPENSATION
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♦
Fourth consecutive year with an approval rating for the “Say-on-Pay” vote in excess of 90%.
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85% of our Chief Executive Officer’s target compensation is at risk.
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Ranked near the top of our two- and three-year performance peer groups.
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In
accordance with Section 14A of the Exchange Act and the related rules of the SEC, we are providing our stockholders with the opportunity
to approve, on a non-binding, advisory basis, the compensation of our named executive officers. This item, commonly referred to
as a “say-on-pay” vote, provides you, as a stockholder, the opportunity to express your views regarding the compensation
of our named executive officers as disclosed in this proxy statement.
Our
executive compensation program is designed to attract, motivate and retain our named executive officers, who are critical to our
success. Under our program, our named executive officers are rewarded for strong corporate performance, the achievement of annual
goals and the realization of increased stockholder value. Please read “Compensation Discussion and Analysis” and “Executive
Compensation” for additional details about our executive compensation programs, including information about the fiscal year
2017 compensation of our named executive officers.
The
Compensation Committee continually reviews the compensation program for our named executive officers to ensure the program achieves
the desired goals of aligning our executive compensation structure with our stockholders’ interests and current market practices.
We believe our executive compensation program achieves the following objectives:
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Motivate our executives
to achieve key operating, safety and financial performance goals that enhance long-term stockholder value;
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Reward outstanding performance
in achieving these goals without subjecting us to excessive or unnecessary risk; and
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Establish and maintain a competitive
executive compensation program that enables us to attract, motivate and retain experienced and highly capable executives who will
contribute to our long-term success.
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We
are asking our stockholders to indicate their support for our named executive officers’ compensation as described in this
proxy statement and ask that our stockholders approve the following non-binding resolution at the annual meeting:
“RESOLVED,
that the stockholders of Forum Energy Technologies, Inc. (the “Company”) approve, on a non-binding, advisory basis,
the compensation of the Company’s named executive officers, as disclosed pursuant to the compensation disclosure rules of
the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the compensation tables and the other
narrative discussion in the proxy statement for the 2018 Annual Meeting of Stockholders of the Company.”
As
an advisory resolution, our stockholders’ vote on this proposal is not binding on the board of directors or us. The board
of directors could, if it concluded it was in our best interests to do so, choose not to follow or address the outcome of the
advisory resolution. Decisions regarding the compensation and benefits of our named executive officers remain with our board of
directors and the Compensation Committee. We expect, however, that our Compensation Committee will review the voting results on
this proposal and give consideration to the outcome when making future decisions regarding compensation of our named executive
officers.
Vote Required
and Board Recommendation
Approval of the
proposal requires the affirmative vote of at least a majority of the shares of our common stock present in person or by proxy
at the meeting and entitled to vote.
Your board of directors recommends a vote “FOR” the approval of the advisory
resolution on executive compensation.
COMPENSATION
DISCUSSION AND ANALYSIS
This
compensation discussion and analysis, or CD&A, provides information about our compensation objectives and policies for the
executives who served as our principal executive officer, our principal financial officer and each of the next three most highly
compensated executive officers who were serving as executive officers on December 31, 2017, and is intended to place in perspective
the information contained in the executive compensation tables that follow this discussion. In May 2017, in furtherance of our
previously reported management transition announced in February 2017, Mr. Prady Iyyanki was appointed as President and Chief Executive
Officer, and Mr. C. Christopher Gaut was appointed as Executive Chairman of the Board. Effective December 31, 2017, Mr. Gaut transitioned
to serve as Chairman of the Board, a non-executive officer role. In addition, on March 1, 2018, Mr. Harris transitioned from service
as Chief Financial Officer to Executive Vice President – Drilling and Subsea. At such time, Mr. Pablo G. Mercado was appointed
as Senior Vice President and Chief Financial Officer. This CD&A provides a general description of our compensation program
and specific information about its various components. Disclosure relating to both Messrs. Iyyanki and Gaut is included in light
of their service as the Company’s principal executive officer during 2017.
Throughout
this discussion, the following individuals are referred to as the “Named Executive Officers” or “NEOs”
and are included in the Summary Compensation Table:
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Prady Iyyanki — President
and Chief Executive Officer
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C. Christopher Gaut —
Chairman of the Board (former Chief Executive Officer and Executive Chairman)
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Pablo G. Mercado —
Senior Vice President and Chief Financial Officer
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James W. Harris —
Executive Vice President – Drilling and Subsea (former Chief Financial Officer)
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James L. McCulloch —
Executive Vice President and General Counsel
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Michael D. Danford —
Senior Vice President, Human Resources
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Executive Summary
We
have adopted an executive compensation program that is designed to attract and retain talented executive officers, and align their
interests with those of our stockholders over the long-term, taking into account the volatile markets in which we do business.
In addition to holding management accountable for accomplishing financial results, we insist on the highest standards of ethical
conduct and operational safety, which we believe will position us for long-term success.
Business Highlights
In
2017, we accomplished the following under the direction of management:
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Generated strong growth in revenue and EBITDA - led by our
Completions segment, we increased revenue and EBITDA by 40% and 175%, respectively, compared to 2016;
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Maintained a strong financial
liquidity position with $115 million of cash on hand and amended our credit facility to increase lender commitments from $140.0
million to $300.0 million;
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Strengthened our Completions
and Production & Infrastructure segments through acquisitions of Global Tubing, LLC, Multilift Welltec, LLC and Multilift
Wellbore Technology Limited, Innovative Valve Components and substantially all of the assets of Cooper Valves, LLC;
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Good safety performance,
despite a 27% increase in the number of our employees, through the institution of programs aimed at short service employees who
have the highest risk of injury; and
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Ranked near the top of
our two- and three-year performance peer groups.
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Compensation
Highlights
With
respect to our 2017 compensation programs, the Compensation Committee took several key actions impacting our NEOs, including the
following:
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Approved market based increases
in compensation. Despite these increases, total compensation continues to be substantially below market median;
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Established challenging
2017 non-equity incentive plan performance objectives;
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Maintained 2017 director
compensation at 2014 levels; and
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Continued the suspension
of deferred compensation plan matching contributions.
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Advisory Vote
on Executive Compensation and Shareholder Outreach
At
our 2017 annual meeting of stockholders, we received 81,831,762 votes in favor of our executive compensation program, 2,972,717
votes in opposition, and 2,349,132 abstentions, for total support of 93.8%. Our Compensation Committee believes this affirms stockholders’
continued support of the Company’s approach to executive compensation.
The
Compensation Committee values stockholders’ input on the design of our executive compensation program. The Compensation
Committee also believes that our programs are structured to deliver pay that is commensurate with performance. Plan and performance-based
equity awards can generate a range of payouts based on the attainment of established goals, thus holding management accountable
for producing profitable growth and creating value for our stockholders.
Based
upon the strong level of stockholder support for our programs expressed through our 2017 vote, and the views of our Compensation
Committee on our current approach to executive compensation, we did not make any significant structural or philosophical changes
to our programs.
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Compensation
Highlights
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♦ Seamless CEO transition.
♦
Base compensation remained at 2014 levels, except in the case of NEO promotions.
♦ Very challenging industry conditions
and non-equity performance objectives, resulting in below target payouts for each of the past three years.
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Ranked near the top of our two- and three-year performance peer groups.
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85% of CEO’s target total compensation is variable.
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Included double trigger vesting in equity awards.
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Compensation
and Governance Highlights
Our
pay practices emphasize good compensation, governance and market practice. To support our compensation and governance philosophy,
we adopted the following practices:
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What
We Do:
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What
We Don’t Do:
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Performance-Based
Compensation.
A significant portion of the compensation of our Named Executive Officers is based on our performance. For
2017, approximately 85% of our Chief Executive Officer’s target compensation was contingent upon achievement of specific
variable performance criteria or was directly tied to the Company’s stock price performance. Variable elements of pay
included our annual bonus program, stock options, restricted stock units and performance based share awards.
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Anti-Hedging/Pledging.
Our Insider Trading Policy specifically prohibits directors, officers and employees, including our NEOs, from entering into hedging
type transactions in our stock or pledging our stock. We confirm annually that our executive officers and directors do not hold
shares subject to a pledging arrangement and they are not a party to contracts designed to hedge or offset a decrease in the value
of the Company’s shares.
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Challenging
Stock Ownership Requirements
. Our board of directors has adopted a Stock Ownership Requirements Policy. The policy’s
requirements are designed to align the interests of our NEOs with those of our stockholders by ensuring that our NEOs have a meaningful
financial stake in the Company. As of January 1, 2018, all of our NEOs were in compliance with the requirements set forth in the
policy.
The CEO must hold equity with a value greater than or equal to 6x his base salary.
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No
Excise Tax Gross-Ups for Existing or Future Employment Agreements.
As a matter of company policy, excise tax gross ups are
not included in employment agreements or severance agreements.
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Clawbacks
.
Recoupment provisions are included in the non-equity incentive awards to our NEOs and executive officers of the Company, which
provide that such NEO incentive compensation is subject to clawback as may be required by the Dodd-Frank Wall Street Reform and
Consumer Protection Act, or the Dodd-Frank Act, or any other SEC guidelines. In addition, recoupment features are included in
our 2016 Stock and Incentive Plan.
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No
Guaranteed NEO Bonuses.
Consistent with our philosophy of placing the majority of executive compensation “at risk,”
non-equity incentives are awarded only after achievement of pre-determined financial, operational or individual objectives.
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Risk
Assessment
. On an annual basis, we conduct a comprehensive risk assessment of our compensation programs. We believe that our
compensation programs are structured in a manner to motivate strong performance without encouraging excessive and unnecessary
risk-taking. The details of this risk assessment can be found in the section of this proxy statement titled “—Other
Practices, Policies and Guidelines – Risk Assessment.”
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No
Perquisites.
We do not provide any perquisites to our NEOs that are not also offered to all employees of the Company.
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Independent
Compensation Consultant.
The Compensation Committee engages an independent advisor on topics related to board of director
and executive compensation, and annually requires formal certification from the advisor of its independence.
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Key Components
of our Compensation Philosophy
Our
overall compensation philosophy is to provide competitive pay to our executives that rewards strong corporate performance over
the longer-term, in alignment with stockholder interests. Our philosophy with respect to cash compensation is that target total
cash should be at or near the market median. Base salaries will typically be set below the market median while our annual incentive
award targets are designed to be above the market median. The result of this design is to provide our executives the opportunity
to earn cash compensation at or near the market median in a year in which our performance has met our target goals. We believe
that this philosophy provides a strong incentive for our executives to achieve our annual corporate goals.
In
granting our annual equity awards, we consider the competitive market level for awards, as well as individual and corporate performance,
when determining the appropriate amount of equity to grant to each NEO. We believe that long-term, variable compensation should
account for a significant portion of total compensation. Our objective is to continue to be a high growth, high performing oilfield
products company and we therefore link a significant portion of our executives’ compensation to the long-term interests
of our stockholders through the issuance of performance-based shares using total stockholder return, or “TSR,” as
our measure, stock options, and restricted stock units or restricted stock. We anticipate that the capital accumulation opportunities
resulting from our long-term grants will be at or above the market median and will represent a significant portion of total compensation
to each NEO.
The
charts below illustrate our emphasis on incentivizing our executives through long-term, variable compensation awards. Overall,
the pay mix for our Chief Executive Officer is very well aligned with the market, with approximately 85% of the Chief Executive
Officer’s target compensation taking the form of variable compensation.
Overall,
our compensation program is designed to pay our executives near the market median in a target performance year and reward them
with higher than median total compensation in years of superior performance relative to both our internal performance metrics
and our direct competitors. This compensation philosophy is intended to allow us to attract and retain executives who will be
committed to our strategic corporate plan.
Elements of
Our Executive Compensation Program
Material
elements of total direct compensation for 2017 for NEOs are listed below, together with the objectives that we believe each element
supports.
|
Elements
|
Objectives
|
|
Base Salary
•
A fixed annual cash
salary paid to the executive
|
• Provide a competitive fixed payment to the executive for his or her service, experience and
skills - set at a reasonable level that allows us to attract and retain top talent
|
|
Annual Cash Incentive Opportunity
•
The ability
to earn a cash bonus, payable following the end of the year, based upon our achievement of established EBITDA, working capital
(as measured by gross days sales outstanding and gross days of inventory on hand), safety goals and personal performance objectives
set for the year
|
• Align the compensation
of executives with our annual financial and non-financial performance and achievement of EBITDA, working capital, safety and personal
performance objectives
• Reward the executive for achievement of performance objectives for the year
|
|
Equity Grants
(composed of three
elements)
|
|
|
•
Performance
Shares
vesting in the form of common stock based upon the achievement of relative TSR targets over a one-, two-, and three-year
performance period
|
• Align the compensation of executives with our financial performance by linking the award directly to our stock
price performance over the long-term relative to our peers
|
|
•
Stock
Options
vesting equally over four years and granted with an exercise price equal to the fair market value of the common stock
on the grant date
|
• Provide strong retention value over the long-term focusing on sustained delivery of favorable financial
performance, which in turn should similarly impact stock price appreciation; strong alignment with shareholder interests
|
|
•
Restricted Stock
Units
vesting equally over four years
|
• Reward for retention and increases in stock price over the long-term
|
Other
elements of executive compensation, which are designed to be market-competitive and are necessary to attract and retain key talent,
include:
|
|
•
|
Retirement benefits, comprising deferred compensation and
participation in our 401(k) Plan, and as more fully described on pages 38 and 40 to 41, and
|
|
|
•
|
Severance benefits, which
are detailed on pages 49 to 53.
|
Compensation
Methodology and Process
The process established
for determining executive compensation for each of the NEOs includes open discussions among the Compensation Committee, its compensation
consultant, the CEO and the board of directors.
Role of Management
in Setting Compensation
Our
CEO is consulted in the Compensation Committee’s determination of compensation matters related to the executive officers
reporting directly to the CEO. Each year, the CEO makes recommendations to the Compensation Committee regarding such components
as salary adjustments, target annual incentive opportunities and the value of long-term incentive awards. In making recommendations,
the CEO considers such components as experience level, individual performance, overall contribution to company performance and
market data for similar positions. The Compensation Committee takes the CEO’s recommendations under advisement, but the
Compensation Committee makes all final decisions regarding such individual compensation. Our CEO’s and Chairman’s
compensation is reviewed and discussed by the Compensation Committee, which then makes recommendations regarding their compensation
to the independent members of our board of directors, led by the Lead Independent Director, as applicable. Our board of directors
ultimately makes decisions regarding the CEO’s and Chairman’s compensation.
Our
CEO and Chairman attend Compensation Committee meetings as necessary. They are excused from any meeting when the Compensation
Committee deems it advisable to meet in executive session or when the Compensation Committee meets to discuss items that would
impact their compensation. The Compensation Committee may also consult other employees, including the remaining Named Executive
Officers, when making compensation decisions, but the Compensation Committee is under no obligation to involve the Named Executive
Officers in its decision-making process.
Role of the
Compensation Committee in Setting Compensation
The
Compensation Committee is, under its charter, responsible for designing, implementing and administering our executive compensation
programs and, in doing so, the Compensation Committee is guided by the compensation philosophy stated above. As of December 31,
2017, the Compensation Committee was composed of Messrs. Raspino (Chairperson), McShane and O’Toole.
On
an annual basis the Compensation Committee reviews and approves total compensation for our executive officers, and recommends
CEO compensation to the independent members of our board of directors, through a process including:
|
|
•
|
Selecting and engaging
an external, independent consultant;
|
|
|
•
|
Meeting separately from
management with its independent consultant;
|
|
|
•
|
Reviewing and selecting
companies to be included in our peer groups;
|
|
|
•
|
Reviewing plans and related
compensation programs for the presence of any risk elements;
|
|
|
•
|
Reviewing market data on
all major elements of executive compensation; and
|
|
|
•
|
Reviewing performance results
against operating plans and incentive plan targets.
|
A
complete listing of our Compensation Committee’s responsibilities is included in its charter, which is available for review
on our corporate website at
www.f-e-t.com
.
Role of the
Compensation Consultant in Setting Compensation
The
Compensation Committee has engaged the services of Pearl Meyer & Partners, LLC (“Pearl Meyer”) as its independent
executive compensation consultant. Pearl Meyer operates exclusively as a compensation consultant and has more than twenty years
of experience as an organization. Many of its senior consultants have experience of longer than thirty years. It serves a large
number of companies and compensation committees in the energy industry, and as a result it maintains an extensive compensation
database that it uses to supplement information obtained from publicly available sources. Certain of the Compensation Committee
members have worked with representatives of Pearl Meyer in the past and value the firm’s collective knowledge and capabilities,
and its ability to develop compensation programs that incentivize executives and align performance with company strategies and
stockholders’ interests. The Compensation Committee selected Pearl Meyer on the basis of its reputation, capabilities and
experience.
Pearl
Meyer’s current role is to advise the Compensation Committee on matters relating to executive compensation to help guide,
develop and implement our executive compensation programs. Pearl Meyer reports directly to the Compensation Committee. Pearl Meyer
may perform work for Forum outside of the scope of its engagement by the Compensation Committee, but the committee reviews and
approves all such assignments to ensure that the independence of its compensation consultant is not compromised. In 2017, the
Company did not pay Pearl Meyer for any services outside the scope of the Compensation Committee’s engagement. The Compensation
Committee regularly reviews the services provided by its outside consultants and believes that Pearl Meyer is independent in providing
executive compensation consulting services. The Compensation Committee conducted a review of its relationship with Pearl Meyer
in 2017 and determined that Pearl Meyer’s work for the Compensation Committee did not raise any conflicts of interest, consistent
with the guidance provided under the Dodd-Frank Act, and by the SEC and the NYSE. In making this determination, the Compensation
Committee considered that during 2017:
|
|
•
|
Pearl Meyer did not provide
any services to the Company or management other than services requested by or with the approval of the Compensation Committee,
and its services were limited to executive and director compensation consulting;
|
|
|
•
|
The Compensation Committee
meets regularly in executive session with Pearl Meyer outside the presence of management;
|
|
|
•
|
Pearl Meyer maintains a
conflicts policy, which was provided to the Compensation Committee with specific policies and procedures designed to ensure independence;
|
|
|
•
|
Fees paid to Pearl Meyer
by Forum during 2017 were less than 1% of Pearl Meyer’s total revenue;
|
|
|
•
|
None of the Pearl Meyer
consultants working on matters with us had any business or personal relationship with Compensation Committee members (other than
in connection with working on matters with us);
|
|
|
•
|
None of the Pearl Meyer
consultants working on matters with us (or any consultants at Pearl Meyer) had any business or personal relationship with any
of our executive officers; and
|
|
|
•
|
None of the Pearl Meyer
consultants working on matters with us owns shares of our common stock.
|
The
Compensation Committee continues to monitor the independence of its compensation consultant on a periodic basis.
Comparator Compensation
Peer Group
We
have developed a comparator compensation peer group, which is composed of specific peer companies within the energy industry.
Our peer group was developed with the assistance of Pearl Meyer and is used to analyze our NEO compensation levels and overall
program design. This compensation peer group is used to determine direct market levels of the main elements of executive compensation
(base salary, annual incentives, long-term incentives, as well as total direct compensation). The peer group is also used to gauge
industry practices regarding the structure and mechanics of annual and long-term incentive plans, employment agreements, severance
and change in control policies and employee benefits. The composition of the peer group is reviewed by the Compensation Committee
on an annual basis to ensure that we have and maintain an appropriate group of comparator companies. In August 2016, with the
advice of Pearl Meyer, the Compensation Committee assessed the compensation peer group and determined to remove FMC Technologies,
Inc. in light of its merger with Technip, and add Dril-Quip, Inc.
Criteria
for selecting peer companies for compensation benchmarking is based on a number of factors. The peer companies selected should
reflect an optimum mix of the criteria listed below in their relative order of importance:
Competitive
market
:
|
|
•
|
Competing Talent —
companies with executive talent similar to that valued by us;
|
|
|
•
|
Direct Competitors —
companies in the same or similar industry sector for products or services; and
|
|
|
•
|
Competing Industry —
companies in the same general industry sector having similar talent pools.
|
Size and demographics
:
|
|
•
|
Firms with competitive
posture that are generally similar in revenue or market cap size and whose median revenue for the group approximates our revenue;
|
|
|
•
|
Firms with a competitive
posture and comparable area of operations;
|
|
|
•
|
Firms in the same or similar
competitive posture that experience similar market cycles; and
|
|
|
•
|
Firms that serve the same
sector of the industry.
|
The
Compensation Committee, based on Pearl Meyer’s analysis and our internal analysis, determined to use the following peer
group of 14 companies to evaluate and compare our compensation practices in 2017:
|
|
Financial Size Statistics
|
|
Ticker
|
Name
|
Primary Industry
|
2017
Revenue
($MM)
|
12/31/17
Mkt
Cap
($MM)
|
|
ATW
|
Atwood
Oceanics, Inc.*
|
Oil
and Gas Drilling
|
$605.3
|
NA
|
|
BAS
|
Basic
Energy Services, Inc.
|
Oil
and Gas Equipment and Services
|
$864.0
|
$610.9
|
|
BRS
|
Bristow
Group, Inc.
|
Oil
and Gas Equipment and Services
|
$1,366.9
|
$476.4
|
|
CLB
|
Core
Laboratories NV
|
Oil
and Gas Equipment and Services
|
$659.8
|
$4,836.3
|
|
DRQ
|
Dril-Quip,
Inc.
|
Oil
and Gas Equipment and Services
|
$455.5
|
$1,805.9
|
|
EXTN
|
Exterran
Corporation
|
Oil
and Gas Equipment and Services
|
$1,215.3
|
$1,125.2
|
|
HLX
|
Helix
Energy Solutions Group, Inc.
|
Oil
and Gas Equipment and Services
|
$581.4
|
$1,113.8
|
|
KEG
|
Key
Energy Services Inc.
|
Oil
and Gas Equipment and Services
|
$436.2
|
$237.1
|
|
OII
|
Oceaneering
International, Inc.
|
Oil
and Gas Equipment and Services
|
$1,921.5
|
$2,077.6
|
|
OIS
|
Oil
States International Inc.
|
Oil
and Gas Equipment and Services
|
$670.6
|
$1,445.8
|
|
PTEN
|
Patterson-UTI
Energy Inc.
|
Oil
and Gas Drilling
|
$2,356.7
|
$5,118.3
|
|
RDC
|
Rowan
Companies plc
|
Oil
and Gas Drilling
|
$1,282.8
|
$1,977.1
|
|
SPN
|
Superior
Energy Services, Inc.
|
Oil
and Gas Equipment and Services
|
$1,874.1
|
$1,474.2
|
|
TDW
|
Tidewater
Inc.
|
Oil
and Gas Equipment and Services
|
$515.6
|
$732.0
|
|
|
*
|
Atwood Oceanics, Inc. was acquired by Ensco plc as
of October 6, 2017.
|
|
|
|
|
2017
Revenue
|
12/31/17
Market Cap
|
|
Compensation
Peer Group
Summary
($ millions)
|
25th
Percentile
|
$587.4
|
$732.0
|
|
Median
|
$767.3
|
$1,445.8
|
|
Average
|
$1,057.5
|
$1,771.6
|
|
75th
Percentage
|
$1,345.9
|
$1,977.1
|
|
Forum
2017 ($ millions)
|
|
$818.6
52
nd
Percentile
|
$1,681.8
64
th
Percentile
|
|
|
|
|
|
|
|
Performance
Peer Group
We
have also developed a performance peer group with the assistance of Pearl Meyer. The performance peer group is only used to determine
payouts for our performance share awards by measuring our TSR relative to that of the performance peer group. The composition
of the performance peer group is also reviewed by the Compensation Committee on an annual basis to ensure that we have and maintain
an appropriate group of companies. See “—Performance Shares” below for a description of performance award payouts.
The
performance peer selections were primarily based on who we believe are our most direct competitors — those companies
who are in the same industry sector, and compete with us in regards to the products or services we offer and/or for
investment capital. Given that the Philadelphia Stock Exchange Oil Service Sector is designed to track the performance of the
overall oilfield services sector, the Compensation Committee believes it is a useful measure of the Company’s
performance. Our performance peer group, which was used to determine payout levels for our 2017 performance based awards is
as follows:
|
2017
Performance Peer Companies
|
|
Ticker
|
Name
|
Primary Industry
|
|
DRQ
|
Dril-Quip Inc.
|
Oil & Gas
Equipment and Services
|
|
EXTN
|
Exterran Corporation
|
Oil & Gas
Equipment and Services
|
|
FTI
|
TechnipFMC plc
|
Oil & Gas
Equipment and Services
|
|
HTG.L
|
Hunting plc
|
Oil & Gas
Equipment and Services
|
|
NOV
|
National Oilwell
Varco Inc.
|
Oil & Gas
Equipment and Services
|
|
OII
|
Oceaneering International
Inc.
|
Oil & Gas
Equipment and Services
|
|
OIS
|
Oil States International
Inc.
|
Oil & Gas
Equipment and Services
|
|
TESO
|
Tesco Corporation
|
Oil & Gas
Equipment and Services
|
|
OSX
|
Philadelphia
Stock Exchange Oil Service Sector
|
Oilfield Services
Index
|
Our
performance peer group, which will be used to determine payout levels for our 2018 performance based awards, was changed slightly
from the 2017 group. Tesco Corporation was replaced by Superior Energy Services, Inc.
|
2018
Performance Peer Companies
|
|
|
Financial
Size Statistics
|
|
Ticker
|
Name
|
Primary Industry
|
2017
Revenue
($MM)
|
12/31/17
Mkt
Cap
($MM)
|
|
DRQ
|
Dril-Quip Inc.
|
Oil & Gas
Equipment and Services
|
$455.5
|
$1,705.6
|
|
EXTN
|
Exterran Corporation
|
Oil & Gas
Equipment and Services
|
$1,215.3
|
$924.6
|
|
FTI
|
TechnipFMC plc
|
Oil & Gas
Equipment and Services
|
$15,056.9
|
$13,442.5
|
|
HTG.L
|
Hunting plc
|
Oil & Gas
Equipment and Services
|
$722.9
|
$1,513.1
|
|
NOV
|
National Oilwell Varco Inc.
|
Oil & Gas
Equipment and Services
|
$7,304.0
|
$13,339.2
|
|
OII
|
Oceaneering International Inc.
|
Oil & Gas
Equipment and Services
|
$1,921.5
|
$1,806.4
|
|
OIS
|
Oil States International Inc.
|
Oil & Gas
Equipment and Services
|
$670.6
|
$1,476.4
|
|
SPN
|
Superior Energy Services, Inc.
|
Oil & Gas
Equipment and Services
|
$1,874.1
|
$1,318.7
|
|
OSX
|
Philadelphia Stock Exchange Oil Service
Sector
|
Oilfield Services
Index
|
N/A
|
N/A
|
Role of Market
Data
Pearl
Meyer uses compensation data gathered from the compensation peer group as well as supplemental data from published market surveys
to benchmark our executive compensation. The supplemental survey data allows the Compensation Committee to consider compensation
levels through the broader energy industry compared to the oilfield services industry focused data of the peer group. Survey data
also provides market norms for executive positions, which may not be reported as named executive officers in the peer group data.
Our
review of market data focuses on the main elements of executive compensation: base salary, annual incentive opportunity, long-term
compensation and total direct compensation. The graphic below defines the data we consider:
We
review both target and actual compensation paid, but our primary focus is on target compensation because we want to provide our
executives with the opportunity to earn competitive levels of compensation. How our plans ultimately payout is contingent upon
management’s performance.
The
Compensation Committee periodically commissions Pearl Meyer to conduct a market-based compensation study. The most recent study
used in connection with the determination of total compensation in 2017 was completed in November 2016 and reviewed again in February
2017. That study indicated that our NEO base salaries, target total cash and target total direct compensation are on average below
the market median. The Compensation Committee determined not to meaningfully adjust executive compensation due to market conditions.
Elements of
Compensation for Our Named Executive Officers
Base Salary
Base
salary is the fixed annual compensation we pay to each Named Executive Officer for performing specific job responsibilities and
is based on the executive’s experience and requisite skills. It represents the minimum income a Named Executive Officer
may receive in any year. Base salaries are determined for each Named Executive Officer based on the executive’s position
and responsibility. We review the base salaries for each Named Executive Officer annually as well as at the time of any promotion
or significant change in job responsibilities. In connection with each review, we also consider individual and company performance
over the course of that year. The agreements we maintain with the Named Executive Officers (described in greater detail
below) provide that base salaries will generally not be reduced during the annual review unless the decrease is in connection
with a similar reduction applicable to all of our executive officers, and if so, the decrease could be a reduction of up to 10%
of the executive’s base salary.
The
table below shows base pay amounts for each Named Executive Officer as of December 31, 2016 and 2017, and March 19, 2018:
|
NEO
|
2016
Salary
|
2017
Salary
|
Change
|
2018
Salary
|
Change
|
|
Prady Iyyanki
(1)(2)
|
427,500
|
650,000
|
52%
|
700,000
|
8%
|
|
C. Christopher Gaut
(1)(3)
|
607,500
|
675,000
|
11%
|
160,000
|
(76%)
|
|
Pablo G. Mercado
(4)
|
282,064
|
300,000
|
6%
|
360,000
|
20%
|
|
James W. Harris
(1)
|
359,889
|
399,877
|
11%
|
399,877
|
0%
|
|
James L. McCulloch
(1)
|
311,988
|
346,653
|
11%
|
357,053
|
3%
|
|
Michael D. Danford
(1)
|
238,081
|
300,000
|
26%
|
300,000
|
0%
|
|
|
(1)
|
In 2016, our Named Executive
Officers voluntarily reduced their compensation by 10% in light of the depressed energy market. In February 2017, our board of
directors returned NEO compensation to prior levels.
|
|
|
(2)
|
In May 2017, Mr. Iyyanki
was appointed as our President and Chief Executive Officer, and his compensation was increased to be in line with the market median.
|
|
|
(3)
|
Mr. Gaut served as Chief
Executive Officer of the Company until May 16, 2017 and as Executive Chairman of the Board until December 31, 2017. Mr. Gaut transitioned
to serve as non-Executive Chairman of the Board on December 31, 2017. In February 2018, Mr. Gaut’s salary was decreased
under a new employment agreement with the Company, pursuant to which he acts as an advisor to the Chief Executive Officer.
|
|
|
(4)
|
In August 2017, Mr. Mercado
was appointed to serve as our Senior Vice President, Finance and his compensation was increased to be in line with the market
median. In March 2018, Mr. Mercado was appointed to serve as our Senior Vice President and Chief Financial Officer and his compensation
was increased to be in line with the market median.
|
Annual Incentive
Awards
Our
annual incentive awards are formulaic and performance based. The payout potential at each level of our plan is expressed as a
percentage of an executive’s base salary as set forth in the table below. Each year the Compensation Committee reviews bonus
targets as well as target and actual total cash compensation paid to the named executive officers of our peer group to gauge the
competitive level of our targets and ultimate payouts.
Management Incentive
Plan
Our
Management Incentive Plan (the “MIP”) for 2017 was designed to incentivize and reward key executives who had a significant
impact on our achievement of overall corporate performance goals. The Compensation Committee approved NEO participants and their
target bonus levels for the MIP and will continue to do so in future years.
The
following table sets out our target and maximum bonus levels for 2017 for our NEOs expressed as a percentage of the individual’s
base salary earned during the year:
|
Executive
|
Target
bonus
(%
of base)
|
Maximum
bonus
(%
of base)
|
|
Prady
Iyyanki
|
100%
|
200%
|
|
C.
Christopher Gaut
|
125%
|
250%
|
|
Pablo
G. Mercado
|
60%
|
120%
|
|
James
W. Harris
|
80%
|
160%
|
|
James
L. McCulloch
|
80%
|
160%
|
|
Michael
D. Danford
|
60%
|
120%
|
2017 MIP
The
2017 MIP has a built-in threshold such that zero bonus is paid if we achieve anything less than the entry level of the established
performance goals for the year. When actual performance is greater than the target performance level in an amount set forth in
the 2017 MIP, referred to as “over-achievement,” the participant is eligible to receive the maximum bonus in the above
table, an amount of up to two times the target award. The following graph summarizes the payout of the established performance
goals.
MIP Performance
Metrics
Performance
for the 2017 MIP was measured in terms of EBITDA, working capital, personal performance and safety. These metrics were chosen
because the Compensation Committee concluded that using EBITDA and working capital as measures align the interests of the executives
with those of our stockholders, specific personal performance would reward management for focusing on key individual performance
criteria that are only indirectly captured through financial metrics and because safety is an overriding value of our company.
The weightings for the four metrics in 2017 were as follows:
|
Performance Measure
|
Weighting
|
|
EBITDA
|
50%
|
|
Working
Capital
|
20%
|
|
Personal
Performance Award
|
20%
|
|
Safety
Performance
|
10%
|
EBITDA and Working
Capital
The
EBITDA and working capital measures were derived from the 2017 financial plan set by our board of directors, adjusted for acquisitions
during the year and other non-recurring items. Working capital (“WC”) was determined by calculating Gross Days Sales
Outstanding (“DSO”), weighted 40%, and Gross Days of Inventory on Hand (“DIOH”), weighted 60%, for the
MIP Period. DSO was calculated by dividing the average of the quarter end account receivable balances by the average daily revenue.
Average daily revenue was calculated by dividing annual revenue by 365. Accounts receivable was equal to the sum of trade accounts
receivable, reserve for sales return, unbilled revenue and cost and profit in excess of billings less billings in excess of cost
and profit. DIOH was calculated by dividing the average of the quarter end gross inventory balances by the average daily cost
of goods sold. Average daily cost of goods sold was calculated by dividing annual cost of goods sold by 365.
Personal Performance
Award
The
Personal Performance Award is intended to encourage an increased focus on each participant’s impact on our overall objectives,
including maximizing shareholder return. Each Named Executive Officer’s personal performance is evaluated in terms of both
quantity and quality of achievement relative to their individual areas of responsibility, and such other factors deemed relevant
by the Chief Executive Officer and the Compensation Committee or the board of directors, as applicable.
Safety Performance
The
safety measure was based on the Total Recordable Incident Rate (“TRIR”), which is a measure of the recordable workplace
injuries that occur during the year, calculated by multiplying the number of recordable injuries in a calendar year by 200,000
(100 employees working 2,000 hours per year), and dividing this value by the total man-hours actually worked in the year. The
safety measures were designed to incentivize improvements in TRIR for the Company as a whole and for each product line. The safety
measure for our NEOs is based on the Company’s consolidated TRIR safety performance.
The
target for each product line was established with reference to past safety performance and the average TRIR for the oil and gas
manufacturing industry, as reported in 2010 by the U.S. Department of Labor. Threshold and over-achievement levels were set at
points recommended by management to create stretch goals while at the same time maintaining the incentive of each product line
throughout the year, and not as percentages of target TRIR.
2017 MIP
Payout
The
table below sets forth the EBITDA targets and actual achievements for 2017:
|
EBITDA
|
|
Executive
|
Target
Performance
($ thousands)
|
Actual
Performance
($ thousands)
|
Bonus
Earned ($)
|
|
Prady Iyyanki
|
$33,292
|
$27,237
|
176,797
|
|
C. Christopher Gaut
|
$33,292
|
$27,237
|
257,615
|
|
Pablo G. Mercado
|
$33,292
|
$27,237
|
49,973
|
|
James W. Harris
|
$33,292
|
$27,237
|
97,673
|
|
James L. McCulloch
|
$33,292
|
$27,237
|
84,672
|
|
Michael D. Danford
|
$33,292
|
$27,237
|
53,879
|
The
table below sets forth the DSO targets and actual achievements for 2017:
|
Working
Capital – DSO
|
|
Executive
|
Target
Performance
(Days)
|
Actual
Performance
($
thousands)
|
Bonus
Earned ($)
|
|
Prady
Iyyanki
|
68
|
75
|
—
|
|
C.
Christopher Gaut
|
68
|
75
|
—
|
|
Pablo
G. Mercado
|
68
|
75
|
—
|
|
James
W. Harris
|
68
|
75
|
—
|
|
James
L. McCulloch
|
68
|
75
|
—
|
|
Michael
D. Danford
|
68
|
75
|
—
|
The
table below sets forth the DIOH targets and actual achievements for 2017:
|
Working
Capital – DIOH
|
|
Executive
|
Target
Performance
(Days)
|
Actual
Performance
($
thousands)
|
Bonus
Earned ($)
|
|
Prady
Iyyanki
|
248
|
269
|
—
|
|
C.
Christopher Gaut
|
248
|
269
|
—
|
|
Pablo
G. Mercado
|
248
|
269
|
—
|
|
James
W. Harris
|
248
|
269
|
—
|
|
James
L. McCulloch
|
248
|
269
|
—
|
|
Michael
D. Danford
|
248
|
269
|
—
|
The table below
sets forth the Personal Performance Award for 2017:
|
Personal Performance Award
|
|
Executive
|
|
Bonus
Earned
($)
|
|
|
Prady Iyyanki
|
|
|
57,683
|
|
|
C. Christopher Gaut
|
|
|
168,101
|
|
|
Pablo G. Mercado
|
|
|
16,305
|
|
|
James W. Harris
|
|
|
31,867
|
|
|
James L. McCulloch
|
|
|
55,251
|
|
|
Michael D. Danford
|
|
|
35,158
|
|
The
table below sets forth the safety targets and actual achievements for 2017:
|
Safety
(TRIR)
|
|
Executive
|
Target
Performance
|
Actual
Performance
|
Bonus
Earned ($)
|
|
Prady
Iyyanki
|
1.10
|
1.23
|
27,688
|
|
C.
Christopher Gaut
|
1.10
|
1.23
|
40,344
|
|
Pablo
G. Mercado
|
1.10
|
1.23
|
7,826
|
|
James
W. Harris
|
1.10
|
1.23
|
15,296
|
|
James
L. McCulloch
|
1.10
|
1.23
|
13,260
|
|
Michael
D. Danford
|
1.10
|
1.23
|
8,438
|
In
accordance with the terms of the MIP, each performance measure other than personal performance is adjusted as necessary for acquisitions
consummated during the year and other non-recurring items. Based on the MIP measures for each executive, financial, safety and
personal performance resulted in the payments set forth above, and no discretionary adjustments were made thereto by the Compensation
Committee.
Awards
under our 2017 MIP were determined following an analysis of our financial results for 2017.
|
Executive
|
MIP
Target ($)
|
MIP
Payment ($)
|
MIP Payment
as % of Target
|
2017 Payment
as %
of Base Salary at
12/31/2017
|
|
Prady
Iyyanki
(1)
|
576,827
|
262,168
|
45%
|
40%
|
|
C. Christopher
Gaut
|
840,505
|
466,060
|
55%
|
69%
|
|
Pablo G. Mercado
(2)
|
163,045
|
74,104
|
45%
|
25%
|
|
James W. Harris
|
318,671
|
144,836
|
45%
|
36%
|
|
James L. McCulloch
|
276,256
|
153,184
|
55%
|
44%
|
|
Michael D.
Danford
|
175,788
|
97,475
|
55%
|
33%
|
|
|
(1)
|
Mr. Iyyanki was appointed
as President and Chief Executive Officer in May 2017. In connection with such appointment, his compensation was increased from
$475,000 to $650,000.
|
|
|
(2)
|
Mr. Mercado was appointed
as Senior Vice President – Finance in May 2017. In connection with such appointment, his compensation was increased from
$282,064 to $300,000.
|
2018 MIP
For
the 2018 plan year, the Compensation Committee approved three performance bands (threshold, target and overachievement) for each
of the measures under the MIP. EBITDA, Inventory Turns, derived from a calculation of the average gross inventory turns for the
third and fourth quarter 2018, Personal Performance and Safety are the measures utilized in the 2018 MIP.
|
Performance
Measure
|
Weighting
|
|
EBITDA
|
60%
|
|
Inventory
Turns
|
20%
|
|
Personal
Performance
|
10%
|
|
Safety
Performance
|
10%
|
The
table below sets out our NEO target and maximum bonus levels for 2018, expressed as a percentage of annual base salary. These
targets have been approved by the Compensation Committee and are consistent with our philosophy of targeting market median pay
opportunities.
|
Executive
|
Target
bonus
(%
of base)
|
Maximum
bonus
(%
of base)
|
|
Prady
Iyyanki
|
100%
|
200%
|
|
C.
Christopher Gaut
(1)
|
—
|
—
|
|
Pablo
G. Mercado
|
75%
|
150%
|
|
James
W. Harris
|
80%
|
160%
|
|
James
L. McCulloch
|
80%
|
160%
|
|
Michael
D. Danford
|
60%
|
120%
|
|
|
(1)
|
Under his employment agreement,
effective January 1, 2018, Mr. Gaut is not eligible for a MIP bonus award.
|
The
following graph summarizes the payout of the established performance goals for the 2018 MIP.
Long-Term Equity
Based Incentives
We
believe that long-term equity awards are the strongest link between executive pay and stockholder interests and, therefore, they
represent a significant portion of our NEO total compensation. Long-term equity awards are granted pursuant to the 2016 Plan.
Options are inherently performance based and we believe provide a strong link between our executives’ and stockholders’
long-term interests. We typically also grant restricted stock units as part of our equity based incentive package for competitive
purposes, to balance the compensation risk associated with options and to provide value in equity which is tied to retention by
placing a vesting requirement on the restricted stock unit grants. Another reason we grant restricted stock units, and may increase
them in the future as a percentage of our equity package, is to conserve our share pool. Fewer full value shares are required
to deliver a targeted equity value than would be required if the grant were made in options alone. We include performance based
awards in the mix of equity granted to our NEOs. To date, and for the 2018 awards, the percentages of each year’s grant
have been made up of one-third each of stock options, restricted stock units and performance based shares as a balanced approach,
which considers the motivation of our executives, the interests of our stockholders, as well as the common practice within our
peer group. In addition, subject to exceptional circumstances, incentive awards include double-trigger vesting provisions. While
single-trigger vesting is prevalent among members of our peer group, we believe double trigger vesting is more in line with the
expectations of our stockholders and would still permit us to offer attractive compensation to our Named Executive Officers. It
has been our historical practice and expectation that on a going forward basis incentive awards will also include multi-year vesting
provisions.
|
LTI Vehicle
|
Performance Measure
|
Vesting
|
Percentage
|
|
Stock Options
|
Final value varies with stock price
|
25% annually for
four years
|
33%
|
|
Time-Vested Restricted Stock Units
|
Final value varies with stock price
|
25% annually for
four years
|
33%
|
|
Performance Shares
|
Shares
earned subject to the Company’s TSR performance relative to peer group over a one-, two-, and three-year period
|
One-third
of each award vests after the one-, two-, and three-year performance periods
|
33%
|
|
Long
Term Incentive Award Program Terms
|
|
Award
Cycle & Timing
|
|
Fiscal
Year
|
Equity
Granted
|
February
2018
|
February
2019
|
February
2020
|
February
2021
|
|
2017
|
201
7
Performance Share
Award
|
2017
Performance
Share Award
Earned 33 1/3
|
|
|
|
|
|
2017
Performance
Share Award
Earned 33 1/3
|
|
|
|
|
|
2017
Performance
Share Award
Earned 33 1/3
|
|
|
2017 Time-Vested
Restricted Stock Units
|
2017 Restricted
Stock Units
25% Vested
|
2017 Restricted
Stock Units
25% Vested
|
2017 Restricted
Stock Units
25% Vested
|
2017 Restricted
Stock Units
25% Vested
|
|
2017 Time-Vested
Stock Options
|
2017 Stock
Options
25% Vested
|
2017 Stock
Options
25% Vested
|
2017 Stock
Options
25% Vested
|
2017 Stock
Options
25% Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Shares
Performance
shares provide an additional incentive to our NEOs. Performance share payout will be calculated at the end of each year over a
three year period based on TSR relative to our performance peer group. The table below shows the award multipliers applied to
our target based upon relative TSR performance. The table below shows the impact on payout multipliers as peers are removed from
the group. Please see the “—Performance Peer Group” section above for a description of our performance peer
group.
|
Rank
Against
Peers
|
Award
Multiplier
(9 peers)
|
Award
Multiplier
(8 peers)
|
Award
Multiplier
(7 peers)
|
|
1
|
2.00
|
2.00
|
2.00
|
|
2
|
1.75
|
1.75
|
1.71
|
|
3
|
1.50
|
1.50
|
1.42
|
|
4
|
1.25
|
1.25
|
1.13
|
|
5
|
1.00
|
1.00
|
0.84
|
|
6
|
1.00
|
0.75
|
0.55
|
|
7
|
0.75
|
0.50
|
0.26
|
|
8
|
0.50
|
0.25
|
0.00
|
|
9
|
0.25
|
0.00
|
|
|
10
|
0.00
|
|
|
The
resulting multipliers shown above, and ultimate number of shares delivered to our NEOs, are determined at the conclusion of each
year in the three-year performance period. The first measurement will be the one-year relative TSR, the second measurement will
be cumulative two-year TSR, and the third measurement will be the cumulative three-year TSR relative to the performance peer group.
Under each performance share agreement, the payout is capped at a multiplier of 1.00 if absolute total shareholder return is negative,
even if our TSR performance is ranked higher relative to our peers. In addition, the agreements provide for a payout with a minimum
multiplier of 1.00 if absolute TSR is greater than or equal to 20%.
2017 Awards
Our
Compensation Committee, and our board of directors in respect of Mr. Iyyanki and Gaut, granted equity-based compensation awards
in 2017 to each of the Named Executive Officers.
|
Executive
|
Stock
Option
Awards
|
Restricted
Stock
Unit
Awards
|
Performance
Share
Awards
(1)
|
Grant
Date
Value ($)
|
|
Prady Iyyanki
(2)
|
55,866
|
96,949
|
24,876
|
1,556,208
|
|
C.
Christopher Gaut
|
111,732
|
49,751
|
49,751
|
3,112,376
|
|
Pablo G.
Mercado
(3)
|
14,153
|
12,302
|
6,302
|
494,148
|
|
James W.
Harris
|
37,244
|
16,584
|
16,584
|
1,037,472
|
|
James L.
McCulloch
|
27,933
|
12,438
|
12,438
|
778,104
|
|
Michael D.
Danford
|
17,877
|
7,960
|
7,960
|
497,974
|
|
|
(1)
|
Reflects shares which will
be earned at target. Payout of shares varies from 0% of target award if relative TSR performance does not meet threshold and up
to 200% of the target award if relative TSR performance is at the maximum level.
|
|
|
(2)
|
In February 2017, Mr. Iyyanki
received an award of 24,876 restricted stock units. In connection with Mr. Iyyanki’s appointment as President and Chief
Executive Officer in May 2017, he was awarded 72,073 restricted stock units.
|
|
|
(3)
|
In February 2017, Mr. Mercado
received an award of 6,302 restricted stock units. In connection with Mr. Mercado’s appointment as Senior Vice President
– Finance in May 2017, he was awarded 6,000 restricted stock units.
|
Our
equity-based compensation awards granted in 2017 were approximately equal to the median as compared to our compensation peer group.
We do not time the release of material nonpublic information for the purpose of affecting the value of executive compensation,
and we do not grant options with a grant date prior to the date of Compensation Committee approval of the grant.
Update on Performance Awards
Our
2017 TSR, 2016 through 2017 TSR and 2015 through 2017 TSR were -35.7%, 14.8% and -27.9%, respectively, which ranked ninth, third
and third among our one-, two- and three-year performance peer groups (shown below). This performance resulted in the application
of a 0.00x multiplier to our target on the first tranche of the 2017 performance award, 1.50x multiplier to our target on the
second tranche of the 2016 performance award and 1.00x multiplier to our target on the third tranche of the 2015 performance award
(the applicable multiplier was reduced to 1.00x from 1.50x due to negative TSR).
2018 Awards
Our
Compensation Committee, and our board of directors in respect of Messrs. Iyyanki and Gaut, granted equity-based compensation awards
in February 2018. The table below summarizes the amount of such grants to each Named Executive Officer.
|
Executive
|
Stock
Option
Awards
|
Restricted
Stock Unit
Awards
|
Performance
Share
Awards
(1)
|
Grant
Date Value
($)
|
|
Prady
Iyyanki
|
177,020
|
82,670
|
82,670
|
2,892,082
|
|
C.
Christopher Gaut
(2)
|
—
|
12,500
|
—
|
150,000
|
|
Pablo
G. Mercado
|
42,830
|
20,000
|
20,000
|
699,694
|
|
James
W. Harris
|
22,840
|
10,670
|
10,670
|
373,235
|
|
James
L. McCulloch
|
42,830
|
20,000
|
20,000
|
699,694
|
|
Michael
D. Danford
|
27,120
|
12,670
|
12,670
|
443,188
|
|
|
(1)
|
The number of performance
share awards disclosed in this column assumes that the performance share award grant is paid out at the target level of performance
in our common stock. Payout of shares varies from 0% of target award if relative TSR performance does not meet threshold up to
200% of the target award if relative TSR performance is at the maximum level.
|
|
|
(2)
|
Mr. Gaut received an annual
director incentive award in connection with his service as our non-executive Chairman of the Board.
|
Our
equity-based compensation awards granted in February 2018 were approximately at the market median as compared to our compensation
peer group and maintained the same mix and structure as our 2017 awards.
Employee Benefits
Our
401(k) Plan is designed to allow all employees, including the participating Named Executive Officers, to contribute on a pre-tax
or Roth after-tax basis. Each participant may elect to contribute up to 75% of his compensation to the 401(k) Plan as pre-tax
or Roth after-tax contributions (but limited by the statutory maximum of $18,000 for 2017). Additionally, participants age 50
years and older may make a “catch-up contribution” to the 401(k) Plan each year up to an amount set by statute ($6,000
for 2017). In January 2017, to ensure the retention of our employees we resumed the Company’s 401(k) matching contribution
program that was suspended in 2016.
We
have the discretion to provide a profit sharing contribution to each participant depending on our company’s performance
for the applicable year. There were no profit sharing contributions made in 2017. Due to statutory limits on the amounts contributed
to qualified plans, our Named Executive Officers generally did not receive the full potential matching contribution under the
401(k) Plan.
We
also provide medical, dental and vision coverage to all of our full-time employees, as well as basic life and disability coverage.
Other Practices,
Policies and Guidelines
Perquisites
We
do not provide for any perquisites or any other personal benefits for our executive officers that are not available to other employees.
Clawbacks
Payments
made under our non-equity incentive plan are subject to a clawback to the extent necessary to comply with the requirements of
the Dodd-Frank Act or any other SEC guidelines.
Risk Assessment
Our
board of directors has reviewed our compensation policies as generally applicable to our employees and believes that our policies
do not encourage excessive and unnecessary risk-taking, and that the level of risk that they do encourage is not reasonably likely
to have a material adverse effect on us. The Compensation Committee performs this assessment annually and if a likelihood of a
material risk exists, it will enlist additional resources for a full assessment.
Our
compensation philosophy and culture support the use of base salary, certain performance-based compensation and benefit plans that
are generally consistent in design and operation throughout our organization and with all levels of employees. These compensation
policies and practices are centrally designed and administered. In addition, the following specific factors, in particular, reduce
the likelihood of excessive risk-taking:
|
|
•
|
Our overall compensation
levels are competitive with the market;
|
|
|
•
|
Our compensation mix comprises
(i) fixed components like salary and benefits, (ii) annual incentives that reward our overall financial performance and safety
and (iii) long-term incentives to more closely tie executive compensation to stockholder interests and provide for it to be at-risk
based on performance;
|
|
|
•
|
We intend to always have
a strategic long-term plan;
|
|
|
•
|
Our annual corporate goals
will be established with specific consideration given to behavioral risk;
|
|
|
•
|
We design our compensation
plans so that no material risks are created between or across product lines;
|
|
|
•
|
We seek to implement appropriate
performance measures each year, whether absolute or relative;
|
|
|
•
|
We have established maximum
payouts to cap any performance incentives in place; and
|
|
|
•
|
We have clawback provisions
built into our non-equity incentive plan.
|
In
summary, although a portion of the compensation provided to Named Executive Officers is based on our performance, we believe our
compensation programs do not encourage excessive and unnecessary risk-taking by executive officers (or other employees) because
these programs are designed to encourage employees to remain focused on both our short-term and long-term operational and financial
goals. We set performance goals that we believe are reasonable in light of our past performance and market conditions.
Executive Stock
Ownership Requirements
To
further align the interests of our NEOs with the long-term interests of stockholders, our board of directors adopted a Stock Ownership
Requirements Policy which requires our executive officers to own shares equal to specified amounts of our common stock, set at
a multiple of the officers’ base annual salary in effect as of January 1 of each applicable year. Targets are based on the
following multiples of base salary:
|
Officer
|
Multiple
|
|
CEO
|
6x
|
|
Executive Vice Presidents
|
4x
|
|
Corporate Senior Vice
Presidents
|
3x
|
|
Other
Section 16 Officers
|
2x
|
NEOs
are expected to reach this level of target ownership within five years of becoming subject to the policy, three years of a promotion
to a higher target multiple. Actual shares of stock, restricted stock, restricted stock units (including deferred stock units)
and earned but unvested performance shares may be counted in satisfying the stock ownership guidelines. Shares issuable upon exercise
of unexercised stock options are not counted. An NEO who is not in compliance with the policy may only sell shares to pay the
applicable taxes related to an award of restricted stock or restricted stock units, the value of which does not exceed such tax
liability, or to pay the exercise price or applicable taxes upon the exercise of stock options, retaining shares received upon
exercise net of shares sold to cover the exercise prices or taxes, as applicable. As of January 1, 2018, each of our NEOs continued
to be in compliance with the requirements set forth under the policy. We believe the significant amount of shares required to
be held pursuant to the policy aligns the interests of our executives and those of our stockholders. We further believe that this
is more effective than imposing a minimum holding period and that imposing such a holding period would be unduly restrictive for
executive officers and impact our ability to attract and retain top talent.
Employment and
Severance Agreements
We
entered into employment agreements with Messrs. Gaut and Harris, effective August 2, 2010. We entered into employment agreements
with Messrs. McCulloch and Iyyanki effective October 25, 2010 and January 13, 2014, respectively. None of the contracts provide
for excise tax protections in the event of a change in control. On February 16, 2018, in connection with his recent transition
to non-executive Chairman of the Board, the Company entered into an employment agreement with Mr. Gaut, amending the terms of
his prior employment agreement. In addition, on February 16, 2018, Messrs. Mercado and Danford entered into severance agreements
with us. Neither Mr. Mercado nor Mr. Danford is a party to an employment agreement with us.
The
employment agreements currently in effect set forth the manner by which the employment relationship may be extended or terminated,
and the compensation and benefits that we provide during the term of employment. Both the employment and severance agreements
set forth obligations each party has in the event of termination of employment. We believe that severance protections, particularly
in the context of a change in control transaction, play a critical role in attracting and retaining key executive officers. Providing
this type of protection is common in the oilfield services industry. In addition, these benefits serve our interests by promoting
a continuity of management and aligning management’s interests with those of our stockholders in the context of an actual
or threatened change in control transaction.
Other
material terms of these agreements are set forth below under “Executive Compensation.” The severance provisions within
the agreements are set forth in detail in “Executive Compensation — Potential payments upon termination and change
in control” below.
Nonqualified
Deferred Compensation Plan
Our
non-qualified deferred compensation plan permits eligible participants, including our NEOs, to make contributions (and to receive
matching contributions) in excess of the Internal Revenue Code limitations. The plan was adopted in consultation with Pearl Meyer,
which advised the Compensation Committee that such a plan was a competitive practice. The suspension of matching contributions
on participant deferrals under the deferred compensation plan continues to be in effect.
The
plan provides that an officer may defer up to 50% of his base compensation and all or any portion of his bonus. All deferred amounts
are credited with earnings through the date paid. The Compensation Committee annually recommends to the board of directors the
interest rate to be paid on all deferred compensation amounts for the year. The interest rate on deferred compensation for 2017
was 7.5% per annum.
Each
NEO is 100% vested in all matching contributions as a result of having satisfied the service requirements provided under the plan.
Benefits under the plan are paid at the participant’s election upon termination of employment in a cash lump sum or in annual
installments over a period not longer than five years. The Compensation Committee is responsible for administering this plan.
In addition to those employees designated by the plan, our CEO is permitted to designate additional employees who may participate
in this plan.
Upon
a “change of control” within the meaning of the 2010 Stock Incentive Plan (the “2010 Plan”), all account
balances will be fully vested.
Employee Stock
Purchase Plan
In
2017, we adopted an employee stock purchase plan, which provides our eligible employees, including our Named Executive Officers,
an option to purchase our common stock through payroll deductions and is designed to comply with Section 423 of the Internal Revenue
Code. Generally, the purchase price is equal to 85% (or such other percentage that is not lower than 85% as designated by the
Compensation Committee prior to the commencement of an offering period) of the market price of common stock on one of the following
dates: (i) the offering date, (ii) the purchase date or (iii) the offering date or the purchase date, whichever is lower, as designated
by the Compensation Committee from time to time. Offering periods generally consist of six-month periods, or such other periods
as may be determined from time to time by the Compensation Committee. Employees will be limited to a maximum payroll deduction
of up to 30% of eligible compensation and may not purchase more than $12,500 in shares each offering period.
Accounting and
Tax Considerations
If
an executive is entitled to nonqualified deferred compensation benefits that are subject to Section 409A of the Internal Revenue
Code, and such compensation does not comply with Section 409A, then the benefits are taxable in the first year they are not subject
to a substantial risk of forfeiture and are subject to certain additional adverse tax consequences. We intend to design such arrangements
to comply with (or be exempt from) Section 409A to the extent that the design is also appropriate for our business goals with
respect to that arrangement.
All
equity awards to our employees, including executive officers, and to our directors will be granted and reflected in our consolidated
financial statements, based upon the applicable accounting guidance, at fair market value on the grant date in accordance with
FASB Accounting Standards Codification, Topic 718, “Compensation — Stock compensation.”
Section
162(m) of the Internal Revenue Code limits the annual tax deduction to $1,000,000 for compensation paid by a publicly held company
to its Chief Executive Officer and each of its three other most highly compensated named executive officers other than the Chief
Financial Officer, unless certain performance-based requirements are met. Under the Tax Cuts and Jobs Act of 2017 (the “2017
Tax Act”), effective for our taxable year beginning January 1, 2018, the exception under Section 162(m) for performance-based
compensation will no longer be available, subject to transition relief for certain grandfathered arrangements in effect as of
November 2, 2017. In addition, the “covered employees” subject to Section 162(m) limitations will be expanded to include
our Chief Financial Officer, and once one of our named executive officers is considered a covered employee, the named executive
officer will remain a covered employee so long as he or she receives compensation from us. To the extent practicable, we intend
to preserve future deductions related to existing compensation arrangements that are eligible for transition relief under the
2017 Tax Act, but we reserve the right to use our judgment to authorize compensation payments that are not deductible under Section
162(m) when we believe that such payments are appropriate and in the best interests of the stockholders, after taking into consideration
changing business conditions or the executive’s individual performance and/or changes in specific job duties and responsibilities.
COMPENSATION
COMMITTEE REPORT
The
Compensation Committee has reviewed and discussed with Forum’s management the matters reported in the Compensation Discussion
and Analysis included in this proxy statement. Based on that review and discussion, the Compensation Committee has recommended
to the board of directors that the Compensation Discussion and Analysis be included in this proxy statement.
|
|
Respectfully submitted,
|
|
|
|
|
|
Louis A. Raspino,
Chairperson
|
|
|
Michael McShane
|
|
|
Terence M. O’Toole
|
EXECUTIVE COMPENSATION
The
following tables provide information regarding the compensation awarded to or earned during the periods indicated below by our
principal executive officers, principal financial officer and each of the next three most highly compensated executive officers
who were serving as executive officers on December 31, 2017. The tables following the summary compensation table provide additional
detail with respect to actual compensation, grants of plan-based awards, the value of outstanding equity awards as of December
31, 2017, the value of options exercised and stock awards that vested during 2017, deferred compensation and estimates of changes
in post-employment benefits.
Summary compensation
table for 2017
|
Name and Principal Position
|
Year
|
Salary
(1)
($)
|
Bonus
($)
|
Performance
Share
Awards
(2)
($)(A)
|
Restricted
Stock /
Restricted
Stock Unit
Awards
(3)
($) (B)
|
Stock
Awards
(4)
($)
(A+B)
|
Option
Awards
(3)
($)
|
Non-Equity
Incentive Plan
Comp
(1)(5)
($)
|
All Other
Comp
(6)
($)
|
Total
($)
|
|
Prady
Iyyanki
(7)
President
and
Chief Executive
Officer
|
2017
|
587,170
|
—
|
556,200
|
1,700,023
|
2,256,223
|
500,001
|
262,168
|
9,876
|
3,615,438
|
|
2016
|
431,154
|
—
|
358,994
|
900,026
|
1,259,020
|
400,015
|
157,371
|
—
|
2,247,560
|
|
2015
|
477,088
|
—
|
435,808
|
399,939
|
835,747
|
400,013
|
—
|
3,654
|
1,716,502
|
|
C. Christopher
Gaut
(7)
Chairman
of the Board
|
2017
|
676,854
|
—
|
1,112,380
|
999,995
|
2,112,375
|
1,000,001
|
466,060
|
10,800
|
4,266,091
|
|
2016
|
612,692
|
—
|
1,009,650
|
1,125,016
|
2,134,666
|
1,125,009
|
271,249
|
18,292
|
4,161,908
|
|
2015
|
659,794
|
—
|
1,225,797
|
1,124,910
|
2,350,707
|
1,124,979
|
—
|
21,049
|
4,156,889
|
|
Pablo
Mercado
(8)
Sr. Vice
President and
Chief Financial
Officer
|
2017
|
293,374
|
—
|
140,908
|
226,570
|
367,478
|
126,669
|
74,104
|
10,800
|
872,425
|
|
2016
|
267,961
|
—
|
113,680
|
126,671
|
240,351
|
126,665
|
48,705
|
—
|
683,682
|
|
2015
|
283,304
|
—
|
138,009
|
126,650
|
264,659
|
126,660
|
38,427
|
5,949
|
718,999
|
|
James
W. Harris
Executive
Vice President –
Drilling
and Subsea
(9)
|
2017
|
400,976
|
—
|
370,800
|
333,338
|
704,138
|
333,334
|
144,836
|
9,809
|
1,593,093
|
|
2016
|
362,965
|
—
|
269,246
|
300,011
|
569,256
|
299,992
|
103,740
|
5,653
|
1,341,607
|
|
2015
|
384,717
|
—
|
326,907
|
300,001
|
626,908
|
299,977
|
—
|
14,311
|
1,325,913
|
|
James
L. McCulloch
Executive Vice
President and General Counsel
|
2017
|
347,605
|
—
|
278,100
|
250,004
|
528,104
|
250,000
|
153,184
|
10,800
|
1,289,693
|
|
2016
|
314,654
|
—
|
194,413
|
216,627
|
411,040
|
216,678
|
89,154
|
—
|
1,031,527
|
|
2015
|
334,844
|
—
|
236,123
|
216,688
|
452,811
|
216,679
|
—
|
10,600
|
1,014,934
|
|
Michael
D. Danford
Sr. Vice
President—
Human Resources
(10)
|
2017
|
293,374
|
—
|
177,979
|
159,996
|
337,975
|
159,999
|
97,475
|
10,800
|
899,622
|
|
2016
|
240,115
|
—
|
113,680
|
126,671
|
240,351
|
126,665
|
52,474
|
—
|
659,605
|
|
|
|
|
(1)
|
The amounts
disclosed in this column include amounts voluntarily deferred under the Forum Energy
Technologies, Inc. Deferred Compensation and Restoration Plan.
|
|
|
(2)
|
The amounts
in this column reflect the aggregate grant date fair value of Performance Share Awards
at the target amount, calculated in accordance with FASB Accounting Standards Topic 718.
At the maximum amount, these values for Messrs. Iyyanki, Gaut, Mercado, Harris, McCulloch
and Danford would be $1,112,400, $2,224,760, $281,816, $741,600, $556,200 and $355,957,
respectively. In February 2018, we issued 28,473, 79,980, 6,461, 13,114, 11,371 and 5,740
shares of common stock to each of Messrs. Iyyanki, Gaut, Mercado, Harris, McCulloch and
Danford in connection with the vesting of performance awards granted in February 2015,
February 2016 and February 2017. For additional information, see Note 14 to our consolidated
financial statements in our annual report on Form 10-K for the year ended December 31,
2017.
|
|
|
(3)
|
The amounts disclosed in
the “2017,” “2016” and “2015” rows represent the grant date fair value in 2017, 2016 and 2015,
respectively, of restricted stock, restricted stock unit awards and stock options as determined in accordance with FASB Accounting
Standards Topic 718. All 2015 equity awards were granted based on the fair market value of a share of our common stock being $18.68.
Other assumptions with respect to stock options included: (a) an exercise price of $18.68; (b) an expected term of 6.25 years;
(c) volatility of 32.28%; (d) a dividend yield of 0.0%; (e) a risk free investment rate of 1.82%; and (f) a Black-Scholes value
of $6.59. All 2016 equity awards were granted based on the fair market value of a share of our common stock being $9.39. Other
assumptions with respect to stock options included: (a) an exercise price of $9.39; (b) an expected term of 6.25 years; (c) volatility
of 40.06%; (d) a dividend yield of 0.0%; (e) a risk free investment rate of 1.40%; and (f) a Black-Scholes value of $3.85. All
2017 equity awards were granted based on the fair market value of a share of our common stock being $20.10. Other assumptions
with respect to stock options included: (a) an exercise price of $20.10; (b) an expected term of 6.25 years; (c) volatility of
42.65%; (d) a dividend yield of 0.0%; (e) a risk free investment rate of 2.11%; and (f) a Black-Scholes value of $8.95. For additional
information, see Note 13 to our consolidated financial statements in our annual report on Form 10-K for the year ended December
31, 2017.
|
|
|
(4)
|
The amounts disclosed in
this column represent the aggregate grant-date fair value of restricted stock, restricted stock unit awards and performance share
awards, as applicable and as reflected in columns A and B.
|
|
|
(5)
|
Amounts in the “2017,”
“2016” and “2015” rows reflect the MIP award payments that we made to each individual during the first
quarters of 2018, 2017 and 2016, respectively. In light of market conditions in 2015 and the resulting reduction in the Company’s
revenue, the CEO and each individual who was an NEO at that time voluntarily declined all cash incentive award payments that would
have been earned under the 2015 MIP, an amount equal to approximately $0.5 million in the aggregate.
|
|
|
(6)
|
All amounts reflected in
this column represent contributions that we made to each individual’s 401(k) Plan account, contributions we made related
to profit sharing and matching contributions made in connection with our deferred compensation plan. The table below summarizes
the amounts of such contributions and profit sharing for 2017. All matching contributions under the Company’s deferred compensation
plan were suspended during 2017.
|
|
Name
|
401(k) Plan Contributions
|
Profit Sharing
|
Deferred Compensation Plan
|
|
Prady Iyyanki
|
9,876
|
—
|
—
|
|
C. Christopher Gaut
|
10,800
|
—
|
—
|
|
Pablo G. Mercado
|
10,800
|
—
|
—
|
|
James W. Harris
|
9,809
|
—
|
—
|
|
James L. McCulloch
|
10.800
|
—
|
—
|
|
Michael
D. Danford
|
10.800
|
—
|
—
|
|
|
(7)
|
In May 2017, Mr. Gaut transitioned
to serve as Executive Chairman of the Board, and Mr. Iyyanki was appointed as President and Chief Executive Officer and was elected
as a member of our board of directors. On December 31, 2017, Mr. Gaut transitioned to serve as non-executive Chairman of the Board.
Messrs. Gaut and Iyyanki did not receive compensation for service as a director in 2017.
|
|
|
(8)
|
Effective March 1, 2018,
Mr. Mercado was appointed to serve as Senior Vice President and Chief Financial Officer.
|
|
|
(9)
|
Effective March 1, 2018,
Mr. Harris was appointed to serve as Executive Vice President – Drilling & Subsea.
|
|
|
(10)
|
Mr. Danford was not a named
executive officer prior to 2016.
|
Grants of plan-based
awards for 2017
|
|
|
Estimated Future
Payouts
Under Equity Incentive Plan
Awards
(1)
|
Estimated Future Payouts
Under Non-Incentive Plan
Awards
(2)
|
All Other
Stock
Awards:
Number
of Shares
|
All Other
Option
Awards:
Number of
Securities
|
Exercise
or Base
Price of
Option
|
Grant
Date Fair
Value of
Stock and
Option
|
|
Name
|
Grant
Date
|
Threshold
(#)
|
Target
(#)
|
Maximum
(#)
|
Threshold
($)
|
Target
($)
|
Maximum
($)
|
of
Stock
(3)(4)
|
Underlying
Options
(3)(5)
|
Awards
(5)
($/Share)
|
Awards
(6)
($)
|
|
Prady Iyyanki
|
|
|
|
|
—
|
576,827
|
1,153,654
|
|
|
|
|
|
|
2/20/2017
|
|
|
|
|
|
|
|
55,866
|
20.10
|
500,001
|
|
|
2/20/2017
|
|
|
|
|
|
|
24,876
|
|
|
500,008
|
|
|
2/20/2017
|
6,219
|
24,876
|
49,752
|
|
|
|
|
|
|
556,200
|
|
|
5/16/2017
|
|
|
|
|
|
|
72,073
|
|
|
1,200,015
|
|
C. Christopher Gaut
|
|
|
|
|
—
|
840,505
|
1,681,010
|
|
|
|
|
|
|
2/20/2017
|
|
|
|
|
|
|
|
111,732
|
20.10
|
1,000,001
|
|
|
2/20/2017
|
|
|
|
|
|
|
49,751
|
|
|
999,995
|
|
|
2/20/2017
|
12,438
|
49,751
|
99,502
|
|
|
|
|
|
|
1,112,380
|
|
Pablo G. Mercado
|
|
|
|
|
—
|
163,045
|
326,089
|
|
|
|
|
|
|
2/20/2017
|
|
|
|
|
|
|
|
14,153
|
20.10
|
126,669
|
|
|
2/20/2017
|
|
|
|
|
|
|
6,302
|
|
|
126,670
|
|
|
2/20/2017
|
1,576
|
6,302
|
12,604
|
|
|
|
|
|
|
140,908
|
|
|
6/1/2017
|
|
|
|
|
|
|
6,000
|
|
|
99,900
|
|
James W. Harris
|
|
|
|
|
—
|
318,671
|
637,343
|
|
|
|
|
|
|
2/20/2017
|
|
|
|
|
|
|
|
37,244
|
20.10
|
333,334
|
|
|
2/20/2017
|
|
|
|
|
|
|
16,584
|
|
|
333,338
|
|
|
2/20/2017
|
4,146
|
16,584
|
33,168
|
|
|
|
|
|
|
370,800
|
|
James L. McCulloch
|
|
|
|
|
—
|
276,256
|
552,512
|
|
|
|
|
|
|
2/20/2017
|
|
|
|
|
|
|
|
27,933
|
20.10
|
250,000
|
|
|
2/20/2017
|
|
|
|
|
|
|
12,438
|
|
|
250,004
|
|
|
2/20/2017
|
3,110
|
12,438
|
24,876
|
|
|
|
|
|
|
278,100
|
|
Michael D. Danford
|
|
|
|
|
—
|
175,788
|
351,577
|
|
|
|
|
|
|
2/20/2017
|
|
|
|
|
|
|
|
17,877
|
20.10
|
159,999
|
|
|
2/20/2017
|
|
|
|
|
|
|
7,960
|
|
|
159,996
|
|
|
2/20/2017
|
1,990
|
7,960
|
15,920
|
|
|
|
|
|
|
177,979
|
|
|
(1)
|
The amounts in this column
represent the estimated future payouts under the long-term incentive plan for performance awards approved by the Compensation
Committee during 2017. The performance awards were granted to the Company’s executive officers and are based upon our TSR,
measured over a one-, two- and three-year performance period. These awards are settled in the Company’s shares of common
stock upon the attainment of specified performance goals based on relative TSR. If the minimum threshold for the performance period
is not met, no amount will be paid for that period. Payments are calculated by linear interpolation for performance between the
threshold and target and between the target and maximum for each component. For additional information about performance awards,
please read “Compensation Discussion and Analysis — Elements of compensation for our named executive officers.”
|
|
|
(2)
|
These columns represent
awards under our 2017 MIP. For additional information about the 2017 MIP, please read “Compensation Discussion and Analysis
— Elements of compensation for our named executive officers.”
|
|
|
(3)
|
All awards in this column
were made pursuant to our 2016 Plan.
|
|
|
(4)
|
This column consists of restricted stock units, which vest in
four equal
annual installments beginning on the first anniversary of the grant date. Applicable tax obligations may be paid in cash or
by tendering shares of our common stock in an exempt transaction under Section 16(b) of the Securities Exchange Act of
1934 (the "Exchange Act").
|
|
|
(5)
|
This column consists of options to purchase our common stock
granted in February 2017 and become exercisable in four equal annual installments beginning on the first anniversary of the
grant date and expire on the tenth anniversary on the date of issuance. The exercise price may be paid in cash or by
tendering shares of our common stock in an exempt transaction under Section 16(b) of the Exchange Act. The exercise price for
these nonqualified stock
options
represents the
closing
price of
our
common
stock on
the date
of
grant.
|
|
|
(6)
|
Represents the aggregate
grant date fair value of the award computed in accordance with FASB ASC Topic 718.
|
Outstanding equity awards
at 2017 fiscal year end
The
table below sets forth awards that were granted under the 2016 Plan and prior to the adoption thereof. Expiration dates are also
shown for each individual award.
|
|
Option Awards
|
Stock Awards
|
Equity Incentive
Plan Awards
|
|
|
Number of securities
underlying unexercised
options
|
Option
exercise
|
Option
expiration
|
Number of
shares of stock
that have not
|
Market
value of
shares of stock
that have not
vested
(1)
|
Unearned
shares that
have not
vested
(2)
|
Market
value of
unearned
shares that
have not
vested
(1)
|
|
|
exercisable
|
unexercisable
|
price
|
date
|
vested
|
($)
|
(#)
|
($)
|
|
Prady Iyyanki
|
35,427
|
11,809
(3)
|
$26.96
|
2/21/2024
|
10,654
(11)
|
165,670
|
70,156
|
1,090,926
|
|
|
30,350
|
30,350
(4)
|
$18.68
|
2/20/2025
|
3,710
(7)
|
57,691
|
|
|
|
|
25,975
|
77,925
(5)
|
$9.39
|
2/19/2026
|
10,705
(8)
|
166,463
|
|
|
|
|
—
|
55,866
(6)
|
$20.10
|
2/20/2027
|
31,950
(9)
|
466,823
|
|
|
|
|
|
|
|
|
22,177
(12)
|
344,852
|
|
|
|
|
|
|
|
|
24,876
(10)
|
386,822
|
|
|
|
|
|
|
|
|
72,073
(13)
|
1,120,735
|
|
|
|
C. Christopher Gaut
|
2,002,609
|
—
|
$7.68
|
8/1/2020
|
10,433
(7)
|
162,233
|
192,260
|
2,989,639
|
|
|
194,250
|
—
|
$20.00
|
4/12/2022
|
30,110
(8)
|
468,211
|
|
|
|
|
126,850
|
—
|
26.05
|
2/21/2023
|
89,858
(9)
|
1,397,292
|
|
|
|
|
99,638
|
33,213
(3)
|
$26.96
|
2/21/2024
|
49,751
(10)
|
773,628
|
|
|
|
|
85,355
|
85,355
(4)
|
$18.68
|
2/20/2025
|
|
|
|
|
|
|
73,052
|
219,158
(5)
|
$9.39
|
2/19/2026
|
|
|
|
|
|
|
—
|
111,732
(6)
|
$20.10
|
2/20/2027
|
|
|
|
|
|
Pablo G. Mercado
|
30,700
|
—
|
$15.35
|
12/2/2021
|
1,175
(7)
|
18,271
|
21,824
|
339,335
|
|
|
27,380
|
—
|
$20.00
|
4/12/2022
|
3,390
(8)
|
52,715
|
|
|
|
|
14,270
|
—
|
$26.05
|
2/21/2023
|
10,118
(9)
|
157,335
|
|
|
|
|
11,219
|
3,740
(3)
|
$26.96
|
2/21/2024
|
6,302
(10)
|
97,996
|
|
|
|
|
9,610
|
9,610
(4)
|
$18.68
|
2/20/2025
|
6,000
(14)
|
93,300
|
|
|
|
|
8,225
|
24,675
(5)
|
$9.39
|
2/19/2026
|
|
|
|
|
|
|
—
|
14,153
(6)
|
$20.10
|
2/20/2027
|
|
|
|
|
|
James W. Harris
|
172,000
|
—
|
$7.68
|
8/1/2020
|
2,782
(7)
|
43,260
|
52,100
|
810,155
|
|
|
21,053
|
—
|
$7.68
|
11/29/2020
|
8,030
(8)
|
124,867
|
|
|
|
|
9,509
|
—
|
$15.35
|
12/7/2021
|
23,963
(9)
|
372,625
|
|
|
|
|
58,460
|
—
|
$20.00
|
4/12/2022
|
16,584
(10)
|
257,881
|
|
|
|
|
31,710
|
—
|
$26.05
|
2/21/2023
|
|
|
|
|
|
|
26,570
|
8,857
(3)
|
$26.96
|
2/21/2024
|
|
|
|
|
|
|
22,760
|
22,760
(4)
|
$18.68
|
2/20/2025
|
|
|
|
|
|
|
19,480
|
58,440
(5)
|
$9.39
|
2/19/2026
|
|
|
|
|
|
|
—
|
37,244
(6)
|
$20.10
|
2/20/2027
|
|
|
|
|
|
James L. McCulloch
|
116,500
|
—
|
$7.68
|
10/25/2020
|
2,010
(7)
|
31,256
|
37,737
|
586,803
|
|
|
48,470
|
—
|
$20.00
|
4/12/2022
|
5,800
(8)
|
90,190
|
|
|
|
|
25,770
|
—
|
$26.05
|
2/21/2013
|
17,303
(9)
|
269,062
|
|
|
|
|
19,190
|
6,397
(3)
|
$26.96
|
2/21/2024
|
12,438
(10)
|
193,411
|
|
|
|
|
16,440
|
16,440
(4)
|
$18.68
|
2/20/2025
|
|
|
|
|
|
|
14,070
|
42,210
(5)
|
$9.39
|
2/19/2026
|
|
|
|
|
|
—
|
27,933
(6)
|
$20.10
|
20/20/2027
|
|
|
|
|
|
Michael D. Danford
|
74,000
|
—
|
$7.68
|
8/1/2020
|
1,175
(7)
|
18,271
|
22,238
|
345,801
|
|
|
27,380
|
—
|
$20.00
|
4/12/2022
|
3,390
(8)
|
52,715
|
|
|
|
|
14,270
|
—
|
$26.05
|
2/21/2023
|
10,118
(9)
|
157,335
|
|
|
|
|
11,219
|
3,740
(3)
|
$26.96
|
2/21/2024
|
7,960
(10)
|
123,778
|
|
|
|
|
9,610
|
9,610
(4)
|
$18.68
|
2/20/2025
|
|
|
|
|
|
|
8,225
|
24,675
(5)
|
$9.39
|
2/19/2026
|
|
|
|
|
|
|
—
|
17,877
(6)
|
$20.10
|
2/20/2027
|
|
|
|
|
|
|
(1)
|
Amounts in this column were
calculated by assuming a market value of our common stock of $15.55 per share, the closing price of our common stock on December
31, 2017.
|
|
|
(2)
|
The number of unearned performance
share awards and market value of unearned performance share awards disclosed in these columns assume that each unearned performance
share award grant is paid out at the threshold level of performance in our common stock using the closing share price on December
31, 2017, except where the performance during the completed fiscal years over which performance for each grant is measured has
exceeded the threshold, in which case the amounts are based on the next higher performance measure (target or maximum). Performance
unit award grants are based upon a three-year cycle with vesting at the end of the cycle. The performance awards may only be settled
in common stock.
|
|
|
(3)
|
Options vested on February
21, 2018.
|
|
|
(4)
|
Options vest annually in
equal installments over a two-year period on each of February 20, 2018 and 2019.
|
|
|
(5)
|
Options vest annually in
equal installments over a three-year period on each of February 19, 2018, 2019 and 2020.
|
|
|
(6)
|
Options vest annually in
equal installments over a four-year period on each of February 20, 2018, 2019, 2020 and 2021.
|
|
|
(7)
|
Restricted stock units vest on February 21, 2018.
|
|
|
(8)
|
Restricted stock units vest
annually in equal installments over a two-year period on each of February 20, 2018 and 2019.
|
|
|
(9)
|
Restricted stock vesting
annually in equal installments over a three-year period on each of February 19, 2018, 2019 and 2020.
|
|
|
(10)
|
Restricted stock units vest
annually in equal installments over a four-year period on each of February 20, 2018, 2019, 2020 and 2021.
|
|
|
(11)
|
Restricted stock units vested
on January 13, 2018.
|
|
|
(12)
|
Restricted stock vests over
a three-year period on each of May 17, 2018, 2019 and 2020.
|
|
|
(13)
|
Restricted stock units vest
over a four-year period on each of May 16, 2018, 2019, 2020 and 2021.
|
|
|
(14)
|
Restricted stock units vest
over a four-year period on each of June 1, 2018, 2019, 2020 and 2021.
|
Options exercised
and stock vested in the 2017 fiscal year
Values
shown in the table below were calculated by multiplying the number of shares of restricted stock or restricted stock units that
vested by the market value of our common stock on the date of vesting and stock options exercised by the difference between the
market value of our common stock on the date of exercise and the exercise price of such stock options.
|
|
|
Stock Awards
|
|
|
Option Awards
|
|
|
|
|
Number of shares
acquired on vesting
|
|
|
Value realized
on vesting
|
|
|
Number of shares acquired on vesting
|
|
|
Value realized
upon exercise
|
|
|
Prady Iyyanki
|
|
|
26,127
|
|
|
$
|
534,139
|
|
|
|
—
|
|
|
|
—
|
|
|
C. Christopher Gaut
|
|
|
65,677
|
|
|
$
|
1,336,644
|
|
|
|
—
|
|
|
|
—
|
|
|
Pablo G. Mercado
|
|
|
5,196
|
|
|
$
|
105,809
|
|
|
|
—
|
|
|
|
—
|
|
|
James W. Harris
|
|
|
10,866
|
|
|
$
|
221,084
|
|
|
|
20,000
|
|
|
|
323,857
|
|
|
James L. McCulloch
|
|
|
10,674
|
|
|
$
|
216,911
|
|
|
|
—
|
|
|
|
—
|
|
|
Michael D. Danford
|
|
|
4,794
|
|
|
$
|
97,635
|
|
|
|
—
|
|
|
|
—
|
|
CEO Pay Ratio
As
mandated by the Dodd-Frank Act, Item 402(u) of Regulation S-K requires us to disclose the ratio of the compensation of our Chief
Executive Officer to the total compensation of our median employee. We believe our executive compensation program must be consistent
and internally equitable to motivate our employees to perform in ways that enhance shareholder value.
We
had two individuals in the role of chief executive officer during 2017. We elected to use the compensation of Mr. Iyyanki, the
active Chief Executive Officer as of December 31, 2017, for purposes of determining the pay ratio. Mr. Iyyanki became Chief Executive
Officer in May 2017. In determining Mr. Iyyanki’s compensation, we adjusted the compensation reported on the Summary Compensation
Table to reflect his compensation as if he were Chief Executive Officer for the full calendar year, by increasing his base salary
and 2017 MIP bonus as if he were Chief Executive Officer effective January 1, 2017. The base salary and 2017 MIP bonus used was
annualized at the full year Chief Executive Officer aggregate rate of $932,978. For purposes of calculating the pay ratio, this
resulted in total annual compensation of $3,699,078 for Mr. Iyyanki as opposed to the amount shown on Summary Compensation Table
of $3,615,438.
We
identified our median employee by: (i) calculating the annual total compensation described below for each of our employees, (ii)
ranking the annual total compensation of all employees, except for the Chief Executive Officer, from lowest to highest, and (iii)
selecting the median employee from that ranked list. Mr. Iyyanki, our Chief Executive Officer, had 2017 annual total compensation
of $3,699,078. Our median employee, excluding Mr. Iyyanki, had 2017 annual total compensation of $51,691. As a result, the ratio
of Mr. Iyyanki’s 2017 annual total compensation to our median employee’s 2017 annual total compensation was approximately
72 to 1.
For
purposes of determining the median of the annual total compensation of all employees of the Company and its consolidated subsidiaries,
excluding our Chief Executive Officer, for the year ended December 31, 2017, the applicable SEC rules require us to identify the
median employee by using either annual total compensation for all such employees or another consistently applied compensation
measure. We chose December 31, 2017 as the date to identify our median employee. We included all employees of the Company and
its consolidated subsidiaries as of December 31, 2017, whether employed on a full-time, part-time or seasonal basis and whether
employed in the U.S. or a non-U.S. jurisdiction. We applied the exchange ratio published by Thomson Reuters on December 29, 2017
to convert compensation paid in foreign currencies to U.S. Dollars. We did not use statistical sampling or include any cost of
living adjustments for purposes of this determination.
After identifying
the median employee based on the process described above, we calculated annual total compensation for that employee in the same
manner as for the “Total Compensation” shown for our Chief Executive Officer in the “Summary Compensation Table.”
Pay elements that were included in the annual total compensation for each employee are:
|
|
•
|
Salary earned in fiscal
year 2017; and
|
|
|
•
|
Non-equity incentive awards
received in fiscal year 2017.
|
We believe that
the above pay ratio is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K. In addition,
because the SEC rules for identifying the median employee allow companies to adopt a variety of methodologies, to apply certain
exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices, the pay ratio reported
by other companies may not be comparable to the pay ratio reported above, as other companies may have different employment and
compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own
pay ratios.
Pension benefits
We
maintain a 401(k) Plan for our employees, including our named executive officers, but our named executive officers do not participate
in a defined benefit pension plan.
Non-qualified
deferred compensation
In
2013, we adopted a non-qualified deferred compensation plan that permits eligible participants, including our named executive
officers, to make contributions (and to receive matching contributions) in excess of the Internal Revenue Code limitations. In
February 2015 and in light of the suspension of the Company’s 401(k) matching program, the Compensation Committee determined
it was appropriate to suspend matching contributions on participant deferrals under the deferred compensation plan.
The
plan provides that a participant may defer up to 50% of his base compensation and all or any portion of his bonus. All deferred
amounts are credited with earnings through the date paid. The Compensation Committee recommends to the board of directors annually
the interest rate to be paid on all deferred compensation amounts for the year. The interest rate on deferred compensation for
2017 was 7.5% per annum.
Each
named executive officer is 100% vested in all prior matching contributions as a result of having satisfied the service requirements.
Benefits under the plan are paid upon termination of employment in a cash lump sum or in annual installments over a period not
longer than five years, as the participant elects. The Compensation Committee is responsible for administering this plan.
Upon
a “change of control” within the meaning of the 2016 Plan, all account balances will be fully vested.
The
following table provides detail with respect to each defined contribution that provides for the deferral of compensation on a
basis that is not tax-qualified:
|
Name
|
Aggregate
Balance at
Fiscal Year
Beginning
|
Executive
Contributions
in Last Fiscal
Year
(1)
($)
|
Registrant
Contributions
in Last Fiscal
Year ($)
|
Aggregate
Earnings in
Last Fiscal
Year
(2)
($)
|
Aggregate
Withdrawals /
Distributions
($)
|
Aggregate
Balance at
Last Fiscal
Year End
|
|
Prady Iyyanki
|
—
|
—
|
—
|
—
|
—
|
—
|
|
C. Christopher Gaut
|
1,726,832
|
271,249
|
—
|
145,604
|
—
|
2,143,685
|
|
James W. Harris
|
853,177
|
105,603
|
—
|
68,456
|
—
|
1,027,236
|
|
James L. McCulloch
|
—
|
—
|
—
|
—
|
—
|
—
|
|
Michael D. Danford
|
134,327
|
15,742
|
—
|
11,008
|
—
|
161,077
|
|
Pablo G. Mercado
|
68,328
|
—
|
—
|
1,274
|
54,032
|
15,571
|
|
|
(1)
|
The amounts disclosed in
this column are included in the “Salary” column for each NEO in the Summary Compensation Table.
|
|
|
(2)
|
The amounts
disclosed in this column represent earnings on invested funds in each NEO’s individual
deferred compensation account.
|
Employment agreements
and severance agreements
We
entered into an employment agreement with Mr. Harris effective August 2, 2010. We entered into an employment agreement with Messrs.
McCulloch and Iyyanki effective October 25, 2010 and January 13, 2014, respectively. In addition, on February 16, 2018, Messrs.
Mercado and Danford entered into severance agreements with us. Neither Mr. Mercado nor Mr. Danford is a party to an employment
agreement with us. Our employment agreements and severance agreements as a matter of policy do not provide for excise tax protections
in the event of a change in control.
On
February 16, 2018 we entered into an employment agreement with Mr. Gaut with effect from January 1, 2018, which superseded his
prior employment agreement dated August 2, 2010. In addition to his service as non-executive Chairman of the Board, Mr. Gaut is
employed as an advisor to the Chief Executive Officer.
The
employment agreements for Messrs. Iyyanki, Harris and McCulloch contain substantially similar provisions with the exception of
the determination of the amount of the severance benefit described below under “Quantification of payments.” Each
employment agreement automatically extends for one-year periods on the anniversary of the effective date unless either party gives
sixty days prior written notice of its intention to not renew the term of employment. The employment term can also be terminated
at any time upon prior written notice by us or the executive. Each employment agreement provides that the annual base salary for
the executive will not be reduced, subject to certain exceptions. Each executive will be eligible to participate in, and may be
awarded an annual bonus under, our annual cash incentive bonus program if certain performance targets are met for the performance
period, which is expected to be each calendar year.
Under
each of the employment and severance agreements, if the executive’s employment is terminated for good reason, by notice
of non-renewal by us, in the case of the employment agreements, or by our action for any reason other than the executive’s
death or disability or for cause, subject to the executive’s execution and nonrevocation of a release within the period
specified in the applicable agreement, the executive will be entitled to receive certain severance payments and benefits from
us. Please see the “Potential payments upon termination and change in control” section below for a more detailed description
of the terms and payments provided under each of the employment and severance agreements upon certain terminations of employment.
Potential payments
upon termination and change in control
The
employment agreements we maintain with our named executive officers will provide the executives with severance benefits upon certain
terminations of employment, and the individual award agreements that govern our stock option and restricted stock awards under
the applicable incentive plan contain accelerated vesting provisions that will apply upon a Change in Control (as defined below).
Messrs.
Iyyanki’s, Harris’s and McCulloch’s employment agreements contain similar termination provisions. Under the
employment agreements, if the executive’s employment is terminated prior to the expiration of the term by the executive
for good reason (as defined below), by notice of non-renewal by us or by our action for any reason other than his death or disability
(as defined below) or for cause (as defined below), subject to the executive’s execution and nonrevocation of a release
within the period specified in the employment agreement, the executive will be entitled to receive the following benefits: (1)
a lump sum payment of an amount equal to the applicable “severance multiple” times the sum of his annual base salary
at the time of the termination plus a specified percentage of his annual base salary, (2) a lump sum payment of an amount equal
to his unpaid bonus for the prior calendar year, if any, payable at the same time such bonus is paid to active executives, (3)
a lump sum payment of an amount equal to his bonus for the calendar year in which his termination occurs, if any, as determined
in good faith by our board of directors in accordance with the performance criteria established pursuant to the employment agreement,
prorated through and including the date of termination, payable at the same time as such bonus is paid to active executives and
(4) if he elects COBRA continuation coverage for himself and his eligible dependents, monthly reimbursement of the differential
between the COBRA premium and the active executive contribution amount for such coverage under our group health plans for up to
eighteen months.
The
employment agreements provide that the “severance multiple” in clause (1) above is two for each of our named executive
officers unless the executive’s termination of employment occurs on or within two years after the occurrence of a Change
in Control, in which case the “severance multiple” is three. The employment agreements for our named executive officers
provide that any payments or benefits to which the executive may be entitled (whether under the employment agreement or otherwise),
which would be subject to a parachute payment excise tax under Section 4999 of the Code will be reduced to an amount that would
no longer create a parachute payment or be paid in full, whichever produces the better net after-tax position for the executive.
If a named executive officer’s employment is terminated for any reason other than those described above, the employment
agreements state that the executive will continue to receive his compensation and benefits to be provided by us until the date
of termination, and the compensation and benefits will terminate contemporaneously with the termination of his employment. Under
the terms of the employment agreements, subject to certain exceptions, the executives may not compete in the market in which we
and our respective affiliates engage during his employment and for two years following the termination of his employment.
The
employment agreements define the term “Good Reason” as any of the following events: (1) a material decrease in annual
base salary (other than as part of a decrease of up to 10% for all of our executive officers); (2) in the case of Messrs. Harris,
Iyyanki and McCulloch a material diminution in the executive’s authority, duties or responsibilities (other than certain
changes in management structure primarily affecting reporting responsibility); or (3) an involuntary relocation of the geographic
location of the executive’s principal place of employment by more than 75 miles. “Disability” is generally defined
as an executive’s inability to perform the executive’s duties or fulfill his obligations under the employment agreement
by reason of any physical or mental impairment for a continuous period of not less than three months. The employment agreements
state that a termination for “Cause” will occur when an executive has (a) engaged in gross negligence or willful misconduct
in the performance of his duties with respect to us, (b) materially breached any material provision of his employment agreement
or any written corporate policy, (c) willfully engaged in conduct that is materially injurious to us or (d) been convicted of,
pleaded no contest to or received adjudicated probation or deferred adjudication in connection with a felony involving fraud,
dishonesty or moral turpitude.
Under
Messrs. Mercado’s and Danford’s severance agreements, if the individual incurs a qualifying termination event (as
defined in the severance agreement), he will be entitled to receive the following benefits: (1) a lump sum payment of an amount
equal to two (or three if the termination is within two years after a change in control) multiplied by the sum of (A) his annual
base salary at the time of the termination plus (B) his annual base salary multiplied by his highest target bonus opportunity
in the year of termination or the two preceding years, (2) a lump sum payment of an amount equal to his unpaid bonus for the prior
calendar year, if any, payable at the same time such bonus is paid to active executives, (3) a lump sum payment of an amount equal
to his bonus for the calendar year in which his termination occurs, if any, based on the applicable performance criteria, prorated
through and including the date of termination, payable at the same time as such bonus is paid to active executives and (4) if
he elects COBRA continuation coverage for himself and his eligible dependents, monthly reimbursement of the differential between
the COBRA premium and the active executive contribution amount for such coverage under the Company’s group health plans
for up to eighteen months.
Mr.
Gaut’s employment agreement does not provide severance benefits beyond those offered to our employees.
In
terms of the severance benefits payable to our named executive officers under the circumstances described above that are based
on the “severance multiple,” the following table sets out the formula for determining the amount of such benefits
for the named executive officers under the agreements, as described above.
|
Executive
|
|
Base salary as of
December 31, 2017
(“B”)
|
|
|
2017 annual bonus
target (“T”) as a
percent of base
|
|
|
Severance amount for
termination not within
2 years after a change
in control
|
|
Severance amount for
termination within 2
years after a change
in control
|
|
Prady Iyyanki
|
|
$
|
650,000
|
|
|
|
100
|
|
|
2 times (B+T)
|
|
3 times (B+T)
|
|
C. Christopher Gaut
|
|
|
N/A
|
|
|
|
N/A
|
|
|
N/A
|
|
N/A
|
|
Pablo G. Mercado
|
|
$
|
300,000
|
|
|
|
60
|
|
|
2 times (B+T)
|
|
3 times (B+T)
|
|
James W. Harris
|
|
$
|
399,877
|
|
|
|
80
|
|
|
2 times (B+T)
|
|
3 times (B+T)
|
|
James L. McCulloch
|
|
$
|
346,653
|
|
|
|
80
|
|
|
2 times (B+T)
|
|
3 times (B+T)
|
|
Michael D. Danford
|
|
$
|
300,000
|
|
|
|
60
|
|
|
2 times (B+T)
|
|
3 times (B+T)
|
“Change
in Control” is generally defined in the employment agreements to occur upon (1) the acquisition by an individual, entity
or group (within the meaning of the Exchange Act) of the beneficial ownership of fifty percent or more of either (a) our then
outstanding shares of common stock, or (b) the combined voting power of our then outstanding voting securities entitled to vote
in our election of directors; (2) the date the individuals who, immediately following the time when our stock became publicly
traded, constitute our board of directors (and certain approved individuals who become directors after such time) cease to constitute
a majority of the board of directors; or (3) the consummation of a corporate transaction (merger, reorganization, consolidation
or a sale of all or substantially all of our assets) unless, following that transaction, all or substantially all of the individuals
and entities that were the beneficial owners of our outstanding common stock and outstanding voting securities prior to the transaction
still beneficially own more than fifty percent of those shares of common stock or voting power of the resulting entity following
the transaction and at least a majority of the members of the board of directors of the ultimate parent entity resulting from
the transaction were members of our board of directors at the time of the execution of the agreement that led to the transaction.
The
restricted stock, restricted stock unit and stock option award agreements under our 2010 Plan have accelerated vesting provisions
in the event of a Change in Control (the 2010 Plan and award agreements contain substantially the same definition of a Change
in Control as provided within the named executive officer’s employment agreement). If a Change in Control occurs during
the period of time that the award is still outstanding, any unvested portion of the award will immediately vest so long as the
executive has been continuously employed with us from the date of grant until the Change in Control event. With respect to the
performance share awards, in the event of a Change in Control (as defined in the 2010 Plan) all performance share awards will
vest and be earned at the target level for each applicable performance period. Our 2016 Plan also includes accelerated vesting
provisions in the event of a Change in Control followed by a termination of employment under certain circumstances. All incentive
awards issued after February 2016 include these double trigger change in control vesting provisions. With respect to the performance
share awards, in the event of a Change in Control (as defined in the 2016 Plan) all performance share awards will vest and be
earned at the target level for each applicable performance period.
Quantification
of payments
The
table below discloses the amount of compensation and/or benefits due to our named executive officers in the event of their termination
of employment and/or in the event we undergo a Change in Control. The amounts disclosed assume such termination and/or the occurrence
of such Change in Control was effective December 31, 2017, and uses the closing price of our common stock on that date of $15.55.
The column titled “Termination without cause, for good reason or due to non-extension by company not within a two-year period
following a change in control” utilizes the one times (B+T) formula above, except for Messrs. Danford and Mercado who would
have received one times base salary, while the column titled “Termination without cause, for good reason or due to non-extension
by company within a two-year period following a change in control” utilizes the three times (B+T) formula, except for Messrs.
Danford and Mercado who would have received two times base salary. COBRA premiums reflected below are based upon the monthly premiums
in effect for each of the named executive officers with respect to medical, dental and vision expenses effective as of January
1, 2018 for a period of eighteen months. The amounts below constitute estimates of the amounts that would be paid out to our named
executive officers upon their respective terminations and/or upon a Change in Control under such arrangements, but final amounts
can only be determined with certainty upon the actual event. The actual amounts to be paid out are dependent on various factors,
which may or may not exist at the time a named executive officer is actually terminated and/or a Change in Control actually occurs.
Therefore, such amounts and disclosures should be considered “forward-looking statements.”
|
Named Executive
Officer
|
Termination due to
death or disability ($)
|
Termination
without cause, for good reason or due to non-extension by company not within a two-year period following a change in control
($)
|
Termination
without
cause, for good reason or due to non-extension by company
within a two-year period following a change in control ($)
|
Change
in control without termination ($)
|
|
Prady Iyyanki
|
|
|
|
|
|
Salary
|
N/A
|
1,300,000
|
1,950,000
|
—
|
|
Bonus Amounts
|
N/A
|
1,300,000
|
1,950,000
|
—
|
|
COBRA Premiums
|
N/A
|
22,447
|
22,447
|
—
|
|
Accelerated Equity
Vesting
(1)
|
1,707,352
|
N/A
|
4,158,490
|
4,158,490
|
|
Total
|
1,707,352
|
2,622,447
|
8,080,937
(3)
|
4,158,490
|
|
C. Christopher
Gaut
(2)
|
|
|
|
|
|
Salary
|
N/A
|
1,350,000
|
2,025,000
|
—
|
|
Bonus Amounts
|
N/A
|
1,687,500
|
2,531,250
|
—
|
|
COBRA Premiums
|
N/A
|
15,207
|
15,207
|
—
|
|
Accelerated Equity
Vesting
(1)
|
2,697,001
|
N/A
|
6,479,176
|
6,479,176
|
|
Total
|
2,697,001
|
3,052,707
|
11,050,633
(3)
|
6,479,176
|
|
Pablo G. Mercado
(4)
|
|
|
|
|
|
Salary
|
N/A
|
300,000
|
600,000
|
—
|
|
Bonus Amounts
|
N/A
|
180,000
|
360,000
|
—
|
|
COBRA Premiums
|
N/A
|
—
|
—
|
—
|
|
Accelerated Equity
Vesting
(1)
|
336,772
|
N/A
|
834,234
|
834,234
|
|
Total
|
336,772
|
480,000
|
1,794,234
(3)
|
834,234
|
|
James W. Harris
|
|
|
|
|
|
Salary
|
N/A
|
799,754
|
1,199,631
|
—
|
|
Bonus Amounts
|
N/A
|
639,803
|
959,705
|
—
|
|
COBRA Premiums
|
N/A
|
22,447
|
22,447
|
—
|
|
Accelerated Equity
Vesting
(1)
|
741,600
|
N/A
|
1,830,963
|
1,830,963
|
|
Total
|
741,600
|
1,462,004
|
4,012,746
(3)
|
1,830,963
|
|
James L. McCulloch
|
|
|
|
|
|
Salary
|
N/A
|
693,306
|
1,039,959
|
—
|
|
Bonus Amounts
|
N/A
|
554,645
|
831,657
|
—
|
|
COBRA Premiums
|
N/A
|
14,979
|
14,979
|
—
|
|
Accelerated Equity
Vesting
(1)
|
538,686
|
N/A
|
1,336,628
|
1,336,628
|
|
Total
|
538,686
|
1,262,930
|
3,223,223
(3)
|
1,336,628
|
|
Michael D.
Danford
(4)
|
|
|
|
|
|
Salary
|
N/A
|
300,000
|
600,000
|
—
|
|
Bonus Amounts
|
N/A
|
180,000
|
360,000
|
—
|
|
COBRA Premiums
|
N/A
|
—
|
—
|
—
|
|
Accelerated Equity
Vesting
(1)
|
319,574
|
N/A
|
799,754
|
799,754
|
|
Total
|
319,574
|
480,000
|
1,759,754
(3)
|
799,754
|
|
Total
|
6,340,985
|
9,360,088
|
29,921,527
|
15,439,245
|
|
|
(1)
|
Calculated based on (i)
the difference between the closing price of our common stock on December 29, 2017 ($15.55) and the exercise price of unvested
stock options as of such date, in the case of stock options, and (ii) the closing price of our common stock on December 29, 2017
($15.55), in the case of restricted stock, restricted stock units or performance shares.
|
|
|
(2)
|
On February 16, 2018 we
entered into an employment agreement with Mr. Gaut, with effect from January 1, 2018, which does not provide severance benefits
beyond those offered to our employees.
|
|
|
(3)
|
Each of our NEO’s
compensation may be reduced such that no portion of such amounts and benefits received are subject to an excise tax under Section
4999 of the Code.
|
|
|
(4)
|
On February 16, 2018, we
entered into a severance agreement with each of Messrs. Mercado and Danford, which provides that if the individual incurs a qualifying
termination event (as defined in the severance agreement), he will be entitled to receive a lump sum payment of an amount equal
to two (or three if the termination is within two years after a change in control) multiplied by the sum of (A) his annual base
salary at the time of the termination plus (B) his annual base salary multiplied by his highest target bonus opportunity in the
year of termination or the two preceding years,
|
EQUITY COMPENSATION
PLAN INFORMATION
The
following table sets forth information about our common stock that may be issued under our existing equity compensation plan as
of December 31, 2017.
|
Plan Category
|
|
Number of
Securities to be
Issued upon Exercise
of Outstanding Options,
Warrants and Rights
|
|
|
Weighted Average
Exercise Price of
Outstanding Options,
Warrants and Rights
|
|
|
Number of
Securities
Remaining
Available for
Future Issuance
|
|
|
Equity compensation plans approved by security holders
(1)
|
|
|
4,606,711
|
|
|
$
|
12.1
|
|
|
|
3,983,492
|
(2)
|
|
Equity compensation plans not approved by security holders
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
Total
|
|
|
4,606,711
|
|
|
$
|
12.10
|
|
|
|
3,983,492
|
|
|
|
(1)
|
Consists of the 2016 Plan
and the Employee Stock Purchase Plan.
|
|
|
(2)
|
Shares remaining available
for issuance under the 2016 Plan with respect to awards (other than outstanding awards) could be issued in the form of stock options,
stock appreciation rights, stock awards and stock units. From January 1, 2018 through March 19, 2018, we have issued an additional
1,527,538 awards under the 2016 Plan in the form of restricted stock units, restricted stock, stock options and performance
shares assuming achievement of targets set by the board of directors. In 2017, we issued 144,598 shares of common stock under
our Employee Stock Purchase Plan.
|
PROPOSAL 3: RATIFICATION
OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers
LLP has been appointed by the Audit Committee as the independent registered public accountant firm for us and our subsidiaries
for the year ending December 31, 2018. This appointment is being presented to the stockholders for ratification. Representatives
of PricewaterhouseCoopers LLP are expected to be present at the annual meeting and will be provided an opportunity to make statements
if they desire to do so and to respond to appropriate questions from stockholders.
Vote Required
and Board Recommendation
If
a quorum is present at the annual meeting, the ratification of the appointment of PricewaterhouseCoopers LLP requires the affirmative
vote of at least a majority of the votes cast on the matter.
Your board of directors recommends a vote “FOR” such
ratification.
If
the stockholders fail to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting
firm, it is not anticipated that PricewaterhouseCoopers LLP will be replaced in 2018. Such lack of approval will, however, be
considered by the Audit Committee in selecting our independent registered public accounting firm for 2019.
Fees Paid to
Independent Registered Public Accounting Firm
The
following table presents fees for professional audit services rendered by PricewaterhouseCoopers LLP for the audit of our annual
financial statements for the years ended December 31, 2017 and 2016, respectively, and fees billed for other services rendered
by PricewaterhouseCoopers LLP during those periods.
|
|
|
2017
|
|
|
2016
|
|
|
|
|
(In thousands)
|
|
|
Audit Fees
(1)
|
|
$
|
3,745
|
|
|
$
|
2,972
|
|
|
Audit-Related Fees
(2)
|
|
|
—
|
|
|
|
—
|
|
|
Tax Fees
(3)
|
|
|
51
|
|
|
|
33
|
|
|
All Other Fees
(4)
|
|
|
3
|
|
|
|
2
|
|
|
Total
|
|
$
|
3,799
|
|
|
$
|
3,007
|
|
|
(1)
|
Audit Fees consisted of fees for audit services, which related to the consolidated audit, quarterly reviews, registration statements, comfort letters, statutory and subsidiary audits and services normally provided by the independent registered public accountant in connection with statutory and regulatory filings.
|
|
(2)
|
Audit-Related Fees consisted of fees for audit-related services, which primarily related to the acquisition of certain of our subsidiaries and our equity investment in a joint venture.
|
|
(3)
|
Tax Fees consisted of fees for tax services.
|
|
(4)
|
All Other Fees consisted of accounting research tool subscription fees.
|
The
Audit Committee preapproves all audit, review or attest engagements and permissible non-audit services to be performed by our
independent registered public accounting firm, subject to, and in compliance with, the de minimis exception for non-audit services
described in applicable provisions of the Exchange Act and applicable SEC rules. All services provided by our independent public
accounting firm in 2017 and 2016 were preapproved by the Audit Committee.
AUDIT COMMITTEE
REPORT
The
Audit Committee currently consists of Evelyn M. Angelle (Chairperson), John A. Carrig and John Schmitz. The Audit Committee’s
purpose is to assist the board of directors in overseeing (1) the integrity of our financial statements, (2) the qualifications, independence and performance of our independent auditors and (3) the
effectiveness and performance of our internal audit function. The Audit Committee is directly responsible for the appointment,
compensation, retention and oversight of the work of any registered public accounting firm engaged for the purpose of preparing
or issuing an audit report or performing other audit, review or attest services for us. The board of directors has determined
that the members of the Audit Committee are independent under applicable provisions of the Exchange Act and NYSE listing standards.
Our
management is responsible for preparing our financial statements, and the independent auditors are responsible for auditing those
financial statements and the effectiveness of the Company’s internal controls over financial reporting, and issuing a report
thereon. Accordingly, the Audit Committee’s responsibility is one of oversight. In this context, the Audit Committee discussed
with PricewaterhouseCoopers LLP, our independent registered public accounting firm, the matters required to be discussed by Auditing
Standard No. 16 issued by the Public Company Accounting Oversight Board. These communications and discussions are intended to
assist the Audit Committee in overseeing the financial reporting and disclosure process. The Audit Committee also discussed with
PricewaterhouseCoopers LLP its independence from us and received from PricewaterhouseCoopers LLP the written disclosures and the
letter from PricewaterhouseCoopers LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding
PricewaterhouseCoopers LLP’s communications with the Audit Committee concerning independence. This discussion and disclosure
informed the Audit Committee of the independence of PricewaterhouseCoopers LLP and assisted the Audit Committee in evaluating
such independence. The Audit Committee also considered whether the provision of services by PricewaterhouseCoopers LLP not related
to the audit of our financial statements and to the review of our interim financial statements is compatible with maintaining
the independence of PricewaterhouseCoopers LLP. Finally, the Audit Committee reviewed and discussed our audited financial statements
with our management, our internal auditors and PricewaterhouseCoopers LLP. Our management informed the Audit Committee that our
audited financial statements had been prepared in accordance with accounting principles generally accepted in the United States.
Based
on the review and discussions referred to above, and such other matters deemed relevant and appropriate by the Audit Committee,
the Audit Committee recommended to the board of directors, and the board of directors has approved, that the audited financial
statements be included in our Annual Report on Form 10-K for the year ended December 31, 2017.
|
|
Respectfully submitted,
|
|
|
Evelyn M. Angelle,
Chairperson
|
|
|
John A. Carrig
|
|
|
John Schmitz
|
ADDITIONAL
INFORMATION
Stockholder
Proposals for the 2019 Annual Meeting
To
be included in the proxy materials for the 2019 Annual Meeting of stockholders, stockholder proposals that are submitted for presentation
at that annual meeting and are otherwise eligible for inclusion in the proxy statement must be received by us no later than December
3, 2018. Proxies granted in connection with that annual meeting may confer discretionary authority to vote on any stockholder
proposal if notice of the proposal is not received by us in accordance with the advance notice requirements of our bylaws discussed
below. It is suggested that proponents submit their proposals by certified mail, return receipt requested. No stockholder proposals
have been received for inclusion in this proxy statement.
Our
bylaws provide the manner in which stockholders may give notice of business and director nominations to be brought before an annual
meeting. In order for an item to be properly brought before the meeting by a stockholder, the stockholder must be a holder of
record at the time of the giving of notice and must be entitled to vote at the annual meeting. The item to be brought before the
meeting must be a proper subject for stockholder action, and the stockholder must have given timely advance written notice of
the item. For notice to be timely, it must be delivered to, or mailed and received at, our principal office at least 90 days but
not more than 120 days prior to the first anniversary of the prior year’s annual meeting date. Accordingly, for the 2019
Annual Meeting of stockholders, notice will have to be delivered or received by us no earlier than January 15, 2019 or later than
February 14, 2019. If, however, the scheduled annual meeting date differs from such anniversary date by more than 30 days, then
notice of an item to be brought before the annual meeting may be timely if it is delivered or received not earlier than the close
of business on the 120th day and not later than the close of business on the later of the 90th day prior to the date of the annual
meeting or, if less than 100 days’ prior notice or public disclosure of the scheduled meeting date is given or made, the
10th day following the earlier of the day on which the notice of such meeting was mailed to stockholders or the day on which such
public disclosure was made. The notice must set forth the information required by the provisions of our bylaws dealing with stockholder
proposals and nominations of directors. All notices should be directed to John C. Ivascu, Secretary, Forum Energy Technologies,
Inc., 920 Memorial City Way, Suite 1000, Houston, Texas 77024.
Discretionary
Voting of Proxies on Other Matters
Management
does not intend to bring before the annual meeting any matters other than those disclosed in the notice of annual meeting of stockholders
attached to this proxy statement, and it does not know of any business that persons other than management intend to present at
the meeting. If any other matters are properly presented at the annual meeting for action, the persons named in the enclosed form
of proxy and acting thereunder generally will have discretion to vote on those matters in accordance with their best judgment.
Annual Report
on Form 10-K
Copies
of our annual report on Form 10-K for the year ended December 31, 2017, as filed with the SEC, are available without charge to
stockholders upon request to Mark S. Traylor, Vice President, Investor Relations and Finance, at the principal executive offices
of Forum Energy Technologies, Inc., located at 920 Memorial City Way, Suite 1000, Houston, Texas 77024.
Householding
The
SEC permits a single copy of the Notice to be sent to any household at which two or more stockholders reside if they appear to
be members of the same family. This procedure, referred to as householding, reduces the volume of duplicate information stockholders
receive and reduces mailing and printing expenses. A number of brokerage firms have instituted householding.
As
a result, if you hold your shares through a broker and you reside at an address at which two or more stockholders reside, you
will likely be receiving only one copy of the Notice unless any stockholder at that address has given the broker contrary instructions.
If any such beneficial stockholder residing at such an address, however, wishes to receive a separate copy of the Notice in the
future, or if any such beneficial stockholder that elected to continue to receive separate copies of the Notice wishes to receive
a single copy of the Notice in the future, that stockholder should contact their broker or send a request to the corporate secretary
at our principal executive offices, Forum Energy Technologies, Inc., 920 Memorial City Way, Suite 1000, Houston, Texas 77024,
telephone number (281) 949-2500. We will promptly deliver, upon written or oral request to the corporate secretary, a separate
copy of the Notice to a beneficial stockholder at a shared address to which a single copy of the Notice was delivered.
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