FLOTEK INDUSTRIES INC/CN/
10-Ks and 10-Qs
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
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of the Securities Exchange Act of 1934
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to Section 240.14a-12
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FLOTEK INDUSTRIES, INC.
(Name of Registrant as Specified in Its Charter)
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FLOTEK INDUSTRIES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FRIDAY,
MAY 24, 2019
10:00 a.m. Local Time
Flotek Industries, Inc.
Corporate Office
10603 W. Sam Houston Parkway N., Suite 300
Houston, Texas 77064
To the Stockholders of Flotek Industries, Inc.:
At the direction of the Board of Directors of Flotek Industries, Inc. (“Flotek” or the “Company”), a Delaware corporation, NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of the Company will be held at the Flotek Corporate Office, 10603 W. Sam Houston Parkway N., Suite 300, Houston, Texas 77064, on Friday,
May 24, 2019
, at 10:00 a.m. (local time), for the purpose of considering and voting upon the following matters:
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1.
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The election of
seven
directors to serve until the next annual meeting of stockholders of the Company or until their successors are duly elected and qualified, or until their earlier resignation or removal.
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2.
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The approval of the Flotek Industries, Inc. 2019 Non-Employee Director Incentive Plan.
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3.
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The approval of an amendment to the Flotek Industries, Inc. 2012 Employee Stock Purchase Plan.
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4.
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The approval of an amendment to the Flotek Industries, Inc. 2018 Long-Term Incentive Plan.
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5.
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The approval of a non-binding advisory vote on executive compensation.
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6.
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The approval of a non-binding advisory vote on the frequency of future advisory votes on executive compensation.
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7.
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The ratification of the selection of the independent registered public accounting firm for the year ending
December 31, 2019
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8.
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Any other business which may be properly brought before the meeting or any adjournment thereof.
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Stockholders of record at the close of business on
March 29, 2019
are entitled to vote at the meeting.
By order of the Board of Directors
Casey Doherty
Corporate Secretary
April 24, 2019
YOUR VOTE IS IMPORTANT
TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE SIGN, DATE AND RETURN YOUR PROXY AS PROMPTLY AS POSSIBLE. AN ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, IS ENCLOSED FOR THIS PURPOSE.
TABLE OF CONTENTS
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EXHIBIT C - AMENDMENT TO THE FLOTEK INDUSTRIES, INC 2018 LONG-TERM INCENTIVE PLAN
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ii
FLOTEK INDUSTRIES, INC.
10603 W. Sam Houston Parkway N., Suite 300
Houston, Texas 77064
PROXY STATEMENT
This Proxy Statement and the accompanying form of proxy are being sent to the stockholders of Flotek Industries, Inc. (“Flotek” or the “Company”), a Delaware corporation, in connection with the solicitation by the Board of Directors of the Company (the “Board”) of proxies to be voted at the Annual Meeting of Stockholders of the Company (the “Meeting”) to be held at 10:00 a.m. (local time) on Friday,
May 24, 2019
, at the Company’s Corporate Office at 10603 W. Sam Houston Parkway N., Suite 300, Houston, Texas 77064 and at any adjournment thereof.
The Notice of Meeting, this Proxy Statement, and the accompanying form of proxy are first being mailed to the stockholders on or about
April 24, 2019
. The
2018
Annual Report of the Company has been furnished to the stockholders with this Proxy Statement.
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be held on
May 24, 2019
. The proxy statement and annual report to security holders are available at
www.flotekind.com/proxymaterials
.
You may obtain directions to attend the Meeting and vote in person by contacting our investor relations department at (713) 849-9911.
At the Meeting, stockholders will be asked (i) to consider and vote upon the election of
seven
nominees to serve on the Board; (ii) to consider and vote upon the Flotek Industries, Inc. 2019 Non-Employee Director Incentive Plan; (iii) to consider and vote upon an amendment to the Flotek Industries, Inc. 2012 Employee Stock Purchase Plan; (iv) to consider and vote upon an amendment to the Flotek Industries, Inc. 2018 Long-Term Incentive Plan; (v) to consider and provide an advisory vote upon our executive compensation; (vi) to consider and provide an advisory vote on the frequency of future advisory votes on our executive compensation; (vii) to consider and vote upon the ratification of the selection of the independent registered public accounting firm; and (viii) to consider and take action upon such other matters as may properly come before the Meeting.
VOTING SECURITIES
The Board has fixed the close of business on
March 29, 2019
, as the record date for the determination of stockholders entitled to notice of, and to vote at, the Meeting. At the close of business on such date, there were outstanding and entitled to vote
58,353,739
shares of common stock, $0.0001 par value per share (“Common Stock”) of the Company, which is the Company’s only authorized and outstanding class of stock entitled to vote at the Meeting.
Holders of a majority of the outstanding shares of Common Stock are required to be represented at the Meeting, in person or by proxy, to constitute a quorum. Abstentions and broker non-votes represented by submitted proxies will be included in the calculation of the number of the shares present at the Meeting for the purposes of determining a quorum. “Broker non-votes” means shares held of record by a broker that are not voted on a matter because the broker has not received voting instructions from the beneficial owner of the shares and either lacks or declines to exercise the authority to vote the shares in its discretion.
Each outstanding share of Common Stock as of the record date is entitled to one vote. There will be no cumulative voting of shares for any matter voted upon at the Meeting.
Proposal 1: Election of Directors
Directors are elected by a majority of the votes cast at the Meeting. A director will be elected if the number of shares voted “FOR” the director’s election exceeds the number of shares voted “AGAINST” that director’s election, excluding abstentions. If an incumbent director who is nominated for re-election does not receive sufficient “FOR” votes to be elected, the director is required to promptly tender his or her resignation to the Board following certification of the vote. The Corporate Governance and Nominating Committee shall then make a recommendation to the Board on whether to accept or reject the resignation. The Board will act on the tendered resignation, taking into account the recommendation of the Corporate Governance and Nominating Committee, and publicly disclose its decision on whether to accept or reject the resignation. Under New York Stock Exchange (“NYSE”) rules, your brokerage firm or other nominee may not vote your shares with respect to Proposal 1 without specific instructions from you as to how
1
to vote with respect to the election of each of the
seven
nominees for director, because the election of directors is considered a “non-routine” matter under the NYSE rules. Abstentions and broker non-votes represented by submitted proxies will not be taken into account in determining the outcome of the election of directors.
Proposal 2
: Approval of the Flotek Industries, Inc. 2019 Non-Employee Director Incentive Plan
To be approved, this proposal regarding the Company’s 2019 Non-Employee Director Incentive Plan must receive an affirmative vote of a majority of the total votes cast with respect to this proposal at the Meeting. This means that the votes that our stockholders cast “FOR” this proposal must exceed the votes that our stockholders cast “AGAINST” this proposal at the Meeting.
Proposal 2
is considered a “non-routine” matter under the NYSE rules and, therefore, brokerage firms and nominees that are members of the NYSE do not have the authority under those rules to vote their customers’ unvoted shares on
Proposal 2
if their customers have not furnished voting instructions within a specified period of time prior to the Meeting. Accordingly, broker non-votes represented by submitted proxies will not be taken into account in determining the outcome of this proposal; abstentions will be counted as a vote against this proposal.
Proposal
3
: Approval of an Amendment to the Flotek Industries, Inc. 2012 Employee Stock Purchase Plan
To be approved, this proposal regarding an amendment to the Company’s 2012 Employee Stock Purchase Plan must receive an affirmative vote of a majority of the total votes cast with respect to this proposal at the Meeting. This means that the votes that our stockholders cast “FOR” this proposal must exceed the votes that our stockholders cast “AGAINST” this proposal at the Meeting. Proposal
3
is considered a “non-routine” matter under the NYSE rules and, therefore, brokerage firms and nominees that are members of the NYSE do not have the authority under those rules to vote their customers’ unvoted shares on Proposal
3
if their customers have not furnished voting instructions within a specified period of time prior to the Meeting. Accordingly, broker non-votes represented by submitted proxies will not be taken into account in determining the outcome of this proposal; abstentions will be counted as a vote against this proposal.
Proposal
4
: Approval of an Amendment to the Flotek Industries, Inc. 2018 Long-Term Incentive Plan
To be approved, this proposal regarding an amendment to the Company’s 2018 Long-Term Incentive Plan must receive an affirmative vote of a majority of the total votes cast with respect to this proposal at the Meeting. This means that the votes that our stockholders cast “FOR” this proposal must exceed the votes that our stockholders cast “AGAINST” this proposal at the Meeting. Proposal
4
is considered a “non-routine” matter under the NYSE rules and, therefore, brokerage firms and nominees that are members of the NYSE do not have the authority under those rules to vote their
customers’ unvoted shares on Proposal
4
if their customers have not furnished voting instructions within a specified period of time prior to the Meeting. Accordingly, broker non-votes represented by submitted proxies will not be taken into account in determining the outcome of this proposal; abstentions will be counted as a vote against this proposal.
Proposal
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: Advisory Vote to Approve Executive Compensation
The affirmative vote of a majority of the shares present in person or by proxy and entitled to vote on the matter is required for the advisory approval of the Company’s executive compensation. In determining whether the proposal has received the requisite number of affirmative votes, abstentions will not be counted and will have the same effect as a vote against the proposal. Broker non-votes will have no effect for the purpose of determining whether the proposal has been approved. This proposal is advisory in nature, which means that it is not binding on the Board or the Compensation Committee. However, the Board and the Compensation Committee will review the voting results and take them into consideration when making future decisions regarding executive compensation.
Proposal
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: Advisory Vote on the Frequency of the Advisory Vote on Executive Compensation
You may vote either “every year,” “every two years,” or “every three years” for the frequency of the advisory vote on executive compensation, or you may “abstain” from voting. Because stockholders are given the option to vote on a number of choices, no voting standard is applicable to this advisory vote and it is possible that no single choice will receive a majority vote. Moreover, because this vote is non-binding, the Board may determine the frequency of future advisory votes on executive compensation in its discretion. The Board has taken into account the expense, time, and results which other companies have received relating to frequency votes and determined no meaningful savings would be obtained by having a vote occur less often than every year. Therefore, the Board recommends that you vote “every year” for the frequency of the advisory vote on executive compensation. Abstentions on this proposal have the same effect as not expressing a preference. Broker non-votes will have no effect for the purpose of determining whether the proposal has been approved.
Proposal
7
: Ratification of Selection of Independent Registered Public Accounting Firm
To be approved, the proposal regarding ratification of the selection of our independent registered public accounting firm must receive an affirmative vote of a majority of the total votes cast with respect to this proposal at the Meeting. This means that the votes that our stockholders cast “FOR” this proposal must exceed the votes that our stockholders cast “AGAINST” this proposal at the Meeting. However, your vote will not be binding on the Board or the Company. Proposal
7
is considered a “routine” matter under the NYSE
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rules and, therefore, brokerage firms and nominees that are members of the NYSE have the authority under those rules to vote their customers’ unvoted shares on Proposal
7
if their customers have not furnished voting instructions within a specified period of time prior to the Meeting. Accordingly, broker non-votes represented by submitted proxies will be taken into account in determining the outcome of this proposal; abstentions will be counted as a vote against this proposal.
If the enclosed form of proxy is properly executed and returned to the Company prior to or at the Meeting and is not revoked prior to its exercise, all shares of Common Stock represented thereby will be voted at the Meeting and, where instructions have been given by a stockholder, will be voted in accordance with such instructions.
Any stockholder executing a proxy which is solicited hereby has the power to revoke it prior to its exercise. Revocation
may be made by attending the Meeting and voting the shares of Common Stock in person or by delivering to the Secretary of the Company at the principal executive offices of the Company located at 10603 W. Sam Houston Parkway N., Suite 300, Houston, Texas 77064, prior to exercise of the proxy, a written notice of revocation or a later-dated, properly executed proxy.
The solicitation of proxies will be by mail, but proxies also may be solicited by telephone or in person by directors, officers, and other employees of the Company. The Company will bear all costs of soliciting proxies. In order to solicit proxies, the Company will also request financial institutions, brokerage houses, custodians, nominees, and fiduciaries to forward proxy materials to the beneficial owners of shares of Common Stock as of the record date and will reimburse such persons for their reasonable expenses of forwarding the proxy materials in accordance with customary practice.
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PROPOSAL 1: ELECTION OF DIRECTORS
Board of Directors
The members of the Board serve one-year terms. Directors are elected by a majority of the votes cast. A director will be elected if the number of shares voted “FOR” the director’s election exceeds the number of shares voted “AGAINST” that director’s election, excluding abstentions. If an incumbent director who is nominated for re-election does not receive sufficient “FOR” votes to be elected, the director is required to promptly tender his or her resignation to the Board following certification of the vote. The Corporate Governance and Nominating Committee shall then make a recommendation to the Board on whether to accept or reject the resignation. The Board will act on the tendered resignation, taking into account the recommendation of the Corporate Governance and Nominating Committee, and publicly disclose its decision on whether to accept or reject the resignation. Abstentions and broker non-votes will be disregarded and have no effect on the outcome of the election of directors.
Recommendation; Proxies
The Board recommends a vote “FOR” each of the nominees named below. The persons named in the enclosed proxy card will vote all shares over which they have discretionary authority “FOR” the election of the nominees named below. Although our Board does not anticipate that any of the nominees will be unable to serve, if such a situation should arise prior to the Meeting, the appointed persons will use their discretionary authority pursuant to the proxy and vote in accordance with their best judgment.
Number of Directors
The Board has nominated
seven
directors for election to the Board at the Meeting.
The Board believes that it is necessary for each of the Company’s directors to possess many qualities and skills that enable him or her to understand the complexities of the Company’s business and effectively guide the management and direction of the Company. When searching for new candidates, the Corporate Governance and Nominating Committee considers the evolving needs of the Board and searches for candidates that fill current or anticipated future vacancies.
The Board also believes that all directors must possess a considerable amount of business management and educational experience. The Corporate Governance and Nominating Committee first considers a candidate’s management experience and then considers issues of judgment, background, stature, conflicts of interest, integrity, ethics, and commitment to the goal of maximizing stockholder value when considering director candidates. The Corporate Governance and Nominating Committee also focuses on issues of diversity, such as diversity of gender,
race, and national origin, education, professional experience, and differences in viewpoints and skills. The Corporate Governance and Nominating Committee does not have a formal policy with respect to diversity; however, the Board and the Corporate Governance and Nominating Committee believe that it is essential that the Board members represent diverse viewpoints. In considering candidates for the Board, the Corporate Governance and Nominating Committee considers the entirety of each candidate’s credentials in the context of these standards. With respect to the nomination of continuing directors for re-election, the individual’s contributions to the Board are also considered.
All of our directors bring to our Board a wealth of executive leadership experience derived from their service as corporate executives. They also bring extensive board of director experience. Certain individual qualifications and skills of our directors that contribute to the Board’s effectiveness as a whole are described in the following paragraphs.
Nominees
The following sets forth information regarding each nominee. Each nominee has consented to be named in this proxy statement and to serve as a director, if elected.
Name: Michelle M. Adams
Age:
48
Director Since:
2017
Principal Occupation:
Ms. Adams joined the Board as a Director in January 2017 and became a member of the Corporate Governance and Nominating Committee in January 2017, a member of the Compensation Committee in October 2017, and became Chairman of this Committee in April 2018. Ms. Adams has served as Vice President of Sales America, for Dropbox since March 1, 2017. Previously, she was World Wide Vice President, Watson Platform for IBM. Ms. Adams was Vice President, Customer Engagement at IBM Watson. She assumed this role in 2013 and was responsible for all Go to Market Operations for North and South America. She previously ran software teams across IBM for over 10 years. Prior to joining IBM in 2005, Ms. Adams had various sales leadership roles at Tivoli Systems, StorageNetworks, and Digex, Inc. Ms. Adams received her Bachelors degree from Villanova University and resides in Austin, Texas with her husband and children. Ms. Adams’ experience as a technology executive brings significant technology knowledge and innovative thought leadership to the Board.
Name: Ted D. Brown
Age:
63
Director Since:
2013
Principal Occupation:
Mr. Brown joined the Board as a Director in November 2013, became a member of the Corporate Governance and Nominating Committee in
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January 2014, became Chairman of this Committee in April 2018, became a member of the Compensation Committee in May 2014, and became a member of the Audit Committee in May 2018. Currently, Mr. Brown is President and CEO of Confluence Resources LP, a private oil and gas exploration and production company formed in 2016 and based in Denver, Colorado. Prior to forming Confluence, Mr. Brown was Senior Vice President and Advisor to the CEO and President of Noble Energy, Inc. (NYSE: NBL) until his retirement on January 31, 2015. Mr. Brown joined Noble Energy in 2005 in Noble Energy’s merger with Patina Oil and Gas. A lifelong oilman, he joined Amoco Production Company upon completion of his degree in mechanical engineering from the University of Wyoming. He has also worked in various capacities for Union Pacific Resources, Barrett Resources, and Williams Companies. Under Mr. Brown’s leadership, Noble Energy nearly tripled its production in Northern Colorado in nine years while drilling more than 3,300 new wells. During Mr. Brown’s tenure, he was responsible for annual capital budgets approaching $2 billion during which Noble Energy became the largest oil producer in Colorado. Mr. Brown participated in numerous industry activities including serving as Chairman of and serving on the Executive Committee of the Colorado Oil & Gas Association and the Board of the Western Energy Alliance where he has served as the organization’s Colorado Vice President. He was also Chairman of Coloradans for Responsible Energy Development and former board member of Colorado Concern. In recognition of Mr. Brown’s service to both the industry and his community, he was named the Western Energy Alliance 2013 Wildcatter of the Year, one of the highest honors available to oil and gas professionals. In 2014, Mr. Brown was also inducted into the Rocky Mountain Oil and Gas Hall of Fame. Mr. Brown’s extensive experience across all phases of oil and gas exploration and production, as well as his understanding, execution, and leadership of large capital programs, contributes to the effectiveness of the Board.
Name: John W. Chisholm
Age:
64
Director Since:
1999
Principal Occupation:
Mr. Chisholm was appointed Chief Executive Officer in March 2012 and has served as Flotek’s President since August 2010, and previously served as Flotek’s Interim President from August 2009 through August 2010.
Mr. Chisholm has been a Director of the Company since November 1999, and has acted as Chairman of the Board since July 2010. Mr. Chisholm founded Wellogix, Inc., a software development firm for the oil and gas industry that streamlines workflow, improves collaboration, expedites the inter-company exchange of enterprise data, and communicates complex engineered services. Mr. Chisholm also co-founded and served as President of ProTechnics, a service company dedicated to providing state-of-the-art completion diagnostic services to the energy industry, from
1985 until its sale to Core Laboratories in December of 1996. After leaving Core Laboratories as Senior Vice President of Global Sales and Marketing in 1998, he started Chisholm Energy Partners, a now inactive investment fund that, while it operated, targeted mid-size energy service companies. Mr. Chisholm has served on the board of directors of NGSG, Inc. (NYSE:NGS), a company specializing in compression technology for the oil and gas industry, since December 2006. He serves on both the Compensation and Governance Committees of NGSG, Inc. In November 2016, Mr. Chisholm was appointed as a non-executive director of Anton Oilfield Services Group (HKEx stock code: 3337), a leading independent integrated oilfield services provider in China. Mr. Chisholm holds a Business Administration degree from Fort Lewis College. Mr. Chisholm’s experience related to two start-up companies brings operating and financial expertise to the Board as well as innovative views of leadership.
Name: L. Melvin Cooper
Age:
65
Director Since:
2010
Principal Occupation:
Mr. Cooper has been a Director and a member of the Audit Committee since October 2010, and has been a member of the Compensation
Committee since 2011. Mr. Cooper served as a member of the Corporate Governance and Nominating Committee from October 2010 through April 2018. In April 2018, Mr. Cooper became the Chairman of the Audit Committee. Currently, Mr. Cooper serves as the Senior Vice President and Chief Financial Officer of Forbes Energy Services Ltd. (OTC: FLSS) (“Forbes”), a public company in the energy services industry. Forbes filed for financial reorganization under Chapter 11 of the U.S. Bankruptcy Code in January 2017. In addition to his time as CFO, Forbes has provided adequate time for his outside board duties for Flotek, as the industry knowledge and experience he attains during this time is beneficial to his role at Forbes. Prior to joining Forbes in 2007, Mr. Cooper served as the Chief Financial Officer or President of companies involved in site preparation for oil and gas exploration companies, supplying products and services to new home builders, and supply chain management. Since August 2012, Mr. Cooper has been a member of the board of directors for Par Pacific Holdings, Inc. (NYSE:PARR). In July 2016, Mr. Cooper joined the board of directors of SA Exploration Holdings, Inc. (NASDAQ: SAEX). As these companies are both in the energy services sector, this allows Mr. Cooper to bring a mix of market intelligence and customer commentary valuable to our Board. Further, Mr. Cooper’s experience serving as a member of the audit committees of these boards and as CFO of a public company brings a level of experience and knowledge that significantly benefits Flotek’s Board as he serves as our Audit Committee Chairman. Mr. Cooper also serves on the board of the National Association of Corporate Directors Houston area Tri-City Chapter. Mr. Cooper earned a degree in accounting from Texas A&M University-Kingsville (formerly Texas A&I) in 1975. Mr. Cooper has been a Certified Public
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Accountant since May 1977. Mr. Cooper’s extensive experience in the energy industry and in corporate governance, as well as his financial background, brings significant additional operating, financial, and management experience to the Board.
Name: Paul W. Hobby
Age:
58
Director Since:
2019
Principal Occupation:
Mr. Hobby joined the Board as a Director in March 2019 and became a member of the Corporate Governance and Nominating Committee in March 2019. Mr. Hobby is the Founding Chairman and Managing Partner of Genesis Park LP (together with its successor entity Genesis Park II LP, “Genesis Park”), a Houston-based private equity business specializing in technology and communications investments. Mr. Hobby routinely provides management and governance services to Genesis Park portfolio companies and is currently serving as Chairman of Texas Monthly, a Genesis Park-owned media brand. Mr. Hobby has served as a director of NRG Energy, Inc. (NYSE: NRG), a leading integrated power company, since March 2006. He previously served as a director of Stewart Information Services Corporation (NYSE: STC), a global real estate services company, from 1989 to May 2014, and as an advisory director from May 2014 to October 2016. Mr. Hobby served as the CFO of Alpheus Communications, L.P., a Texas wholesale telecommunications provider, from 2004 to 2011 and as Chairman of CapRock Services, Inc., the largest provider of satellite services to the global energy business from 2002 to 2006. He served as Chairman and CEO of Hobby Media Services from 1992 to 2001 and was Chairman of Columbine JDS Systems, Inc. from 1995 to 1997. Mr. Hobby is former Chairman of the Houston Branch of the Federal Reserve Bank of Dallas and the Greater Houston Partnership and is former Chairman of the Texas Ethics Commission. He was an Assistant U.S. Attorney for the Southern District of Texas from 1989 to 1992, Chief of Staff to the Lieutenant Governor of Texas, Bob Bullock, and an Associate at Fulbright & Jaworski from 1986 to 1989. Mr. Hobby earned his B.A. from the University of Virginia and his J.D. from the University of Texas Law School. Mr Hobby’s entrepreneurial, financial and M&A expertise, together with his significant involvement in the Houston and greater Texas community, makes him a valuable addition to the Board.
Name: L.V. “Bud” McGuire
Age:
76
Director Since:
2010
Principal Occupation:
Mr. McGuire has been a Director since August 2010, a member of the Corporate Governance and Nominating Committee since October 2010, a member of the Audit Committee since April 2018, and was appointed
Lead Director in May 2018. Mr. McGuire served as the Chairman of the Compensation Committee from December 2010 until May 2014, and as a member of the committee from October 2010 until May 2018. Mr. McGuire is a co-founder of Alpha Petroleum Services, a provider of management-related consulting services to the energy industry. Prior to co-founding Alpha Petroleum Services, Mr. McGuire served as a director of the board and Senior Vice President of Mariner Energy Inc. from 1998 to 2001. Prior to joining Mariner Energy, from 1997 to 1998, Mr. McGuire served as the Vice President-Operations for Enron Oil & Gas International, Inc. Mr. McGuire served, from 1991 to 1996, as the Senior Vice President responsible for worldwide production operations of the Kerr-McGee Corporation (“Kerr-McGee”). Prior to his position with Kerr-McGee, from 1981 to 1991, Mr. McGuire served as Vice President of Operations and as Vice-President of Production for Hamilton Brothers Oil & Gas Ltd. Mr. McGuire began his career with Conoco in 1966. Mr. McGuire received a Bachelor of Science degree in Industrial Engineering from LeTourneau University and has served on the Board of Trustees of LeTourneau University since 2002. Mr. McGuire’s extensive experience in the energy industry, as well as his experience in founding a successful company, brings significant additional operating and management experience to the Board.
Name: David Nierenberg
Age:
65
Director Since:
2018
Principal Occupation:
Mr. Nierenberg joined the Board as a Director in June 2018. Mr. Nierenberg has been a member of the Compensation Committee and Corporate Governance and Nominating Committee since June 2018. Since January 1996, Mr. Nierenberg has served as the President of Nierenberg Investment Management Company, Inc. (“NIMCO”), which manages the D3 Family Funds. Several of the D3 Family Funds are stockholders of the Company. Before founding NIMCO in 1996, Mr. Nierenberg was a General Partner at Trinity Ventures, a venture capital fund. Mr. Nierenberg began his career at Bain & Company Inc., where he was a Partner, managing strategy, acquisition, and cost reduction projects. He serves as Chair for the Advisory Board of the Ira M. Millstein Center for Global Markets and Corporate Ownership at Columbia Law School. Mr. Nierenberg chairs the Research Advisory Council of Glass, Lewis & Co. He is also a member of the board of the Washington State Investment Board, Riverview Bancorp (NYSE: RVSB), Rosetta Stone (NYSE: RST), The National WWII Museum, STAND for Children, and IRAP. Mr. Nierenberg previously served as a director for Electro Scientific Industries, Inc. (NASDAQ: ESIO) and Radisys Corporation (NASDAQ: RSYS). Mr. Nierenberg received his Juris Doctor from Yale Law School and his B.A. in History, summa cum laude, from Yale College.
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Resignation from the Board
Name: Kenneth T. Hern
Age:
81
Director Since:
2009
On
May 24, 2018
, Mr. Hern resigned from the Board. Mr. Hern’s resignation did not result from a disagreement by Mr. Hern with the Company on any matter relating to the Company’s operations, policies or practices. Mr. Hern was the Lead Director and served on the Corporate Governance and Nominating Committee and the Audit Committee of the Board.
Completion of Board Terms
Name: Katherine T. Richard
Age:
36
Director Since:
2018
Ms. Richard will conclude her tenure on the Board effective as of our May 24, 2019 annual meeting.
Name: Carla S. Hardy
Age:
53
Director Since:
2013
Ms. Hardy retired from the Board effective as of our April 27, 2018 annual meeting.
Name: John S. Reiland
Age:
68
Director Since:
2009
Mr. Reiland concluded his tenure on the Board effective as of our April 27, 2018 annual meeting.
Board Approval of Reduction in Members
The Board has approved a decrease in its size from eight directors to
seven
directors, which will be effective upon the close of the 2019 Annual Meeting.
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SECURITY OWNERSHIP OF EXECUTIVE OFFICERS AND DIRECTORS
AND CERTAIN BENEFICIAL OWNERS
The following table provides the beneficial ownership of Common Stock as of
March 29, 2019
, for (i) each named executive officer set forth in the Summary Compensation Table, (ii) each of the Company’s directors (including each nominee), (iii) all of the Company’s executive officers and directors as a group, and (iv) each other person known by the Company to be a beneficial owner of more than 5% of our outstanding Common Stock.
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Name
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Shares Owned
(a)
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Percent of
Class (b) |
|||
|
Named Executive Officers and Directors
|
|||||
|
John W. Chisholm
|
1,133,761
|
|
1.94%
|
||
|
Joshua A. Snively, Sr.
(c) (d)
|
438,493
|
|
*
|
||
|
H. Richard Walton
(e)
|
244,671
|
|
*
|
||
|
Matthew B. Marietta
(f)
|
31,315
|
|
*
|
||
|
Elizabeth T. Wilkinson
|
60,000
|
|
*
|
||
|
Michelle M. Adams
|
56,512
|
|
*
|
||
|
Ted D. Brown
|
76,649
|
|
*
|
||
|
L. Melvin Cooper
|
137,868
|
|
*
|
||
|
Paul W. Hobby
|
36,037
|
|
*
|
||
|
L.V. “Bud” McGuire
|
158,216
|
|
*
|
||
|
David Nierenberg
(g)
|
1,665,913
|
|
2.85%
|
||
|
Katherine T. Richard
|
40,850
|
|
*
|
||
|
All executive officers and directors as a group (14 persons)
(h)
|
4,235,989
|
|
7.26%
|
||
|
5% Beneficial Owners
|
|||||
|
BlackRock, Inc.
(i)
|
3,770,085
|
|
6.46%
|
||
|
Dimensional Fund Advisors LP
(j)
|
3,142,950
|
|
5.39%
|
||
* Less than 1%.
|
(a)
|
Except as otherwise disclosed, the persons named in the table have sole voting and investment power of all shares of Common Stock which are beneficially owned by them. Includes the following number of unvested shares of restricted stock for the persons indicated: Mr. Chisholm -
64,500
; Ms. Wilkinson -
60,000
; Ms. Adams -
33,423
; Mr. Brown -
33,423
; Mr. Cooper -
33,423
; Mr. Hobby -
36,037
; Mr. McGuire -
33,423
; Mr. Nierenberg -
40,323
; and Ms. Richard -
40,850
. None of the named executive officers or directors have pledged shares.
|
|
(b)
|
Based on an aggregate of
58,353,739
shares of Common Stock outstanding and entitled to vote as of
March 29, 2019
.
|
|
(c)
|
Mr. Snively’s holdings include
133,366
shares of Common Stock held in trust, for which Mr. Snively is a trustee and beneficiary, and
138,269
shares of Common Stock held in trust, for which Mr. Snively’s spouse is a trustee and beneficiary.
|
|
(d)
|
Mr. Snively ceased to be an officer effective
February 28, 2019
. Ownership information originated from the Form 4 filed with the Securities and Exchange Commission by Mr. Snively on
January 3, 2019
, where
438,493
shares were reported.
|
|
(e)
|
Mr. Walton ceased to be an officer effective
December 31, 2018
. Ownership information originated from the Form 4 filed with the Securities and Exchange Commission by Mr. Walton on
January 3, 2019
, where
244,671
shares were reported.
|
|
(f)
|
Mr. Marietta ceased to be an officer effective
December 20, 2018
and remained an employee through
December 31, 2018
. Ownership information originated from the Form 4 filed with the Securities and Exchange Commission by Mr. Marietta on
January 3, 2019
, where
31,315
shares were reported.
|
|
(g)
|
Includes
1,625,590
shares of Common Stock owned by The D3 Family Fund, LP, The D3 Family Bulldog Fund, LP, and The DIII Offshore Fund LP. Mr. Nierenberg is the sole owner of Nierenberg Investment Management Company, Inc. Nierenberg Investment Management Company, Inc. is the investment manager with respect to the shares held by each of The D3 Family Fund, LP, The D3 Family Bulldog Fund, LP, and The DIII Offshore Fund LP. Mr. Nierenberg has disclaimed ownership of these securities except to the extent of his pecuniary interest therein.
|
|
(h)
|
Includes William H. York and James A. Silas who were appointed executive officers
effective March 19, 2019.
|
|
(i)
|
The address of BlackRock, Inc. is 55 East 52nd Street, New York, NY 10055. Spencer Fleming exercises voting and dispositive power over the securities held by BlackRock, Inc. Ownership information originated from the Schedule 13G/A filed with the Securities and Exchange Commission by BlackRock, Inc. on
February 4, 2019
.
|
|
(j)
|
The address of Dimensional Fund Advisors LP is Building One, 6300 Bee Cave Road, Austin, TX 78746. Ownership information originated from the Schedule 13G filed with the Securities and Exchange Commission by Dimensional Fund Advisors LP on
February 8, 2019
.
|
8
EXECUTIVE OFFICERS
The following table provides certain information with respect to the named executive officers of the Company for
2018
.
|
Name and Age
|
Positions
|
Position
Held Since
|
||
|
John W. Chisholm (64)
|
Chief Executive Officer
|
2012
|
||
|
President and Chairman of the Board
|
2010
|
|||
|
Interim President
|
2009
|
|||
|
Joshua A. Snively, Sr. (54) *
|
Executive Vice President, Operations
|
2017
|
||
|
Executive Vice President, Research and Innovation
|
2013
|
|||
|
President of Florida Chemical Company, Inc., a wholly-owned subsidiary of the Company
|
2013
|
|||
|
Elizabeth T. Wilkinson (61)
|
Chief Financial Officer
|
2018
|
||
|
H. Richard Walton (70) **
|
Chief Accounting Officer
|
2018
|
||
|
Executive Vice President and Chief Financial Officer
|
2017
|
|||
|
Chief Financial Officer Emeritus
|
2015
|
|||
|
Executive Vice President and Chief Financial Officer
|
2013
|
|||
|
Chief Financial Officer (Interim)
|
2013
|
|||
|
Matthew B. Marietta (32) ***
|
Executive Vice President of Finance and Corporate Development
(Principal Financial Officer)
|
2018
|
||
|
*
|
Mr. Snively ceased to be an officer and employee effective
February 28, 2019
.
|
|
**
|
Mr. Walton ceased to be an officer and employee effective
December 31, 2018
.
|
|
***
|
Mr. Marietta ceased to be an officer effective
December 20, 2018
, and ceased to be an employee on
December 31, 2018
.
|
The following are biographies of each of our executive officers for
2019
.
Joshua A. Snively, Sr.
serves as Executive Vice President, Operations for Flotek Industries, Inc. beginning in October 2017 and as President of Florida Chemical Company, Inc., a wholly-owned subsidiary of the Company, beginning in May 2013. Previously, Mr. Snively served as Executive Vice President of Research and Innovation for Flotek Industries, Inc. from November 2013 to July 2017. Florida Chemical is a leading manufacturer and supplier of citrus oils to global markets and was acquired by Flotek in May 2013. Mr. Snively joined Florida Chemical in 1995. Prior to his position as President, he was VP and General Manager, as well as VP of Procurement and Business Development, with Florida Chemical. Before joining Florida Chemical, Mr. Snively was Vice President of Commercial Agriculture Finance at SunTrust Bank. He graduated with a degree in Finance and Citrus Management from Florida Southern College. Mr. Snively currently serves on the board of CenterState Bank and is co-chairman of the Bank’s loan committee and is a member of the Bank’s compensation committee.
Elizabeth T. Wilkinson
serves as Chief Financial Officer beginning in December 2018. From January 2012 through December 2018, Ms. Wilkinson served as a managing consultant at RGP, a publicly traded, global consulting firm, leading financial advisory projects for Fortune 100, Fortune 500, and private-equity-controlled clients. In this capacity, she served as interim CFO, interim treasurer, and in key financial reporting roles, leading companies through
significant accounting and finance transitions. Prior to her role at RGP, from March 2009 through March 2011, Ms. Wilkinson was CFO of Xtreme Drilling and Coil Services, where she raised capital and managed debt and liquidity and directed all accounting, financial reporting, and investor relations functions. Ms. Wilkinson is a Certified Public Accountant and received a Bachelor of Science in Business Administration, as well as a Master of Business Administration, from the University of Florida.
William H. York
serves as the Chief Administrative Officer beginning in January 2018. In this role, he is responsible for Human Resources, Information Technology, Health, Safety & Environmental, and Legal for the Company. Mr. York became an executive officer in this role in 2019. Prior to joining Flotek, Mr. York served as the VP, Human Resources for a start-up Laser Development company in Austin, TX from August 2014 through December 2017. Mr. York founded Tudor Lewis Executive Search in 2003, after spending two years as a partner with Highland Partners (later merged with Heidrick & Struggles). He worked as the SVP Staffing for Bank of America from 1996 through 2001. He began his corporate human resources career with Compaq Computers from 1987 through 1996. Mr. York saw the company grow from $625 million to over $25 billion in sales. He has a MS Human Resources Management from Houston Baptist University. He served in the Army on active duty in 1981, was awarded multiple commendation awards, and was Airborne and Ranger qualified. Mr. York has a Bachelor of Science in Engineering from the United States Military
9
Academy and a Masters in Human Resources Management from Houston Baptist University.
James A. Silas
serves as the Senior Vice President of Research and Innovation beginning in May 2016. Dr. Silas became an executive officer in this role in 2019. Previously, he served as the Vice President of Research and Innovation beginning in May 2015 and as a research scientist beginning in June 2013. Dr. Silas was an assistant professor of Chemical Engineering at Texas A&M University prior to joining the Company. He has over 15 years of research experience investigating the physics and chemistry of surfactants and polymers in the areas of personal care products, bioengineering, and the oil industry. He earned a B.S.E in Chemical Engineering from Princeton University, a Ph.D. in Chemical Engineering from the University of Delaware, and was a NIH Ruth L Kirschstein Postdoctoral Fellow at the University of Pennsylvania in Bioengineering.
The following are no longer executive officers for
2019
.
H. Richard Walton
ceased to be an officer effective
December 31, 2018
. See the “Employment Agreements” section within “Compensation Discussion and Analysis” for further details regarding Mr. Walton’s separation from the Company.
Matthew B. Marietta
ceased to be an officer effective
December 20, 2018
. See the “Employment Agreements” section within “Compensation Discussion and Analysis” for further details regarding Mr. Marietta’s separation from the Company.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board consists of three directors who are independent, as defined by the standards of the New York Stock Exchange and the rules of the Securities and Exchange Commission. Under the charter approved by the Board, the Committee assists the Board in overseeing matters relating to the accounting and financial reporting practices of the Company, the adequacy of its internal controls, and the quality and integrity of its financial statements and is responsible for selecting and retaining the independent auditors. The Company’s management is responsible for preparing the financial statements of the Company, and the independent auditors are responsible for auditing those financial statements. The Audit Committee’s role under the charter is to oversee management. The Committee is not providing any expert or special assurance as to the Company’s financial statements or any professional certification as to the independent auditors’ work. The Committee met
6
times during the year ended
December 31, 2018
.
The independent auditors provided the Committee with a written statement describing all the relationships between the auditors and the Company that might bear on the auditors’ independence consistent with Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard No. 1. The Committee also discussed with the auditors any relationships that may impact the independence of the auditors.
The Committee reviewed and discussed with the independent auditors all communications required to be discussed by Standards of the PCAOB, including those described in Auditing Standard No. 1301.
The Committee reviewed the Company’s audited financial statements as of and for the year ended
December 31, 2018
, and discussed them with management and the independent auditors. Based on such review and discussions, the Committee recommended to the Board that the Company’s audited financial statements be included in its Annual Report on Form 10-K for the year ended
December 31, 2018
, for filing with the Securities and Exchange Commission.
L. Melvin Cooper, Chairman
Ted D. Brown
L.V. “Bud” McGuire
April 24, 2019
This report of the Audit Committee shall not be deemed “soliciting material,” or to be “filed” with the Securities and Exchange Commission or subject to Regulation 14A or 14C or to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), except to the extent that we specifically request that the information be treated as soliciting material or specifically incorporate it by reference into a document filed under the Securities Act of 1933 (the “Securities Act”) or the Exchange Act. Further, this report will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act except to the extent that we specifically incorporate this information by reference.
10
COMPENSATION DISCUSSION AND ANALYSIS
The following discussion of executive compensation contains descriptions of various employment-related agreements and employee benefit plans. These descriptions are qualified in their entirety by reference to the full text of the referenced agreements and plans, which have been filed by us as exhibits to our reports on Forms 10-K, 10-Q, and 8-K filed with the U.S. Securities and Exchange Commission.
Introduction
Flotek is an international energy chemistry technology-driven company that develops and supplies chemistry and services to the oil and gas industry. Through February 28, 2019, Flotek also provided high value compounds to companies that make cleaning products, cosmetics, food and beverages, and other products that are sold in consumer and industrial markets.
The Company’s focus on its product offerings, in particular its patented chemistries business, led to significant and increasing success in 2011 through 2014. Beginning in the second half of 2014 and continuing throughout 2015, the price of crude oil and the North American rig count declined dramatically, ending 2015 at levels not seen since 2009. The market began to gradually recover in the second quarter of 2016. Although oil and gas markets have improved, the level of drilling and completion activity remains lower than previous levels experienced before the downturn in 2014.
Crude oil prices peaked at approximately $106/barrel in June 2014, descended to approximately $30/barrel in February 2016, and rose to the current levels ranging between $55 to $65 per barrel. As a result, total U.S. rig count decreased from 1,929 rigs on November 21, 2014 to 404 rigs as of May 27, 2016 and rose to 1,083 rigs as of December 31, 2018.
As a result of this cyclical downturn, North American exploration and production companies - many of which are Flotek clients - significantly reduced their exploration and drilling activity. The reduction in activity led to declining financial results for the Company in 2015 and 2016, as the downturn in the oil and gas industry continued. As the recovery continued, the Company saw increased financial results during 2017, as compared to 2016. However, as a result of the downturn, there has been a notable shift in purchasing behaviors in the industry which has created significant changes in our customer base, product portfolio, and sales efforts during 2018.
During the fourth quarter of 2018, the Company initiated a strategic plan to sell its Consumer and Industrial Chemistry Technologies segment, which was completed in the first quarter of 2019. Effective December 31, 2018, the Company
classified the assets, liabilities, and results of operations for this segment as “Discontinued Operations” for all periods presented.
During the fourth quarter of 2016, the Company initiated a strategic restructuring of its business to enable a greater focus on its core businesses in energy chemistry and consumer and industrial chemistry. The Company executed a plan to sell or otherwise dispose of its Drilling Technologies and Production Technologies segments. Effective December 31, 2016, the Company classified the assets, liabilities, and results of operations for these two segments as “Discontinued Operations” for all periods presented. The sale or disposal of the assets and transfer or liquidation of liabilities and obligations of these segments was completed in 2017. The Company has no continuing involvement with the discontinued operations.
The following discussion relates to continuing operations as presented in our
2018
Annual Report. Continuing operations include our single business segment, Energy Chemistry Technologies.
|
•
|
The Company reported revenue for the year ended December 31, 2018 of
$177.8
million, a decrease of
$65.3
million, or
26.9%
, compared to
$243.1
million for the year ended December 31, 2017.
|
|
•
|
The Company reported net loss for the year ended December 31, 2018 of
$73.1
million, or
$(1.26)
per share (fully diluted), compared to net loss of
$17.5
million, or
$(0.30)
per share (fully diluted), for the year ended December 31, 2017.
|
|
•
|
The Company is successfully expanding into foreign markets. Revenue from services and products used in foreign countries increased to 17.6% of consolidated revenue in 2018 compared to 9.7% of consolidated revenue in 2017.
|
|
•
|
The Company continues to emphasize its research and innovation activities. These activities focus on improvement of existing products and services, the design of reservoir specific, customized chemistries, and the development of new products, processes, and services. Completed in 2016, the Company’s Global Research & Innovation Center in Houston houses scientists, chemists, geologists, and reservoir, petroleum and geomechanical engineers who advance the development of next-generation innovative energy chemistries, as well as expanded collaboration among clients, leaders from academia, and Company scientists. Research and innovation expense decreased to $10.4 million in 2018 compared to $13.1 million in 2017.
|
11
The charts below illustrate the magnitude of the Company’s success in 2014, the decline experienced in 2015 and 2016, the recovery that began in 2017, and the shift in purchasing behaviors by E&P companies in 2018, excluding discontinued operations.
|
(1)
|
Amounts exclude impact of discontinued operations.
|
Compensation Consultants
Korn Ferry Hay Group served as an independent advisor to management on executive compensation throughout 2018. The Compensation Committee engaged Willis Towers Watson to provide independent advice to the Committee through June 2018. Since 2014, these consultants have provided advice on matters including:
|
•
|
An extensive review of compensation strategies and objectives;
|
|
•
|
A review of and recommended changes to the Chief Executive Officer’s employment agreement and other executive employment agreements, including adoption of “double-trigger” cash severance and equity acceleration following a change-in-control;
|
|
•
|
Adoption of a claw-back policy;
|
|
•
|
A review of policies and recommended changes relating to prohibited hedging transactions and the prohibition of pledging Company securities;
|
|
•
|
Adoption of stock ownership guidelines for executives and directors;
|
|
•
|
Adoption of a minimum vesting requirement of one year from the date an award is granted;
|
|
•
|
A review and update of the Peer Group composition;
|
|
•
|
A restructuring and refinement of executive annual incentive compensation opportunities making amounts earned under the program primarily contingent on financial measures that drive shareholder returns;
|
|
•
|
Expanding the performance criteria of executive annual incentive compensation opportunities from a single financial measure to two financial measures and a
|
12
measurement of performance against individual goals established for each participant;
|
•
|
Adoption of a performance-based equity-based long-term incentive component to total compensation with annual modifications to performance measures that reflect Peer Group practices; and
|
|
•
|
Extension of the performance period to two years for the equity-based long-term incentive component, with an
|
additional one-year service requirement from the end of the performance period to the vesting date.
In April 2019, and as part of the Compensation Committee performing an annual reassessment of its outside service providers, the Compensation Committee engaged Meridian Compensation Partners, LLC as the new independent compensation consultant.
The following discussion provides an overview of the Compensation Committee, the background and objectives of our compensation programs for current senior management, and the material elements of the compensation of each of the executive officers identified in the following table, to which we refer as our named executive officers.
|
Name
|
|
Title
|
|
John W. Chisholm
|
|
Chairman of the Board, President and Chief Executive Officer
|
|
Joshua A. Snively, Sr.
(1)
|
Executive Vice President, Operations
|
|
|
Elizabeth T. Wilkinson
|
Chief Financial Officer
|
|
|
H. Richard Walton
(2)
|
Chief Accounting Officer
|
|
|
Matthew B. Marietta
(3)
|
Executive Vice President of Finance and Corporate Development
|
|
|
(1)
|
Mr. Snively ceased to be an officer and employee effective
February 28, 2019
.
|
|
(2)
|
Mr. Walton ceased to be an officer and employee effective
December 31, 2018
.
|
|
(3)
|
Mr. Marietta ceased to be an officer effective
December 20, 2018
, and ceased to be an employee on
December 31, 2018
.
|
Compensation Committee
The Compensation Committee has overall responsibility for the approval, evaluation, and oversight of the Company’s compensation and benefit plans, policies, and programs. The primary function of the Compensation Committee is to assist the Board in fulfilling its responsibilities relating to the compensation of the Company’s named executive officers and outside directors. The primary responsibilities of the Compensation Committee include (i) annually reviewing the Company’s general compensation policies with respect to named executive officers, (ii) annually reviewing and approving the corporate goals and objectives relevant to the compensation of our executive officers, evaluating our officers’ performance in light of these goals, and approving or recommending to the Board compensation levels based on these evaluations, (iii) producing a committee report on executive compensation as required by the SEC to be included or incorporated by reference in our proxy statement or other applicable SEC filings, and (iv) recommending, on a biennial basis, the compensation program applicable to the Company’s outside directors. The Committee met
10
times during the year ended
December 31, 2018
.
The Company’s Board appoints Compensation Committee members and the Chairman annually, and these appointees continue to be members until their successors are elected and qualified or until their earlier resignation or removal. Any member of the Compensation Committee may be removed, with or without cause, by our Board. The Board appoints members to the Compensation Committee considering criteria such as experience in compensation matters, familiarity with our management and other key personnel,
understanding of public company compensation issues, time availability necessary to fulfill committee responsibilities, and independence and other regulatory requirements.
Each member of the Compensation Committee is considered to be (1) “independent” under the currently applicable listing standards of the NYSE; (2) a “non-employee director” within the meaning of Rule 16b-3 under the Exchange Act; and (3) an “outside director” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) for
2018
.
The Compensation Committee’s function is more fully described in its charter. The Compensation Committee will continue to annually review and assess the adequacy of the charter and recommend any proposed changes to the Board for approval on an annual basis.
The Compensation Committee establishes an agenda for each Committee meeting and prepares meeting materials. The Committee may request assistance or information that will be provided by management and may share and confirm information with the Chief Executive Officer. The Compensation Committee on occasion meets with the Company’s Chief Executive Officer and other executives to obtain recommendations with respect to the Company’s compensation programs, practices, and packages for executives, other employees, and directors. Although management makes recommendations to the Compensation Committee on executive compensation, the Compensation Committee is not bound by and does not always accept
13
management’s recommendations. The Compensation Committee has historically sought input from an independent compensation consultant prior to making any final determinations. Our Chief Executive Officer attends some of the Compensation Committee meetings, but the Compensation Committee also regularly holds executive sessions not attended by members of management or non-independent directors. The Chief Executive Officer is not present during discussions, deliberations, or voting of the Compensation Committee regarding compensation of the Chief Executive Officer.
Outside corporate counsel, and other members of our management and outside advisors, may be invited to attend all or a portion of a Compensation Committee meeting depending on the nature of the matters to be discussed. Only members of the Compensation Committee may vote on items before the Compensation Committee.
Our Compensation Committee may retain, at our expense, independent compensation consultants to consider executive compensation matters. The Compensation Committee meets with the compensation consultants, both in and outside of the presence of our management, to review findings and recommendations regarding executive compensation and considers those findings and recommendations, as well as the results of the most recent shareholder advisory vote on executive compensation, in determining and making adjustments to our executive compensation program. The Compensation Committee has used a compensation consultant since 2011 to assist in fulfilling its responsibilities as assigned by the Chairman of the Compensation Committee. In July 2014, the Compensation Committee engaged Willis Towers Watson to serve as its compensation consultant. During its selection process, the Compensation Committee analyzed factors specified by the Securities and Exchange Commission and the NYSE that affect the independence of compensation advisers. Based on this analysis, the Compensation Committee concluded that there were no independence concerns related to Willis Towers Watson in its role as an independent adviser to the Compensation Committee, and utilized Willis Towers Watson from their appointment in July 2014 through June 2018. In April 2019, the Compensation Committee engaged Meridian Compensation Consultants, LLC to serve as its compensation consultant.
Under the direction of the Chairman of the Compensation Committee, the compensation consultant supports the Committee in fulfilling its responsibilities as outlined in the Compensation Committee Charter which can include preparing information regarding compensation trends in the energy services industry, relative compensation for similarly-situated executive officers in the industry, and the structure of our cash and equity incentive awards. At the Compensation Committee’s request, the compensation consultants worked with management to prepare materials for review by the Compensation Committee, made recommendations regarding the Compensation Committee’s calendar, and has
provided assistance in the composition of this Compensation Discussion and Analysis.
Compensation Risk Assessment and Controls
The Compensation Committee strives to create an effective environment for its risk assessment of the Company’s overall compensation policies, practices, and programs through the following practices:
|
•
|
Compensation Committee chaired by an independent non-employee director. All Compensation Committee members are independent;
|
|
•
|
Representation from the Audit Committee on the Compensation Committee;
|
|
•
|
Review of executive compensation programs by the Compensation Committee’s independent compensation consultant;
|
|
•
|
Robust and independent committee review of compensation program elements and key performance drivers; and
|
|
•
|
Detailed measurement of short- and long-term compensation elements to ensure balance.
|
The role of the Compensation Committee in risk oversight includes review of risks arising from our compensation policies, practices, and programs, as well as the mitigating controls, to determine whether any such risks are material to the Company. The Compensation Committee has reviewed these matters and believes the mix of compensation elements and the design of those elements, along with sound governance practices, do not encourage employees to take excessive risks that might have a material adverse effect on the Company. These matters include the following:
|
•
|
The Company has strong internal financial controls that are assessed annually by the Company’s independent public accountants, in addition to their audits of the Company’s financial statements.
|
|
•
|
Base salaries are generally consistent with market practice and the employees’ responsibilities, so employees are not motivated to take excessive risks to attain a reasonable level of financial security.
|
|
•
|
The determination of incentive awards is based on well-defined financial measures. There is a maximum incentive opportunity for each named executive officer, and the Committee retains discretion to adjust bonuses to eliminate anomalous or inappropriate outcomes.
|
|
•
|
Long-term incentives are designed to provide appropriate awards for successful outcomes, and effectively align realized compensation with returns realized by investors.
|
|
•
|
Since December 31, 2012, the Company has had a claw-back policy that covers executive officers and other officers who participate in the Company’s incentive plans. This policy permits the Company to recover incentive compensation awarded or paid if there is a subsequent change to a performance measure and in instances where an officer engaged in intentional misconduct.
|
14
|
•
|
All officers and directors are prohibited from purchasing or selling Company securities while in possession of material, non-public information. All officers and directors must pre-clear any transactions involving Flotek common stock with the Company’s Compliance Officer.
|
|
•
|
In 2014, the Company clarified its Insider Trading Policy with respect to its hedging policy and its pledging policy. Hedging transactions are prohibited, and the pledging of Company securities to secure indebtedness is prohibited.
|
|
•
|
The Company has established formal stock ownership guidelines. These guidelines, based on a multiple of base salary for executive officers and on the annual cash retainer for directors, help ensure that their interests are aligned with those of our stockholders.
|
|
•
|
The Company has a Code of Business Conduct and Ethics. This Code requires each employee and director to sign a Compliance Certification. In addition, employees are required to complete annual anti-bribery training.
|
Compensation Philosophy
We operate in a very competitive environment. Our principal competitors are larger, more established providers of services in our industry and, because of their size, generally have significantly more resources than we do. In order to successfully compete in this environment, we must be able to attract and retain highly skilled employees with well-developed management, operational, and marketing skills. The Company has been successful in developing and retaining a highly-qualified management team by offering compensation that is equitable, reasonably competitive with what we believe they might earn elsewhere based on our understanding of market practices, and closely tied to performance through our annual salary review process, our annual cash bonus plan, and grants of equity-based opportunities from our long-term incentive plans.
In general, our executive compensation programs are designed to achieve the following objectives:
|
•
|
Attract and retain talented and experienced executives with the skills necessary to run and grow our existing business;
|
|
•
|
Align the interests of our executive officers with those of stockholders to increase the value of our enterprise;
|
|
•
|
Motivate and reward executives whose knowledge, skills, and performance are critical to our success;
|
|
•
|
Demonstrate fairness among the executive management team by recognizing the contributions each individual executive makes to our success;
|
|
•
|
Provide that executives are accountable to the Board and our stakeholders for their performance; and
|
|
•
|
Encourage a shared commitment among executives by coordinating Company and individual business unit targets, goals, and objectives.
|
As we endeavor to evaluate the adequacy of our overall executive compensation program, our Compensation Committee works with the compensation consultants to evaluate and compare certain elements of total compensation against a group of similar publicly-traded energy services companies and chemical companies (the “Peer Group”). We evaluate each element of compensation (base salary, annual incentive compensation, and long-term equity compensation), as well as the total of all compensation elements. While the compensation consultant’s information on peer practices is used to assess the competitiveness of the Company’s total compensation opportunities, the Compensation Committee does not target any percentile level of the peer data as a benchmark for setting pay opportunities.
In determining the peer group, we would prefer to define the market for our executive talent using a sizable group of companies that are comparable to us in both size and line of business. However, there are not a sufficient number of companies that compare to us in size and line of business to comprise such a peer group. Therefore, as we evaluate the adequacy of our compensation programs, the Compensation Committee considers data from our Peer Group, data from published survey sources, and information from our directors, management, and compensation consultant based on their collective understanding of industry practices.
The companies that comprised our Peer Group in
2018
were as follows:
|
CARBO Ceramics, Inc.
|
Newpark Resources, Inc.
|
|
|
FutureFuel Corporation
|
Parker Drilling Company
|
|
|
Helix Energy Solutions Group, Inc.
|
RigNet, Inc.
|
|
|
KMG Chemicals, Inc.
|
RPC, Inc.
|
|
|
Layne Christensen Company
|
TETRA Technologies, Inc.
|
|
|
Matrix Service Company
|
||
The Peer Group was reviewed in December
2017
and again in January and June
2018
to ensure it was appropriate for purposes of supporting
2019
compensation decisions. The Compensation Committee adjusted the Peer Group for
2019
to reflect the current environment in both size and line of business.
15
The companies that comprise our Peer Group for
2019
are as follows:
|
CARBO Ceramics, Inc.
|
NCS Multistage Holdings, Inc.
|
|
|
Dawson Geophysical Company
|
Nuverra Environmental Solutions, Inc.
|
|
|
Era Group Inc.
|
Pioneer Energy Services Corp.
|
|
|
Gulf Island Fabrication, Inc.
|
Quintana Energy Services, Inc.
|
|
|
Hornbeck Offshore Services, Inc.
|
Ranger Energy Services, Inc.
|
|
|
ION Geophysical Corporation
|
RigNet, Inc.
|
|
|
Key Energy Services, Inc.
|
||
The Compensation Committee intends to continually monitor the composition of the Peer Group to assure that it provides a useful representation of the market for leadership talent in which the Company competes.
Policies, Guidelines and Practices Related to Executive Compensation
Stock Ownership Guidelines
To further promote sustained shareholder return and to ensure that the Company’s executives and directors remain focused on both short- and long-term objectives, the Company has established stock ownership guidelines. Each executive and director has five years from the date appointed or elected to his or her position (or, if later, within five years of the adoption of the guidelines) to achieve the level associated with the position.
|
Role
|
Guideline
|
|
|
Chief Executive Officer
|
6 times base salary
|
|
|
Other executive officers
|
2 times base salary
|
|
|
Directors
|
5 times annual retainer
|
|
Executives and directors that are not in compliance with the stock ownership guidelines must hold the lesser of 25% of the net shares acquired from exercising stock options or vesting of shares, or the number of shares necessary to reach the applicable stock ownership guidelines.
At
December 31, 2018
, all current executives and directors have met or substantially exceed the guidelines.
Minimum Vesting Requirement
The Company has implemented a minimum vesting requirement for equity awards. All awards under the 2018 Plan are subject to a minimum vesting requirement of at least one year from the date the award was granted. Therefore, no portion of any award may vest or become exercisable earlier than the first anniversary of the date such award was granted. This minimum vesting requirement is subject to a “carve-out exception” and will not apply to 5% of the shares made available for issuance under the 2018 Plan.
Hedging and Pledging of Company Stock
None of the Company’s executive officers or directors have pledged any Flotek Common Stock. In addition, all of the Company’s officers and directors must pre-clear any
transactions involving Flotek Common Stock with the Company’s Compliance Officer.
During 2014, the Company updated its Insider Trading Policy with respect to its hedging policy and its pledging policy. Pursuant to the Policy, Company directors, officers, and employees may not engage in hedging transactions with respect to Company securities. Prohibited hedging transactions include, but are not limited to: short-selling, options, puts or calls, as well as derivatives such as swaps, forwards, or futures. Company directors and executive officers are prohibited from pledging Company securities to secure indebtedness, including, but not limited to, engaging in margin transactions with Company securities.
Claw-back Policy
The Company has had a claw-back policy since 2012 that covers executive officers and other officers designated as participants in the Company’s incentive plans. The Company is entitled to recover, at the direction of the Compensation Committee, incentive compensation awarded or paid to an officer if the result of the performance measure upon which the award was made or paid is subsequently restated or otherwise adjusted in a manner that would reduce the award or payment. In addition, if an officer engaged in intentional misconduct that resulted in additional compensation, the Company may take remedial and recovery action.
Tax Gross-Ups on Severance
There are no tax gross-ups on any payments to executives, including severance payments.
Stockholder Engagement and Results of Prior Advisory Vote on Executive Compensation
The Compensation Committee is very interested in the ideas and feedback of our stockholders regarding executive compensation. At the
2018
Annual Meeting of Stockholders,
94.9%
of voting stockholders approved the compensation of our named executive officers.
Management routinely engages with investors and has engaged in dialogue with many of our largest stockholders to solicit their feedback and gather information on their views
16
and opinions on various operations and governance issues, including executive compensation practices.
The Compensation Committee considers the annual stockholders advisory vote, as well as other stockholder input, when reviewing executive compensation programs, principles, and policies.
Equity Compensation Plan Information
Each of the Company’s equity compensation plans has been approved by our stockholders. At
December 31, 2018
, there were
1,492,737
shares of our Common Stock available for future issuance under our Long-Term Incentive Plans.
2018
Executive Officer Compensation
Principal Elements of Compensation of Our Named Executive Officers
The principal elements of the compensation package offered to our executive officers consist of:
|
•
|
Base salary;
|
|
•
|
Annual incentive opportunity; and
|
|
•
|
Equity compensation under the long-term incentive plans.
|
Some, but not all, of the named executive officers participate in certain limited perquisite programs, as described later in this discussion. Group insurance programs, the Company’s 401(k) Plan, and the Employee Stock Purchase Plan are available to all named executive officers on the same basis as all other employees of the Company.
Allocation of Compensation among the Principal Components
The Compensation Committee has not established formulas for allocating compensation between compensation elements at this time. Rather, the Compensation Committee reviews compensation structures of companies in our Peer Group, historical compensation for the participant, the participant’s responsibilities, the performance of the participant and the Company on goals approved by the Committee, and the individual circumstances of senior executives when determining the mix of base salary, cash bonus percentages, and annual equity award opportunities. As a result, the Compensation Committee may apply a different mix of base salary, annual incentive compensation, and long-term equity compensation to different executive officer positions. The Company’s historical objectives have been to make executives’ overall compensation opportunity significantly contingent on operational and financial performance.
The following table provides the percentage allocation of
2018
compensation elements at target levels for the Company’s named executive officers.
|
Name
|
Base Salary
|
Annual Incentive
at Target Amount
|
Long-Term Incentive at Target Value
|
Total
|
||||
|
John W. Chisholm
|
23.0%
|
25.3%
|
51.7%
|
100%
|
||||
|
Joshua A. Snively, Sr.
(1)
|
25.3%
|
24.1%
|
50.6%
|
100%
|
||||
|
Elizabeth T. Wilkinson
(2)
|
100.0%
|
—%
|
—%
|
100%
|
||||
|
H. Richard Walton
(3)
|
32.3%
|
24.2%
|
43.5%
|
100%
|
||||
|
Matthew B. Marietta
(4)
|
30.3%
|
24.2%
|
45.5%
|
100%
|
||||
|
(1)
|
Mr. Snively ceased to be an officer and employee effective
February 28, 2019
.
|
|
(2)
|
Ms. Wilkinson joined the Company as Chief Financial Officer effective
December 28, 2018
, and was not included in the Annual Incentive Plan or Long-Term Incentive Plan for 2018.
|
|
(3)
|
Mr. Walton ceased to be an officer and employee effective
December 31, 2018
.
|
|
(4)
|
Mr. Marietta ceased to be an officer effective
December 20, 2018
, and ceased to be an employee on
December 31, 2018
.
|
For
2018
,
77.0%
of the Chief Executive Officer’s compensation at target levels and
67.7%
-
74.7%
of compensation at target levels for other named executive officers, excluding Ms. Wilkinson, was at-risk. Under the long-term incentive opportunity,
60%
of the equity that may be awarded is performance-based and
40%
is time-based.
17
2018
Base Salary
The Company reviews base salaries annually for the named executive officers to determine if changes are appropriate. In reviewing base salaries, several factors are considered, including a comparison to base salaries paid for comparable positions in the Peer Group, published survey data, the relationship among base salaries paid within the Company, and individual experience and performance. The Company’s intent is to set base salaries at levels consistent with comparable industry positions, Company performance, and remunerative objectives, including the ability to attract, motivate, and retain highly talented individuals in a competitive environment while retaining an appropriate balance between fixed and performance-contingent compensation elements.
President, Chief Executive Officer and Chairman of the Board
Mr. Chisholm is compensated under a Service Agreement that pays two entities controlled by Mr. Chisholm (the “Chisholm Companies”) as an independent contractor. In addition, Mr. Chisholm has a Letter Agreement with the Company under which he is also an employee of the Company. Effective January 1, 2018, the Compensation Committee of the Board approved Mr. Chisholm’s annual salary of $50,000 and approved the amount paid annually pursuant to the Service Agreement with the Chisholm Companies at $810,000. Mr. Chisholm did not receive an increase in base salary for 2018.
Other Named Executive Officers
After a review of responsibilities, performance, and the Company’s understanding of salary levels typically available to officers filling comparable positions in other public energy services companies and chemical companies, the salary adjustments in the table below were approved during
2018
.
|
Name
|
Title
|
Beginning
Salary
|
New Salary
|
Percent
Increase
|
||||
|
Joshua A. Snively, Sr.
(1)
|
EVP, Operations
|
$446,670
|
$490,000
|
9.7%
|
||||
|
Elizabeth T. Wilkinson
|
Chief Financial Officer
|
*
|
$300,000
|
*
|
||||
|
H. Richard Walton
(2)
|
Chief Accounting Officer
|
$375,000
|
$375,000
|
—%
|
||||
|
Matthew B. Marietta
(3)
|
EVP of Finance and Corporate Development
|
*
|
$335,000
|
*
|
||||
|
(1)
|
Mr. Snively ceased to be an officer and employee effective
February 28, 2019
.
|
|
(2)
|
Mr. Walton ceased to be an officer and employee effective
December 31, 2018
.
|
|
(3)
|
Mr. Marietta ceased to be an officer effective
December 20, 2018
, and ceased to be an employee on
December 31, 2018
.
|
|
*
|
Ms. Wilkinson was appointed Chief Financial Officer effective
December 28, 2018
, and Mr. Marietta was appointed EVP of Finance and Corporate Development effective
March 16, 2018
. All individuals are now considered named executive officers.
|
Mr. Snively’s base salary was adjusted to reflect a change in title and responsibilities.
2018
Annual Incentive Compensation
Under the terms of the annual incentive program available to named executive officers and other leadership employees, participants had the opportunity to earn annual cash incentives based on the achievement of Company performance. The performance criteria were expanded from a single financial measure to two financial measures and a measurement of performance against individual goals established for each participant. Allocation of the total target payment is as follows:
|
•
|
45%
based on an Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) target (the EBITDA Bonus);
|
|
•
|
35%
based on a Revenue target (the Revenue Bonus); and
|
|
•
|
20%
based on performance against individual goals (the Goal Bonus).
|
EBITDA Bonus.
If a defined minimum level of Adjusted EBITDA is achieved, 50% of the target EBITDA Bonus payment amount is earned, if the target level of Adjusted
EBITDA is achieved, 100% of the target payment amount is earned, and if a defined maximum level of Adjusted EBITDA is achieved, 200% of the target payment amount is earned. The bonus percentage earned for Adjusted EBITDA between defined levels is determined by linear interpolation; however, the Compensation Committee reserves discretion to equitably adjust the amount of the bonus to reflect developments, events, or actions which were not anticipated by the Compensation Committee when the bonus objective was established. No EBITDA Bonus is earned if performance is below the defined minimum Adjusted EBITDA level.
Adjusted EBITDA is a Non-GAAP measure under which EBITDA results may be adjusted to recognize incentive compensation, including stock compensation, financing transaction costs (whether paid in cash or not), and other noncash or nonrecurring charges not directly related to the ongoing operations of the Company. Determination of Adjusted EBITDA is based solely on the judgment of the
18
Compensation Committee of the Board of Directors upon recommendations received from the CFO.
For
2018
, the EBITDA Bonus applied to results of the Company’s continuing operations and excluded operations and results of the segment reported as held for sale at December 31, 2018. The Adjusted EBITDA target amount for
2018
was
$28.0 million
compared to
$27.8 million
achieved in
2017
for the Company’s continuing operations.
Revenue Bonus.
If a defined minimum level of revenue for the Company’s continuing operations is achieved, 50% of the target Revenue Bonus payment amount is earned, if the target level of revenue is achieved, 100% of the target payment amount is earned, and if a defined maximum level of revenue is achieved, 200% of the target payment amount is earned. The bonus percentage earned for revenue for the Company’s continuing operations between defined levels is determined by linear interpolation. No Revenue Bonus is earned if performance is below the defined minimum revenue level.
The revenue target amount for
2018
was
$355.0 million
compared to
$317.1 million
achieved in
2017
for the Company’s continuing operations.
Goal Bonus.
Individual performance goals are established by the Compensation Committee for each participant and become the goals against which actual performance is measured. The Compensation Committee, in its discretion, analyzes each participant’s performance to determine whether performance met or exceeded the goals established by the Committee. The achieved Goal Bonus may be 0% or range between 50% and 200%, depending on the level of achievement by the individual participant.
|
2018 Annual Cash Bonus Performance Measures
|
||||
|
Minimum (50%)
|
Target (100%)
|
Maximum (200%)
|
||
|
EBITDA Bonus:
|
||||
|
$25.0 million
|
$28.0 million
|
$31.0 million
|
||
|
Revenue Bonus:
|
||||
|
$330.0 million
|
$355.0 million
|
$380.0 million
|
||
|
Goal Bonus:
|
||||
|
Individual performance goals were established. Performance achievement is assessed for each participant.
|
||||
The Compensation Committee established
2018
target bonuses for each named executive officer, expressed as a percentage of base salary, as follows:
|
Percent of Base Salary
|
|
|
John W. Chisholm
|
110%
|
|
Joshua A. Snively, Sr.
(1)
|
95%
|
|
H. Richard Walton
(2)
|
75%
|
|
Matthew B. Marietta
(3)
|
80%
|
|
(1)
|
Mr. Snively ceased to be an officer and employee effective
February 28, 2019
.
|
|
(2)
|
Mr. Walton ceased to be an officer and employee effective
December 31, 2018
.
|
|
(3)
|
Mr. Marietta ceased to be an officer effective
December 20, 2018
, and ceased to be an employee on
December 31, 2018
.
|
2018
Annual Cash Bonus Achievements
Actual Adjusted EBITDA for
2018
was
$(14.5) million
, resulting in
no
earned bonus percentage which has a
45%
weighting for the cash payout.
Actual revenue for
2018
was
$250.1 million
, resulting in
no
earned bonus percentage which has a
35%
weighting for the cash payout.
Individual goals for Mr. Chisholm were to increase market share, development and implementation of a strategic vision for the Company, and oversee the strategic and financial plan for 2018. While the Company made some strides in acquiring new customers, overall, the Company saw a decline in it’s market share during the year. The strategic vision of the Company expanded in 2017 with the roll-out of the Company’s new Prescriptive Chemistry Management
®
(PCM
®
) program. While the PCM program continued to evolve in 2018, the costs associated with the expansion have decreased the bottom line profitability of the Company. Further, the plan for 2018 was not executed to the level expected by the Board of Directors. Individual goals for Mr. Snively were to engage with investors and top clients throughout the year, grow sales faster than the rate of completions, and develop and implement pay for performance compensation plans and KPI accountability. The targeted investors and clients were not all engaged throughout the year, sales decreased
26.9%
in 2018 as compared to 2017, and KPI accountability was not fully established in 2018.
The Compensation Committee assessed achievement of goals for each participant and awarded performance below target for Mr. Chisholm and Mr. Snively. This resulted in
no
earned goal bonus percentage which has a
20%
weighting for the cash payout.
19
The table below shows the range of bonus opportunities, available on a combined basis, based on various Adjusted EBITDA and Revenue results and the achievement of individual goals for
2018
, and the actual annual incentive compensation earned, as determined in January
2019
.
|
Minimum
|
Target
|
Maximum
|
Earned
|
Discretionary
|
||||||||||||||||
|
50%
|
100%
|
200%
|
0.00%
|
Award
|
||||||||||||||||
|
John W. Chisholm
|
$
|
473,000
|
|
$
|
946,000
|
|
$
|
1,892,000
|
|
$
|
—
|
|
$
|
—
|
|
|||||
|
Joshua A. Snively, Sr.
|
$
|
232,750
|
|
$
|
465,500
|
|
$
|
931,000
|
|
$
|
—
|
|
$
|
—
|
|
|||||
|
H. Richard Walton
|
$
|
140,625
|
|
$
|
281,250
|
|
$
|
562,500
|
|
$
|
—
|
|
$
|
—
|
|
|||||
|
Matthew B. Marietta
|
$
|
134,000
|
|
$
|
268,000
|
|
$
|
536,000
|
|
$
|
—
|
|
$
|
—
|
|
|||||
In connection with the execution of her employment agreement in December 2018, Ms. Wilkinson received a one-time cash bonus of
$25,000
.
2018
Equity Compensation (Long-Term Incentive)
In order to address the Company’s objectives of retaining critical talent and increasing the amount of the long-term incentive opportunity that is contingent on the performance of the Company, the Compensation Committee established
2018
target grant values for each named executive officer, expressed as a percentage of base salary, as follows:
|
Percent of Base Salary
|
|
|
John W. Chisholm
|
225%
|
|
Joshua A. Snively, Sr.
(1)
|
200%
|
|
H. Richard Walton
(2)
|
135%
|
|
Matthew B. Marietta
(3)
|
150%
|
|
(1)
|
Mr. Snively ceased to be an officer and employee effective
February 28, 2019
.
|
|
(2)
|
Mr. Walton ceased to be an officer and employee effective
December 31, 2018
.
|
|
(3)
|
Mr. Marietta ceased to be an officer effective
December 20, 2018
, and ceased to be an employee on
December 31, 2018
.
|
Each named executive officer received performance units with respect to the target grant value. The target value is equal to each executive’s base annual salary multiplied by the percentage disclosed in the previous table. The target value was converted to Target Units for
2018
by dividing the target value by
$8.00
. The Compensation Committee modified the conversion formula for
2018
from its historical use of the fair market value of the Company’s Common Stock on the date of grant. This increased the divisor in the formula to
$8.00
from
$6.13
, the fair market value of the Company’s Common Stock on
March 16, 2018
, the date of the adoption of the
2018
long-term incentive opportunity. Increasing the divisor had the effect of reducing the number of Target Units that could be earned by approximately
23%
and was a way to conserve share usage from the shares available under the long-term incentive plan.
The Company analyzed the long-term incentive programs of each of the companies in its Peer Group. Based on this review, the Company discontinued having the long-term incentive opportunity based entirely on the Company’s relative total
shareholder return among the peer companies. A portion of the
2018
opportunity,
40%
, was allocated to restricted stock and
60%
was allocated to Performance Units. Only the Performance Units continue to have a possible payout between 0% and 200% based on performance. These changes to the long-term incentive program for
2018
mirror the current long-term incentive programs of the Peer Group.
Under the
2018
long-term incentive opportunity, allocation of the total target value is as follows:
|
•
|
40%
Restricted Stock;
|
|
•
|
30%
Performance Units based on Total Shareholder Return (“TSR”); and
|
|
•
|
30%
Performance Units based on Return on Tangible Assets (“ROTA”).
|
Restricted Stock.
Each executive is granted the number of shares of Restricted Stock equal to
40%
of the target value for the executive divided by
$8.00
. These shares will vest ratably on March 16, 2019, and December 31, 2019 and 2020.
TSR.
Each executive is granted the number of TSR target units equal to
30%
of the target value for the executive divided by
$8.00
. The performance period for the
2018
opportunity will be calendar years
2018
and
2019
.
Vesting of equity awards under the TSR portion of the long-term incentive opportunity will be based solely on the total shareholder return of the Company compared to the total shareholder return of the Russell 2000 Index for the performance period.
Total Shareholder Return is calculated using the average closing price of common stock of the respective company for the last 20 trading days before the end of the applicable Performance Period, adjusted for the amount of any dividends paid (the “Ending Value”), and the average closing price of common stock for the 20 trading days immediately preceding the first day of the Performance Period (the “Beginning Price”). Total Shareholder Return is measured by subtracting the Beginning Price from the Ending Value to determine the “Value Increase,” and then dividing the Value Increase by the Beginning Price.
Achieving the 100% target requires the Company’s actual performance to equal that of the Russell 2000 Index plus 5 percentage points. If the TSR of the Company is less than
20
that of the Russell 2000 Index, the TSR performance percentage shall be zero. The
2018
program contains a provision that limits the actual Performance Percentage (and number of Earned Shares) to a cap of 100% if the Company’s total shareholder return is a loss of greater than 5%.
At the end of the two-year performance period on
December 31, 2019
, the earned performance percentage will be determined and multiplied by the number of target units held by a participant to determine the number of shares earned. Any shares earned will vest on
December 31, 2020
.
ROTA.
Each executive is granted the number of ROTA target units equal to
30%
of the target value for the executive divided by
$8.00
. The performance period for the
2018
opportunity will be calendar years
2018
and
2019
.
Return on tangible assets is calculated by (i) dividing the consolidated income of the Company before taxes by (ii) the total consolidated assets of the Company, minus goodwill,
other intangible assets, and deferred tax assets, adjusted, in the discretion of the Compensation Committee, to reflect the effect of any acquisition or disposition of any assets and/or lines of business, and other extraordinary, nonrecurring items.
Vesting of equity awards under the ROTA portion of the long-term incentive opportunity will be based solely on the level of the Company’s return on tangible assets for the performance period. Achieving the 100% target requires a ROTA equal to 3.6%. If the ROTA of the Company is less than 1.5%, the ROTA performance percentage shall be zero.
At the end of the two-year performance period on
December 31, 2019
, the earned performance percentage will be determined and multiplied by the number of target units held by a participant to determine the number of shares earned. Any shares earned will vest on
December 31, 2020
.
Restricted Stock Awarded under the
2018
Equity Compensation Plan
The following table shows the Restricted Stock award program available under the
2018
equity grant and the number of shares granted to each of the named executive officers under this
40%
portion of the
2018
Equity Compensation Plan.
|
John W. Chisholm
|
96,750
|
|
|
Joshua A. Snively, Sr.
(1)
|
49,000
|
|
|
H. Richard Walton
(2)
|
25,313
|
|
|
Matthew B. Marietta
(3)
|
25,125
|
|
|
(1)
|
Mr. Snively ceased to be an officer and employee effective
February 28, 2019
. Upon his termination, Mr. Snively’s 2018 Restricted Stock award fully vested.
|
|
(2)
|
Mr. Walton ceased to be an officer and employee effective
December 31, 2018
. Upon his termination,
8,437
shares of Mr. Walton’s Restricted Stock award vested. Mr. Walton forfeited the remaining rights to his 2018 Restricted Stock award.
|
|
(3)
|
Mr. Marietta ceased to be an officer effective
December 20, 2018
, and ceased to be an employee on
December 31, 2018
. Upon his termination,
8,375
shares of Mr. Marietta’s Restricted Stock award vested. Mr. Marietta forfeited the remaining rights to his 2018 Restricted Stock award.
|
21
Performance Goal and Potential Payouts for
2018
-
2019
TSR Performance-Based Restricted Share Units
The following table shows the TSR award program available under the
2018
equity grant and the number of units available to be earned based on the Company’s performance versus the Russell 2000 Index in Total Shareholder Return.
|
Minimum
|
Target
|
Maximum
|
|||
|
Performance Percentage
|
50%
|
100%
|
200%
|
||
|
Performance compared to Russell
2000 Index
(1)
|
Russell 2000
|
Russell 2000 plus 5%
|
Russell 2000 plus 10%
|
||
|
Amounts in Shares
|
|||||
|
John W. Chisholm
|
36,282
|
72,563
|
145,126
|
||
|
Joshua A. Snively, Sr.
(2)
|
18,375
|
36,750
|
73,500
|
||
|
H. Richard Walton
(3)
|
9,493
|
18,985
|
37,970
|
||
|
Matthew B. Marietta
(4)
|
9,422
|
18,844
|
37,688
|
||
|
(1)
|
The Performance Percentage will be the Company’s total shareholder return in comparison to the Russell 2000 Index. The Performance Percentage earned between minimum and target and between target and maximum is determined on a linear basis. If the Company fails to perform at the Russell 2000 Index level, the bonus percentage is zero.
|
|
(2)
|
Mr. Snively ceased to be an officer and employee effective
February 28, 2019
. Upon his termination, Mr. Snively forfeited all rights to the 2018 - 2019 TSR Performance-Based Restricted Share Units.
|
|
(3)
|
Mr. Walton ceased to be an officer and employee effective
December 31, 2018
. Upon his termination, Mr. Walton forfeited all rights to the 2018 - 2019 TSR Performance-Based Restricted Share Units.
|
|
(4)
|
Mr. Marietta ceased to be an officer effective
December 20, 2018
, and ceased to be an employee on
December 31, 2018
. Upon his termination, Mr. Marietta forfeited all rights to the 2018 - 2019 TSR Performance-Based Restricted Share Units.
|
The two-year performance period for the
2018
TSR equity grant ends on
December 31, 2019
. Any shares earned will vest on
December 31, 2020
.
Performance Goal and Potential Payouts for
2018
-
2019
ROTA Performance-Based Restricted Share Units
The following table shows the ROTA award program available under the
2018
equity grant and the number of units available to be earned based on the Company’s Return on Tangible Assets.
|
Minimum
|
Target
|
Maximum
|
|||
|
Performance Percentage
|
50%
|
100%
|
200%
|
||
|
Return on Tangible Assets
(1)
|
1.5%
|
3.6%
|
5.7%
|
||
|
Amounts in Shares
|
|||||
|
John W. Chisholm
|
36,282
|
72,563
|
145,126
|
||
|
Joshua A. Snively, Sr.
(2)
|
18,375
|
36,750
|
73,500
|
||
|
H. Richard Walton
(3)
|
9,493
|
18,985
|
37,970
|
||
|
Matthew B. Marietta
(4)
|
9,422
|
18,844
|
37,688
|
||
|
(1)
|
The Performance Percentage will be the Company’s return on tangible assets. The Performance Percentage earned between minimum and target and between target and maximum is determined on a linear basis. If the Company fails to return 1.5% on tangible assets, the bonus percentage is zero.
|
The two-year performance period for the
2018
ROTA equity grant ends on
December 31, 2019
. Any shares earned will vest on
December 31, 2020
.
At
December 31, 2018
, the TSR and ROTA performance-based restricted share units granted in
2018
were on pace to achieve below the minimum target level, resulting in no payout. Company performance over the remaining year of the performance period will determine the number of shares earned, if any.
22
Performance Goal and Payouts for
2017
-
2018
Performance-Based Restricted Share Units
For the two-year performance period ended
December 31, 2018
, the Company failed to perform at the 25
th
percentile among companies in its Peer Group in total shareholder return. The following table shows the award program available under the
2017
equity grant and the number of shares earned as a result of the Company’s performance versus the Peer Group in total shareholder return.
|
Minimum
|
Target
|
Maximum
|
Actual
(2)
|
||||
|
Performance Percentage
|
50%
|
100%
|
200%
|
—%
|
|||
|
Achievement of percentile rank among
peer companies
(1)
|
25
th
percentile
|
50
th
percentile
|
75
th
percentile
|
less than 25th percentile
|
|||
|
Amounts in Shares
|
|||||||
|
John W. Chisholm
|
124,039
|
248,077
|
496,154
|
—
|
|||
|
Joshua A. Snively, Sr.
|
34,360
|
68,719
|
137,438
|
—
|
|||
|
H. Richard Walton
|
28,847
|
57,693
|
115,386
|
—
|
|||
|
(1)
|
The Performance Percentage will be the Company’s total shareholder return percentile ranking among the peer companies. The Performance Percentage earned between minimum and target and between target and maximum is determined on a linear basis. If the Company fails to perform at the 25
th
percentile, the bonus percentage is zero.
|
The two-year performance period for the
2017
equity grant ended on
December 31, 2018
. Determination of shares awarded was made in January
2019
. No shares were earned.
Employment Agreements
John W. Chisholm - Service Agreement and Letter Agreement
On April 15, 2014, effective March 30, 2014, Flotek and two companies controlled by John W. Chisholm, Chief Executive Officer, President and Chairman of the Board of Directors (the “Chisholm Companies”), entered into the Fifth Amended and Restated Service Agreement (the “Service Agreement”), pursuant to which the Chisholm Companies agreed to continue to provide the services of Mr. Chisholm to Flotek. The Service Agreement provides that Flotek will pay the Chisholm Companies a monthly amount as consideration for the provision of Mr. Chisholm’s services.
The term of the Service Agreement expired on April 30, 2017, but such term is extended on a monthly basis on the last day of each month so that the term of the Agreement is never less than 36 months, unless either party gives prior written notice of non-renewal. Flotek may terminate the Service Agreement at any time and for any reason with or without Cause (as defined in the Service Agreement) and the Chisholm Companies may terminate the Service Agreement for Good Reason (as defined in the Service Agreement). Upon termination of the Service Agreement by Flotek without Cause or by the Chisholm Companies for Good Reason, the Chisholm Companies will be entitled to receive severance compensation equal to 200% of the base compensation and target bonus in effect for the year in which the termination occurs.
If Mr. Chisholm is entitled to payments and benefits described in the Service Agreement that, together with any other payments which Chisholm and/or his affiliates has the right to receive from the Company and its affiliates, would
constitute a “parachute payment” (as defined in Section 280G of the Internal Revenue Code of 1986), the payments and benefits under the Agreement will be either (i) reduced (but not below zero) so that the aggregate present value of all such payments and benefits received by Chisholm and his affiliates from the Company and its affiliates for purpose of Section 280G shall be $1.00 less than three times Chisholm’s “base amount” (as defined in Section 280G of the Code) and so that no portion of such payments received by Chisholm and his affiliates for purposes of Section 280G shall be subject to the excise tax imposed by Section 4999 of the Code, or (ii) paid in full, whichever produces the better net after-tax result for Chisholm, the Chisholm Companies, and his other affiliates (taking into account any applicable excise tax under Section 4999 of the Code and any applicable income tax).
If the Service Agreement is terminated by Flotek with Cause, or due to the death or disability of Mr. Chisholm, the Chisholm Companies will be entitled to receive the base compensation earned and payable through the date of termination. The Service Agreement also contains certain non-solicitation restrictions for a period of 24 months following the date of termination of the Service Agreement.
On April 15, 2014, Flotek and Mr. Chisholm entered into a Letter Agreement (the “Letter Agreement”), pursuant to which Flotek agreed to employ Mr. Chisholm for a term equal to the term provided for in the Service Agreement. Pursuant to the terms of the Letter Agreement, Flotek will pay Mr. Chisholm an annual salary of $50,000. Mr. Chisholm is subject to certain confidentiality obligations and non-solicitation restrictions for a period of 24 months following the date of termination of the Letter Agreement.
23
Joshua A. Snively, Sr. - Employment Agreement
Effective March 16, 2018, the Company and Mr. Snively entered into an Employment Agreement to continue in his position as Executive Vice President, Operations of the Company and President of Florida Chemical Company, Inc., a subsidiary of the Company.
The Employment Agreement with Mr. Snively (i) provides for a term of employment until the earlier of (1) December 31, 2020, (2) Mr. Snively’s resignation with or without Good Reason (as defined in the Employment Agreement) or Mr. Snively’s death or disability, or (3) termination by the Company with or without Cause (as defined in the Employment Agreement); (ii) provides that, upon termination of Mr. Snively’s employment by the Company without Cause or by Mr. Snively for Good Reason (1)(a) prior to March 16, 2019, and subject to the satisfaction of certain other specified conditions, including the execution of a confidential severance and release agreement, Mr. Snively will be entitled to receive severance compensation equal to 150% of the sum of his annual base salary and target bonus for purposes of the MIP; or (1)(b) after March 16, 2019, but prior to December 31, 2020, and subject to the satisfaction of certain other specified conditions, including the execution of a release agreement, Mr. Snively will be entitled to receive severance compensation equal to 100% of the sum of his annual base salary and target bonus for purposes of the MIP; payable in nine monthly installments equal to one-ninth of such severance compensation, payable at the end of each full calendar month following the first full calendar month after execution of a confidential severance and release agreement and (2) coverage at the Company’s expense under the employee health insurance plan for a period of twelve months, the date he is no longer eligible to receive COBRA, or the maximum period permitted by COBRA, whichever is less; and (iii) contains certain non-solicitation and non-compete restrictions for a period of 24 months following the date of termination of employment with the Company. In addition, Mr. Snively was granted
75,000
shares of common stock as of March 16, 2018, which will vest ratably on December 31, 2018, 2019, and 2020.
Pursuant to the Employment Agreement, Mr. Snively’s initial annualized base salary was $490,000. In addition to the foregoing, Mr. Snively will be entitled to certain other perquisites, annual bonuses in accordance with the Company’s management incentive plan and performance unit plan, and reimbursement for reasonable expenses.
Mr. Snively’s employment as Executive Vice President, Operations was terminated on February 28, 2019 in connection with the sale of Florida Chemical Company, Inc., a subsidiary of the Company. As outlined in his Employment Agreement above, upon his termination from the Company and signing of the release agreement, Mr. Snively will receive severance equal to nine monthly installments of
$159,250
beginning in April 2019. In connection with Mr. Snively’s departure, 50,000 shares of common stock previously granted under his employment agreement and 49,000 shares of
common stock granted under the 2018 Long-Term Incentive Plan became fully vested on February 28, 2019. All unvested restricted stock units were forfeited as of February 28, 2019.
Elizabeth T. Wilkinson - Employment Agreement
On December 20, 2018, effective December 28, 2018, the Company and Ms. Wilkinson entered into an Employment Agreement for Ms. Wilkinson to serve as the Chief Financial Officer of the Company.
The Employment Agreement with Ms. Wilkinson (i) provides for a term of employment until the earlier of (1) December 31, 2020, (2) Ms. Wilkinson’s resignation with or without Good Reason (as defined in the Employment Agreement) or Ms. Wilkinson’s death or disability, or (3) termination by the Company with or without Cause (as defined in the Employment Agreement); (ii) provides that, upon termination of Ms. Wilkinson’s employment by the Company without Cause or by Ms. Wilkinson for Good Reason prior to December 31, 2020, and subject to the satisfaction of certain other specified conditions, including the execution of a release agreement, Ms. Wilkinson will be entitled to receive (1) severance compensation equal to 150% of the sum of her annual base salary, payable in nine monthly installments equal to one-ninth of such severance compensation, payable at the end of each full calendar month following the first full calendar month after execution of a confidential severance and release agreement and (2) coverage at the Company’s expense under the employee health insurance plan for a period of twelve months, the date she is no longer eligible to receive COBRA, or the maximum period permitted by COBRA, whichever is less; and (iii) contains certain non-solicitation and non-compete restrictions for a period of 24 months following the date of termination of employment with the Company. In addition, Ms. Wilkinson received a one-time cash bonus of
$25,000
payable with the first payroll cycle of the Company following her commencement of employment and was granted
60,000
shares of common stock as of December 28, 2018, which will vest ratably on December 31, 2019 and 2020.
Pursuant to the Employment Agreement, Ms. Wilkinson’s initial annualized base salary was $300,000. In addition to the foregoing, Ms. Wilkinson will be entitled to certain other perquisites, annual bonuses in accordance with the Company’s management incentive plan and performance unit plan, and reimbursement for reasonable expenses.
H. Richard Walton - Employment Agreement
Effective March 16, 2018, the Company and Mr. Walton entered into an Employment Agreement for Mr. Walton to serve as Chief Accounting Officer of the Company.
The Employment Agreement with Mr. Walton (i) provides for a term of employment until the earlier of (1) December 31, 2019, (2) Mr. Walton’s resignation with or without Good Reason (as defined in the Employment Agreement) or Mr. Walton’s death or disability, or
24
(3) termination by the Company with or without Cause (as defined in the Employment Agreement); (ii) provides that, upon termination of Mr. Walton’s employment by the Company without Cause or by Mr. Walton for Good Reason (1)(a) prior to March 16, 2019, and subject to the satisfaction of certain other specified conditions, including the execution of a confidential severance and release agreement, Mr. Walton will be entitled to receive severance compensation equal to 100% of the sum of his annual base salary and target bonus for purposes of the MIP; or (1)(b) after March 16, 2019, but prior to December 31, 2019, and subject to the satisfaction of certain other specified conditions, including the execution of a release agreement, Mr. Walton will be entitled to receive severance compensation equal to 75% of the sum of his annual base salary and target bonus for purposes of the MIP; payable in nine monthly installments equal to one-ninth of such severance compensation, payable at the end of each full calendar month following the first full calendar month after execution of a confidential severance and release agreement and (2) coverage at the Company’s expense under the employee health insurance plan for a period of twelve months, the date he is no longer eligible to receive COBRA, or the maximum period permitted by COBRA, whichever is less; and (iii) contains certain non-solicitation and non-compete restrictions for a period of 24 months following the date of termination of employment with the Company. In addition, Mr. Walton was granted
30,000
shares of common stock as of March 16, 2018, which will vest ratably on December 31, 2018 and 2019.
Pursuant to the Employment Agreement, Mr. Walton’s initial annualized base salary was $375,000. In addition to the foregoing, Mr. Walton will be entitled to certain other perquisites, annual bonuses in accordance with the Company’s management incentive plan and performance unit plan, and reimbursement for reasonable expenses.
Mr. Walton’s employment as Chief Accounting Officer was terminated on December 31, 2018. As outlined in his Employment Agreement above, upon his termination from the Company and signing of the release agreement, Mr. Walton will receive severance equal to nine monthly installments of
$72,917
beginning in February 2019. Pursuant to the Employment Agreement and respective restricted stock agreements, 15,000 shares of common stock previously granted under his employment agreement, 36,667 shares of common stock granted under the 2016 Long-Term Incentive Plan, and 8,437 shares of common stock granted under the 2018 Long-Term Incentive Plan became fully vested on December 31, 2018. All remaining unvested restricted stock and restricted stock units were forfeited as of December 31, 2018.
Matthew B. Marietta - Employment Agreement
Effective March 16, 2018, the Company and Mr. Marietta entered into an Employment Agreement to continue in his position as Executive Vice President, Operations of the Company and President of Florida Chemical Company, Inc., a subsidiary of the Company.
The Employment Agreement with Mr. Marietta (i) provides for a term of employment until the earlier of (1) December 31, 2020, (2) Mr. Marietta’s resignation with or without Good Reason (as defined in the Employment Agreement) or Mr. Marietta’s death or disability, or (3) termination by the Company with or without Cause (as defined in the Employment Agreement); (ii) provides that, upon termination of Mr. Marietta’s employment by the Company without Cause or by Mr. Marietta for Good Reason (1)(a) prior to March 16, 2019, and subject to the satisfaction of certain other specified conditions, including the execution of a release agreement, Mr. Marietta will be entitled to receive severance compensation equal to 150% of the sum of his annual base salary and target bonus for purposes of the MIP; or (1)(b) after March 16, 2019, but prior to December 31, 2020, and subject to the satisfaction of certain other specified conditions, including the execution of a confidential severance and release agreement, Mr. Marietta will be entitled to receive severance compensation equal to 100% of the sum of his annual base salary and target bonus for purposes of the MIP; payable in nine monthly installments equal to one-ninth of such severance compensation, payable at the end of each full calendar month following the first full calendar month after execution of a confidential severance and release agreement and (2) coverage at the Company’s expense under the employee health insurance plan for a period of twelve months, the date he is no longer eligible to receive COBRA, or the maximum period permitted by COBRA, whichever is less; and (iii) contains certain non-solicitation and non-compete restrictions for a period of 24 months following the date of termination of employment with the Company. In addition, Mr. Marietta was granted
60,000
shares of common stock as of March 16, 2018, which will vest ratably on December 31, 2018, 2019, and 2020.
Pursuant to the Employment Agreement, Mr. Marietta’s initial annualized base salary was $335,000. In addition to the foregoing, Mr. Marietta will be entitled to certain other perquisites, annual bonuses in accordance with the Company’s management incentive plan and performance unit plan, and reimbursement for reasonable expenses.
Mr. Marietta’s employment as Executive Vice President of Finance and Corporate Development was terminated on December 20, 2018 and his employment with the Company terminated on December 31, 2018. As outlined in his Employment Agreement above, upon his termination from the Company and signing of the release agreement, Mr. Marietta will receive severance equal to nine monthly installments of
$100,500
beginning in February 2019. In addition, pursuant to the Employment Agreement, Mr. Marietta will be provided health insurance coverage through December 31, 2019, and pursuant to the respective restricted stock agreements, 20,000 shares of common stock previously granted under his employment agreement and 8,375 shares of common stock granted under the 2018 Long-Term Incentive Plan became fully vested on December 31, 2018. All remaining unvested restricted stock and restricted stock units were forfeited as of December 31, 2018.
25
Other Benefits
The Company believes establishing a competitive benefit package for employees is an important factor in attracting and retaining highly qualified personnel. Named executive officers are eligible to participate in all of our employee benefit plans, including medical, dental, and vision care programs, Company-paid accidental death, dismemberment, and life insurance, and Flotek’s 401(k) plan, on the same basis as other employees. The Company matches contributions at
100%
of up to
2%
of an employee’s compensation and, if greater, the Company matches contributions at
50%
from
5%
to
8%
of an employee’s compensation. The Company does not offer pension or retirement benefits other than the 401(k) plan. The Company’s international employees may have slightly different employee benefit plans than those offered to domestic employees, typically as a result of legal requirements of the specific country.
Perquisites
Mr. Snively was provided the use of a Company rented house.
Tax and Accounting Implications
Deductibility of Executive Compensation
The Compensation Committee is aware of the provisions of Section 162(m) of the Internal Revenue Code which provided that the Company may not deduct for federal income tax purposes annual compensation in excess of $1 million paid to certain employees. Performance-based compensation paid pursuant to stockholder-approved plans during 2018 was not subject to the deduction limit as long as such compensation is approved by “outside directors” within the meaning of Section 162(m) of the Code.
In the past, the Compensation Committee made every reasonable effort to structure and administer executive compensation opportunities so that compensation will not be subject to the Section 162(m) deduction limit. Due to the recent changes in U.S. tax law, as part of the Tax Cuts and
Jobs Act enacted in December 2017, the opportunity to design plans that are fully tax-deductible for our named executive officers has effectively been eliminated. Therefore, tax-deductibility will likely have less of an impact on the Company’s executive compensation program design in the future.
Accounting for Stock-Based Compensation
The Company accounts for stock-based payments in accordance with the requirements of Accounting Standards Codification (ASC) Topic 718, “Stock Compensation.” Equity based compensation is expensed over the requisite service period pursuant to the grant award terms. The Company considers the expense associated with stock-based incentive awards when granting such awards.
Section 409A
To the extent we permit executives to defer compensation or we commit to deliver compensation at a later date than when earned and vested, we make every attempt to meet the requirements of Section 409A of the Internal Revenue Code. Failure to satisfy the Section 409A requirements could subject the executives receiving deferred compensation to a 20% excise tax.
Compensation Committee Report
The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis with management and, based on such review and discussion, has recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.
Michelle M. Adams, Chair
Ted D. Brown
L. Melvin Cooper
David Nierenberg
April 24, 2019
26
Summary Compensation Table
The following table provides information concerning compensation earned in our fiscal years
2018
,
2017
, and
2016
by our named executive officers.
|
Name and Principal Position
|
Year
|
Salary
|
Bonus
|
Stock
Awards
|
|
Option
Awards
|
|
All Other
Compensation
|
Total
|
|||||||||||||||||||
|
John W. Chisholm – President, Chief
Executive Officer and Chairman of the Board |
2018
|
$
|
50,000
|
|
$
|
—
|
|
(1)
|
$
|
934,367
|
|
(2)
|
$
|
—
|
|
$
|
810,000
|
|
$
|
1,794,367
|
|
|||||||
|
2017
|
$
|
50,000
|
|
$
|
631,455
|
|
$
|
4,584,463
|
|
(2)
|
$
|
—
|
|
$
|
810,000
|
|
$
|
6,075,918
|
|
|||||||||
|
2016
|
$
|
50,000
|
|
$
|
496,100
|
|
$
|
4,106,837
|
|
(2)
|
$
|
—
|
|
$
|
770,000
|
|
$
|
5,422,937
|
|
|||||||||
|
Joshua A. Snively, Sr.– Executive Vice
President, Operations |
2018
|
$
|
499,166
|
|
$
|
—
|
|
(1)
|
$
|
932,968
|
|
(2)(3)
|
$
|
—
|
|
$
|
30,771
|
|
$
|
1,462,905
|
|
|||||||
|
2017
|
$
|
446,671
|
|
$
|
253,429
|
|
$
|
1,269,927
|
|
(2)
|
$
|
—
|
|
$
|
11,565
|
|
$
|
1,981,592
|
|
|||||||||
|
2016
|
$
|
424,832
|
|
$
|
175,478
|
|
$
|
1,079,480
|
|
(2)
|
$
|
—
|
|
$
|
3,904
|
|
$
|
1,683,694
|
|
|||||||||
|
Elizabeth T. Wilkinson – Chief Financial
Officer |
2018
|
$
|
—
|
|
$
|
—
|
|
$
|
63,600
|
|
(4)
|
$
|
—
|
|
$
|
—
|
|
$
|
63,600
|
|
||||||||
|
H. Richard Walton – Executive Vice
President and Chief Financial Officer |
2018
|
$
|
375,000
|
|
$
|
—
|
|
(1)
|
$
|
428,363
|
|
(2)(3)(5)
|
$
|
—
|
|
$
|
667,250
|
|
$
|
1,470,613
|
|
|||||||
|
2017
|
$
|
375,000
|
|
$
|
187,734
|
|
$
|
1,066,167
|
|
(2)
|
$
|
—
|
|
$
|
12,000
|
|
$
|
1,640,901
|
|
|||||||||
|
Matthew B. Marietta – Executive Vice
President of Finance and Corporate Development |
2018
|
$
|
332,731
|
|
$
|
—
|
|
(1)
|
$
|
610,448
|
|
(2)(3)(6)
|
$
|
—
|
|
$
|
928,580
|
|
$
|
1,871,759
|
|
|||||||
|
(1)
|
Mr. Chisholm and Mr. Snively did not receive a bonus as part of the
2018
Annual Bonus Plan (MIP) as the Revenue targets, Adjusted EBITDA targets, and personal goals were not met during
2018
.
|
|
(2)
|
Represents the aggregate grant date fair value of performance-based restricted stock unit awards made in
2018
,
2017
, and
2016
based upon the probable outcome of the performance condition to become achieved. These performance-based awards have market and service conditions and the aggregate grant date fair value was calculated using the Monte Carlo simulation model.
|
|
(3)
|
The amount also reflects the grant date fair value, calculated in accordance with ASC Topic 718, of
75,000
,
30,000
, and
60,000
shares of restricted stock awards granted on
March 16, 2018
, to Mr. Snively, Mr. Walton, and Mr. Marietta, respectively.
|
|
(4)
|
The amount reflects the grant date fair value, calculated in accordance with ASC Topic 718, of
60,000
shares of restricted stock awards granted on December 28, 2018.
|
|
(5)
|
Per the respective restricted stock agreement,
8,437
shares of Mr. Walton’s restricted stock awards vested on
December 31, 2018
. All remaining rights to unvested restricted stock and restricted stock units previously granted were forfeited.
|
|
(6)
|
Per the respective restricted stock agreement,
8,375
shares of Mr. Marietta’s restricted stock awards vested on
December 31, 2018
. All remaining rights to unvested restricted stock and restricted stock units previously granted were forfeited.
|
The following table provides detail of “All Other Compensation” in the Summary Compensation Table.
|
Name
|
Year
|
Company
Provided
Housing
|
Company
Match
401 (k)
|
Services and
Consulting
Contracts
(1)
|
Separation and Severance
|
All Other
Compensation
|
||||||||||||||||
|
John W. Chisholm
|
2018
|
$
|
—
|
|
$
|
—
|
|
$
|
810,000
|
|
$
|
—
|
|
$
|
810,000
|
|
||||||
|
2017
|
$
|
—
|
|
$
|
—
|
|
$
|
810,000
|
|
$
|
—
|
|
$
|
810,000
|
|
|||||||
|
2016
|
$
|
—
|
|
$
|
—
|
|
$
|
770,000
|
|
$
|
—
|
|
$
|
770,000
|
|
|||||||
|
Joshua A. Snively, Sr.
|
2018
|
$
|
20,833
|
|
$
|
9,938
|
|
$
|
—
|
|
$
|
—
|
|
$
|
30,771
|
|
||||||
|
2017
|
$
|
4,693
|
|
$
|
6,872
|
|
$
|
—
|
|
$
|
—
|
|
$
|
11,565
|
|
|||||||
|
2016
|
$
|
—
|
|
$
|
3,904
|
|
$
|
—
|
|
$
|
—
|
|
$
|
3,904
|
|
|||||||
|
Elizabeth T. Wilkinson
|
2018
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
||||||
|
H. Richard Walton
|
2018
|
$
|
—
|
|
$
|
11,000
|
|
$
|
—
|
|
$
|
656,250
|
|
(2)
|
$
|
667,250
|
|
|||||
|
2017
|
$
|
—
|
|
$
|
12,000
|
|
$
|
—
|
|
$
|
—
|
|
$
|
12,000
|
|
|||||||
|
Matthew B. Marietta
|
2018
|
$
|
—
|
|
$
|
5,624
|
|
$
|
—
|
|
$
|
922,956
|
|
(3)
|
$
|
928,580
|
|
|||||
|
(1)
|
Amounts received by Mr. Chisholm are related to the Service Agreement of companies affiliated with Mr. Chisholm with the Company.
|
|
(2)
|
Per Mr. Walton’s Employment Agreement, Mr. Walton will receive nine monthly installments of
$72,917
beginning in February 2019. All required performance necessary to receive these payments was completed upon his separation from the Company effective
December 31, 2018
.
|
|
(3)
|
Per Mr. Marietta’s Employment Agreement, Mr. Marietta will receive nine monthly installments of
$100,500
beginning in February 2019, and will be provided health insurance coverage through December 31, 2019. All required performance necessary to receive these payments was completed upon his separation from the Company effective
December 31, 2018
.
|
27
Grants of Plan-Based Awards
The following table provides information regarding grants of plan-based awards during our fiscal year
2018
to our named executive officers.
2018
Grants of Plan-Based Awards
|
Name
|
Grant
Date
|
Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards
(1)
|
Estimated Future Payouts
Under Equity Incentive
Plan Awards
|
All Other Stock Awards: Number of Shares of Stock or Units
|
All Other Option Awards: Number of Securities Underlying Options
|
Exercise or Base Price of Option Awards
|
Grant Date Fair Value for Stock and Option Awards
|
||||||||||||||||||||||||||||
|
Threshold
|
Target
|
Maximum
|
Threshold
(Shares) |
Target
(Shares)
|
Maximum
(Shares)
|
||||||||||||||||||||||||||||||
|
John W.
Chisholm
|
|
$
|
473,000
|
|
$
|
946,000
|
|
$
|
1,892,000
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|||||||||
|
4/27/2018
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
—
|
|
96,750
|
|
—
|
|
—
|
|
—
|
|
$
|
—
|
|
$
|
361,845
|
|
(2
|
)
|
||||||||
|
4/27/2018
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
36,282
|
|
72,563
|
|
145,126
|
|
—
|
|
—
|
|
$
|
—
|
|
$
|
301,136
|
|
(3
|
)
|
||||||||
|
4/27/2018
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
36,282
|
|
72,563
|
|
145,126
|
|
—
|
|
—
|
|
$
|
—
|
|
$
|
271,386
|
|
(3
|
)
|
||||||||
|
Joshua A.
Snively, Sr.
|
|
$
|
232,750
|
|
$
|
465,500
|
|
$
|
931,000
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|||||||||
|
4/27/2018
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
—
|
|
49,000
|
|
—
|
|
—
|
|
—
|
|
$
|
—
|
|
$
|
183,260
|
|
(2
|
)
|
||||||||
|
4/27/2018
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
18,375
|
|
36,750
|
|
73,500
|
|
—
|
|
—
|
|
$
|
—
|
|
$
|
152,513
|
|
(3
|
)
|
||||||||
|
4/27/2018
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
18,375
|
|
36,750
|
|
73,500
|
|
—
|
|
—
|
|
$
|
—
|
|
$
|
137,445
|
|
(3
|
)
|
||||||||
|
3/16/2018
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
—
|
|
—
|
|
—
|
|
75,000
|
|
—
|
|
$
|
—
|
|
$
|
459,750
|
|
(4
|
)
|
||||||||
|
Elizabeth T.
Wilkinson
|
3/16/2018
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
—
|
|
—
|
|
—
|
|
60,000
|
|
—
|
|
$
|
—
|
|
$
|
63,600
|
|
(4
|
)
|
|||||||
|
H. Richard
Walton
(5)
|
|
$
|
140,625
|
|
$
|
281,250
|
|
$
|
562,500
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|||||||||
|
4/27/2018
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
—
|
|
25,313
|
|
—
|
|
—
|
|
—
|
|
$
|
—
|
|
$
|
94,671
|
|
(2
|
)
|
||||||||
|
4/27/2018
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
9,493
|
|
18,985
|
|
37,970
|
|
—
|
|
—
|
|
$
|
—
|
|
$
|
78,788
|
|
(3
|
)
|
||||||||
|
4/27/2018
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
9,493
|
|
18,985
|
|
37,970
|
|
—
|
|
—
|
|
$
|
—
|
|
$
|
71,004
|
|
(3
|
)
|
||||||||
|
3/16/2018
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
—
|
|
—
|
|
—
|
|
30,000
|
|
—
|
|
$
|
—
|
|
$
|
183,900
|
|
(4
|
)
|
||||||||
|
Matthew B.
Marietta
(5)
|
|
$
|
134,000
|
|
$
|
268,000
|
|
$
|
536,000
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|||||||||
|
4/27/2018
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
—
|
|
25,125
|
|
—
|
|
—
|
|
—
|
|
$
|
—
|
|
$
|
93,968
|
|
(2
|
)
|
||||||||
|
4/27/2018
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
9,422
|
|
18,844
|
|
37,688
|
|
—
|
|
—
|
|
$
|
—
|
|
$
|
78,203
|
|
(3
|
)
|
||||||||
|
4/27/2018
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
9,422
|
|
18,844
|
|
37,688
|
|
—
|
|
—
|
|
$
|
—
|
|
$
|
70,477
|
|
(3
|
)
|
||||||||
|
3/16/2018
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
—
|
|
—
|
|
—
|
|
60,000
|
|
—
|
|
$
|
—
|
|
$
|
367,800
|
|
(4
|
)
|
||||||||
|
(1)
|
Represents the potential annual performance-based cash incentive compensation that could be earned in
2018
depending on the extent to which the
2018
objectives were met.
|
|
(2)
|
Represents time-based restricted stock awards granted in
2018
. Grant date fair value is based on the closing stock price on the date of grant and is consistent with aggregate compensation cost to be recognized over the service period.
|
|
(3)
|
Represents performance-based restricted share units granted in
2018
. Shares earned will be determined depending on the extent to which the
2018
-
2019
performance period objectives were met. Any shares earned for the two-year performance period ending
December 31, 2019
will vest on
December 31, 2020
. Grant date fair value is determined in accordance with ASC Topic 718 and, for the performance-based restricted share units which have a market condition, is the value at grant date based on the probable outcome of the performance condition and is consistent with the estimate of aggregate compensation cost to be recognized over the service period.
|
|
(4)
|
Represents restricted stock awards granted in connection with new employment agreements entered into in
2018
. Grant date fair value is based on the closing stock price on the date of grant and is consistent with aggregate compensation cost to be recognized over the service period.
|
|
(5)
|
As Mr. Walton and Mr. Marietta were not employed by the Company on
December 31, 2018
, all unvested restricted stock and restricted share units previously granted were forfeited, except as previously disclosed.
|
28
The following tables provide information relating to outstanding equity-based awards held by each named executive officer as of
December 31, 2018
.
Outstanding Equity Awards at Fiscal Year-End
|
Restricted Stock Awards
|
||||||||||||||||||||
|
Name
|
Year of Grant
|
Number of
Shares or Units of Stock
That Have Not
Vested
|
|
Market Value of Shares or Units of Stock
That Have Not Vested
(1)
|
Equity Incentive Plan
Awards: Number of
Unearned Shares, Units
or Other Rights That
Have Not Vested
|
|
Equity Incentive Plan
Awards: Market or
Payout Value of
Unearned Shares, Units
or Other Rights That
Have Not Vested
(1)
|
|||||||||||||
|
John W. Chisholm
|
2018
|
96,750
|
|
(2)
|
$
|
105,458
|
|
145,126
|
|
(5)
|
$
|
158,187
|
|
|||||||
|
Joshua A. Snively, Sr.
|
2018
|
50,000
|
|
(3)
|
$
|
54,500
|
|
—
|
|
|
$
|
—
|
|
|||||||
|
2018
|
49,000
|
|
(3)
|
$
|
53,410
|
|
73,500
|
|
(5)(6)
|
$
|
80,115
|
|
||||||||
|
Elizabeth T. Wilkinson
|
2018
|
60,000
|
|
(4)
|
$
|
65,400
|
|
—
|
|
|
$
|
—
|
|
|||||||
|
(1)
|
The dollar value of the unvested shares of restricted stock reported are valued at the closing price of Flotek’s Common Stock on
December 31, 2018
(
$1.09
per share).
|
|
(2)
|
The total number of unvested shares of restricted stock granted on
April 27, 2018
. These shares vest ratably on
December 31, 2019
and
2020
.
|
|
(3)
|
Per his release agreement, all of Mr. Snively’s outstanding restricted stock awards vested on February 28, 2019.
|
|
(4)
|
The total number of unvested shares of restricted stock granted on
December 28, 2018
. These shares vest ratably on
December 31, 2019
and
2020
.
|
|
(5)
|
The total number of unearned performance shares available for the
2018
-
2019
performance period, at the target 100% level. The shares will be adjusted as of
December 31, 2019
for actual performance during the
2018
-
2019
performance period.
|
|
(6)
|
As Mr. Snively’s employment with the Company terminated on February 28, 2019, prior to the end of the performance period, all rights to unearned shares available for the
2018
-
2019
performance period were forfeited.
|
The following table provides information regarding the value realized upon the exercise of stock options and the vesting of restricted stock awards by named executive officers during the fiscal year ended
December 31, 2018
.
Option Exercises and Restricted Stock Vested
|
|
Option Awards
|
Restricted Stock Awards
|
||||||||||||
|
Name
|
Number of
Shares Acquired
on Exercise
|
Value Realized
on Exercise
|
Number of
Shares Acquired
on Vesting
|
Value Realized
on Vesting
|
||||||||||
|
John W. Chisholm
|
—
|
|
$
|
—
|
|
170,834
|
|
$
|
186,209
|
|
||||
|
Joshua A. Snively, Sr.
|
—
|
|
$
|
—
|
|
69,904
|
|
$
|
76,195
|
|
||||
|
Elizabeth T. Wilkinson
|
—
|
|
$
|
—
|
|
—
|
|
$
|
—
|
|
||||
|
H. Richard Walton
|
—
|
|
$
|
—
|
|
60,104
|
|
$
|
65,513
|
|
||||
|
Matthew B. Marietta
|
—
|
|
$
|
—
|
|
28,375
|
|
$
|
30,929
|
|
||||
29
Potential Payments upon Termination of Employment or Change in Control
The following table describes the circumstances that will trigger acceleration of vesting of certain stock options and restricted stock grants and quantifies the value of the stock options or restricted stock grants, the vesting of which would have accelerated upon the occurrence of the specified events, assuming that such event had occurred on
December 31, 2018
and based on the closing price of our Common Stock on that date of
$1.09
per share.
|
Name and Participant Position
|
Termination Event
|
Severance
|
Pro-Rata Bonus
|
Health Benefits
|
Acceleration
of Unvested
Equity
|
Total
|
||||||||||||||||
|
John W. Chisholm (1)
|
Change In Control
|
$
|
3,612,000
|
|
$
|
946,000
|
|
$
|
—
|
|
$
|
263,645
|
|
$
|
4,821,645
|
|
||||||
|
President, Chief Executive Officer and
|
Good Reason
|
$
|
3,612,000
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
3,612,000
|
|
||||||
|
Chairman of the Board
|
Without Cause
|
$
|
3,612,000
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
3,612,000
|
|
||||||
|
Death or Disability
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
263,645
|
|
$
|
263,645
|
|
|||||||
|
Joshua A. Snively, Sr. (2)
|
Change In Control
|
$
|
1,433,250
|
|
$
|
465,500
|
|
$
|
26,565
|
|
$
|
188,025
|
|
$
|
2,113,340
|
|
||||||
|
Executive Vice President, Operations
|
Good Reason
|
$
|
1,433,250
|
|
$
|
—
|
|
$
|
26,565
|
|
$
|
—
|
|
$
|
1,459,815
|
|
||||||
|
Without Cause
|
$
|
1,433,250
|
|
$
|
—
|
|
$
|
26,565
|
|
$
|
—
|
|
$
|
1,459,815
|
|
|||||||
|
Death or Disability
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
188,025
|
|
$
|
188,025
|
|
|||||||
|
Elizabeth T. Wilkinson (3)
|
Change In Control
|
$
|
450,000
|
|
$
|
—
|
|
$
|
9,085
|
|
$
|
65,400
|
|
$
|
524,485
|
|
||||||
|
Chief Financial Officer
|
Good Reason
|
$
|
450,000
|
|
$
|
—
|
|
$
|
9,085
|
|
$
|
—
|
|
$
|
459,085
|
|
||||||
|
Without Cause
|
$
|
450,000
|
|
$
|
—
|
|
$
|
9,085
|
|
$
|
—
|
|
$
|
459,085
|
|
|||||||
|
Death or Disability
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
65,400
|
|
$
|
65,400
|
|
|||||||
For purposes of awards under our long-term incentive plans, “Change in Control” shall be deemed to have occurred upon any of the following events:
|
(a)
|
Any “person” or “persons” (as defined in Section 3(a)(9) of the Exchange Act, and as modified in Sections 13(d) and 14(d) of the Exchange Act) other than and excluding (i) the Company or any of its subsidiaries, (ii) any employee benefit plan of the Company or any of its subsidiaries, (iii) any affiliate of the Company, (iv) an entity owned, directly or indirectly, by stockholders of the Company in substantially the same proportions as their ownership of the Company or (v) an underwriter temporarily holding securities pursuant to an offering of such securities, becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing more than 50% of the shares of voting stock of the Company then outstanding;
|
|
(b)
|
The consummation of any merger, organization, business combination or consolidation of the Company or one of its subsidiaries with or into any other entity, other than a merger, reorganization, business combination or consolidation which would result in the holders of the voting securities of the Company outstanding immediately prior thereto and their respective Affiliates holding securities which represent immediately after such merger, reorganization, business combination or consolidation more than 50% of the combined voting power of the voting securities of the Company or the surviving company or the parent of such surviving company;
|
|
(c)
|
The consummation of a sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition if the holders of the voting securities of the Company outstanding immediately prior thereto and their respective Affiliates hold securities immediately thereafter which represent more than 50% of the combined voting power of the voting securities of the acquiror, or parent of the acquiror, of such assets;
|
|
(d)
|
The stockholders of the Company approve a plan of complete liquidation or dissolution of the Company; or
|
|
(e)
|
The Incumbent Board ceases for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election by the Board was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an election contest with respect to the election or removal of directors or other solicitation of proxies or consents by or on behalf of a person other than the Board.
|
For purposes of the applicable employment agreements, “Good Reason” means the occurrence of one of the following Company actions, unless the employee consents in writing to such action:
|
(i)
|
A material reduction of the employee’s salary and employee benefits to which the employee was entitled immediately prior to such reduction;
|
|
(ii)
|
A material reduction in the duties, authority or responsibilities relative to the employee’s duties, authority or responsibilities as in effect immediately prior to such reduction; or
|
|
(iii)
|
The relocation of the employee to a facility or a location more than fifty (50) miles from the employee’s then present location;
|
Provided, however, that (A) the employee must provide the Company with written notice of the occurrence of such action(s) within 60 days of the initial occurrence of such action(s) and of his or her intent to terminate employment based on such action(s) and (B) the Company will have 30 days from the date that such written notice is provided by employee to cure such action(s).
For purposes of the applicable employment agreements, “Cause” means the termination of an employee for any of the following reasons:
|
(i)
|
An employee's continued failure to substantially perform one or more of the employee’s essential duties and obligations to the Company (other than any such failure resulting from a disability) which, to the extent such failure is remediable, the employee fails to remedy in a reasonable period of time (not to exceed 30 days) after receipt of written notice from the Company;
|
|
(ii)
|
An employee’s refusal or failure to comply with the reasonable and legal directives of the Board of Directors after written notice from the Board describing the employee’s failure to comply and, if such failure is remediable, the employee’s failure to remedy same within 10 days of receiving written notice;
|
|
(iii)
|
Any act of personal dishonesty, fraud or misrepresentation taken by an employee which was intended to result in substantial gain or personal enrichment of the employee at the expense of the Company;
|
30
|
(iv)
|
An employee's violation of a federal or state law or regulation applicable to the Company's business which violation was or is reasonably likely to be materially injurious to the Company;
|
|
(v)
|
An employee's conviction of, or plea of nolo contendere or guilty to, a felony under the laws of the United States or any State that is reasonably likely to reasonably likely to be materially injurious to the Company;
|
|
(vi)
|
An employee’s abuse of drugs, other narcotics or alcohol during working hours or where such abuse (whenever occurring) impacts on the employee’s working day;
|
|
(vii)
|
An employee's breach of any of his material obligations under any written agreement with the Company (including without limitation his employment agreement and any proprietary information and inventions assignment agreement with the Company); or
|
|
(viii)
|
An employee’s violation of a material policy of the Company which, to the extent such failure is remediable, the employee fails to remedy in a reasonable period of time (not to exceed 30 days) after receipt of written notice from the Company.
|
|
(1)
|
Upon termination of employment between Flotek and the Chisholm Companies pursuant to the Service Agreement and the employment of Mr. Chisholm pursuant to his Letter Agreement for (a) Good Reason or (b) without Cause, the Chisholm Companies shall be entitled to receive severance compensation equal to two hundred percent of base compensation and target bonus in effect for the year in which the termination occurs. If employment of the Chisholm Companies were to be terminated by (c) death or disability, the Chisholm Companies would be entitled to receive (i) base compensation earned and payable through the date of termination and (ii) Mr. Chisholm would be entitled to the accelerated vesting of all RSAs.
|
|
(2)
|
Upon termination of employment between Flotek and Mr. Snively for (a) Good Reason or (b) without Cause (i) prior to the first anniversary of the effective date of his employment agreement, he is entitled to receive severance compensation equal to 150% of his base salary and target bonus in effect for the year in which the termination occurs or after the first anniversary of the effective date but prior to the expiration date of his employment agreement, he is entitled to receive severance compensation equal to 100% of his base salary and target bonus in effect for the year in which the termination occurs and (ii) continued health coverage for the lesser of one year, the maximum period provided for under COBRA, or the date on which he receives substantially similar coverage from another employer or other source. If the employment of Mr. Snively were to be terminated for (c) cause or (d) death or disability, Mr. Snively would be entitled to receive (i) base salary earned and payable through the date of termination, (ii) any accrued but unused vacation/time off to the extent required under applicable law, (iii) reimbursement for all incurred but unreimbursed expenses in which he is entitled to be reimbursed, and (iv) any other earned but unpaid compensation, if applicable, as of the termination date.
|
|
(3)
|
Upon termination of employment between Flotek and Ms. Wilkinson for (a) Good Reason or (b) without Cause (i) prior to the expiration date of her employment agreement, she is entitled to receive severance compensation equal to 150% of her base salary in effect for the year in which the termination occurs and (ii) continued health coverage for the lesser of one year, the maximum period provided for under COBRA, or the date on which she receives substantially similar coverage from another employer or other source. If the employment of Ms. Wilkinson were to be terminated for (c) cause or (d) death or disability, Ms. Wilkinson would be entitled to receive (i) base salary earned and payable through the date of termination, (ii) any accrued but unused vacation/time off to the extent required under applicable law, (iii) reimbursement for all incurred but unreimbursed expenses in which she is entitled to be reimbursed, and (iv) any other earned but unpaid compensation, if applicable, as of the termination date.
|
CEO to Median Employee Pay Ratio
Beginning in 2017, SEC rules require companies to disclose the ratio of the total annual compensation of the Company’s CEO to the median employee’s total annual compensation. The following table provides information regarding this pay ratio for
2018
:
|
CEO total annual compensation
|
$
|
1,794,367
|
|
|
Median employee total annual compensation
|
$
|
73,594
|
|
|
Ratio of CEO to median employee
compensation
|
24.4 to 1
|
||
To identify the median employee for providing the information above, the Company considered compensation of all employees (other than the CEO) from its payroll records as of
November 23, 2018
(its last payroll in November). All full-time, part-time, and temporary employees in the U.S. and foreign countries were included. All compensation was analyzed in U.S. dollars, using the relevant exchange rate for any compensation paid to employees in other currencies. Compensation for full-time and part-time employees hired during
2018
was “annualized” through
November 23, 2018
. After identifying the median employee, the Company calculated total annual compensation for such employee using the same methodology used in determining CEO pay as set forth in the Summary Compensation Table.
Given the different methodologies, exemptions, estimates, and assumptions that various companies will use to determine their pay ratios, the ratio reported above may not be comparable to the pay ratio reported by other companies.
31
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
Meeting Attendance
During
2018
, the Board held
19
meetings of the full Board and
22
meetings of committees. The Audit Committee held
6
meetings, the Corporate Governance and Nominating Committee held
6
meetings, and the Compensation Committee held
10
meetings. Each director attended at least
75%
of the aggregate number of meetings of the Board and committees of the Board on which he or she served from the respective dates of appointment.
The Company does not have a formal policy requiring members of the Board to attend the Annual Meeting, although all directors are strongly encouraged to attend. Of the Directors, Messrs. Chisholm, Cooper, and McGuire, and Ms. Adams attended the last Annual Meeting of Stockholders.
Executive Sessions
Pursuant to the Company’s Corporate Governance Guidelines, non-management directors of the Board are required to meet on a regularly scheduled basis without the presence of management. The Lead Director chairs these sessions. During
2018
, the non-management directors met in
4
executive sessions without management present.
Director Independence
The Board has determined that each of the current directors, except for Mr. Chisholm, is independent as defined by the rules of the NYSE and, in the case of the Audit Committee, the Securities and Exchange Commission (the “SEC”). Mr. Chisholm is not an independent director, since he is currently the President and Chief Executive Officer of the Company.
None of the non-employee directors have any relationship with the Company other than as a director and stockholder, or any transaction or arrangement that interferes with each director’s independence.
Risk Management
The Board has an active role, as a whole and at the committee level, in overseeing management of the Company’s risks. The Board regularly reviews information regarding the Company’s credit, liquidity, and operations, as well as the risks associated with each. The Company’s Compensation Committee is responsible for overseeing the management of risks relating to the Company’s executive compensation plans and arrangements. The Audit Committee oversees management of financial risks. The Corporate Governance and Nominating Committee manages risks associated with Board independence and potential conflicts of interest. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board is regularly informed through committee reports about all identified Company risks.
Board Committees
The Board has established an Audit Committee, a Corporate Governance and Nominating Committee, and a Compensation Committee. The Audit, Corporate Governance and Nominating, and Compensation committees are composed entirely of independent directors as defined under the New York Stock Exchange Listed Company Manual and the Company’s Corporate Governance Guidelines.
The following table shows the committees on which each director currently serves. “C” indicates that the director serves as the chair of the committee.
|
Director
|
Audit
|
Corporate
Governance
and
Nominating
|
Compensation
|
|
Michelle M. Adams
|
X
|
C
|
|
|
Ted D. Brown
|
X
|
C
|
X
|
|
L. Melvin Cooper
|
C
|
X
|
|
|
Paul W. Hobby
|
X
|
||
|
L.V. “Bud” McGuire
|
X
|
X
|
|
|
David Nierenberg
|
X
|
X
|
|
|
Katherine T. Richard
|
|||
Audit Committee
The Audit Committee held
6
meetings in
2018
. The Audit Committee’s primary functions are to:
|
•
|
Appoint, determine funding for, oversee, and replace (subject to stockholder ratification, if applicable) a firm of independent auditors to audit our financial statements;
|
|
•
|
Pre-approve all audit and non-audit services provided by our independent auditors;
|
|
•
|
Evaluate the qualifications, performance and independence of our independent auditors, and ensure the rotation of the lead (or concurring) audit partner;
|
|
•
|
Obtain and review a report of our independent auditors, at least annually, regarding compliance with their internal quality-control procedures;
|
|
•
|
Discuss with our independent auditors the overall scope and plans for their respective audits;
|
|
•
|
Discuss with management and our independent auditors the adequacy and effectiveness of the Company’s accounting and financial controls;
|
|
•
|
Meet with our independent auditors to discuss the conduct and findings of their respective audits;
|
|
•
|
Meet and review with management and our independent auditors the Company’s financial statements and the associated disclosures to be included in quarterly and annual reports to be filed with the SEC;
|
|
•
|
Discuss with management and our independent auditors significant financial reporting issues and judgments made in connection with the preparation of the Company’s financial statements;
|
32
|
•
|
Discuss periodically with management the Company’s plan with regards to issuing earnings press releases and providing financial information and earnings guidance to analysts and rating agencies;
|
|
•
|
Review any disclosures by the Company’s officers and other employees regarding significant deficiencies in the design and operation of the Company’s internal controls; and
|
|
•
|
Establish procedures for receiving and responding to concerns regarding accounting, internal accounting controls, and auditing matters.
|
Each member of the Audit Committee, as of the date of this Proxy Statement (Messrs. Cooper, Brown, and McGuire), is financially literate and has accounting or financial management expertise. Messrs. Cooper, Brown, and McGuire are audit committee financial experts as defined in Item 407 (d)(5) of Regulation S-K under the Exchange Act, rule 10A-3 under the Exchange Act, the New York Stock Exchange Listed Company Manual, and the Company’s Corporate Governance Guidelines. The Board has adopted a charter for the Audit Committee, a copy of which is available on our website (
www.flotekind.com
) and in print to any stockholder who requests it.
Corporate Governance and Nominating Committee
The Corporate Governance and Nominating Committee held
6
meetings in
2018
. The Corporate Governance and Nominating Committee’s primary functions are to:
|
•
|
Review, at least annually, the structure of the Board to assure that the proper skills and experience are represented on the Board;
|
|
•
|
Recommend to the full Board candidates to fill vacancies on the Board as they occur;
|
|
•
|
Recommend, prior to each annual stockholder meeting, a slate of nominees for election or reelection as directors by the stockholders at the annual meeting;
|
|
•
|
Identify individuals qualified to serve as potential Board members, consistent with criteria approved by the Board;
|
|
•
|
Select, evaluate, retain, and where appropriate, terminate any search firm to be used to identify qualified director candidates;
|
|
•
|
Evaluate current directors for re-nomination to the Board or re-appointment to any Board committees, and assess the performance of such directors;
|
|
•
|
Periodically review the composition of the Board and its committees in light of the current challenges and needs of the Board, the Company and each committee of the Board, and determine whether it may be appropriate to add or remove individuals;
|
|
•
|
Consider rotation of the Chairman and members of the committees of the Board;
|
|
•
|
Consider candidates to serve as Board members that are submitted by stockholders of the Company;
|
|
•
|
Periodically make recommendations to the Board with respect to the size of the Board;
|
|
•
|
Review criteria and policies relating to director independence, service, and tenure;
|
|
•
|
Recommend to the Board the membership of the Audit and Compensation Committees, including their Chairpersons;
|
|
•
|
Make recommendations to the Board regarding corporate governance matters and practices, including formulating and periodically reviewing Corporate Governance Guidelines to be adopted by the Board;
|
|
•
|
Develop and recommend to the Board the Company’s Corporate Governance Guidelines and, at least annually, review and reassess the adequacy of such Corporate Governance Guidelines and recommend any proposed changes to the Board;
|
|
•
|
Be responsible for any tasks assigned to the Corporate Governance and Nominating Committee in the Company’s Corporate Governance Guidelines;
|
|
•
|
Oversee compliance with the Company’s Corporate Governance Guidelines and Code of Business Conduct and Ethics and report on such compliance to the Board;
|
|
•
|
Review and consider any requests for waivers of the Company’s Corporate Governance Guidelines or Code of Business Conduct and Ethics for the Company’s directors, executive officers, and other senior financial officers and make a recommendation to the Board with respect to such request for a waiver;
|
|
•
|
Review potential conflicts of interest involving directors and determine whether such director or directors may vote on any issue as to which there may be a conflict;
|
|
•
|
Review all related party transactions and determine whether such transactions are appropriate for the Company to undertake and, if so, approve such transactions;
|
|
•
|
Review periodically with the Company’s counsel, in light of changing conditions, new legislation and other developments, the Company’s Code of Business Conduct and Ethics and make recommendations to the Board for such changes as the Corporate Governance and Nominating Committee shall deem appropriate; and
|
|
•
|
Review executive development and executive succession plans, including succession planning strategies for the Company’s senior management positions.
|
When identifying and evaluating candidates, the Corporate Governance and Nominating Committee first determines whether there are any evolving needs of the Board that require an expert in a particular field. The Corporate Governance and Nominating Committee may retain a third-party search firm to assist the Committee in locating qualified candidates that meet the needs of the Board at that time. Generally, a retained search firm would provide information on a number of candidates, which the Corporate Governance and Nominating Committee would discuss. The Corporate Governance and Nominating Committee Chairman and some or all of the members of the Corporate Governance and Nominating Committee will interview potential candidates that meet the needs of the Board, possess the qualifications sought, and meet the independence standards required by the
33
NYSE and as set forth by the Company’s Corporate Governance Guidelines. The Corporate Governance and Nominating Committee will then recommend the nomination of candidates to the Board. Director nominees may be identified by the Corporate Governance and Nominating Committee through current board members, officers, stockholders, or other persons.
Sections 14 and 15 of Article II of the Bylaws of the Company, entitled “Notice of Nominations for Election to the Board of Directors” and “Additional Requirements for Valid Nomination of Candidates to Serve as Director, and If Elected, to Be Seated as Directors,” respectively, set out a detailed procedure for stockholder proposed candidates. The Board has adopted a charter for the Corporate Governance and Nominating Committee, a copy of which is available on our website (
www.flotekind.com
) and in print to any stockholder who requests it.
Compensation Committee
The Compensation Committee held
10
meetings in
2018
. The Compensation Committee’s primary functions are to:
|
•
|
Adopt compensation policies and programs that are consistent with corporate strategy and meet all legal requirements regarding reporting and administration of compensation matters;
|
|
•
|
Establish, in conjunction with executive management, the overall compensation strategy of the Company and review such strategy, at least annually, for alignment with the Company’s business strategy and with similar programs offered by the Company’s competitors;
|
|
•
|
Oversee the compensation and benefits programs applicable to all employees of the Company;
|
|
•
|
Adopt, amend, or terminate corporate incentive programs (including short-term and long-term incentive and other similar programs), including establishment of performance standards, and determine the funding of such programs relative to previously established performance standards;
|
|
•
|
Review the Company’s employee benefit plans, including retirement and savings plans, and either recommend plan changes to the Board or amend such plans as appropriate;
|
|
•
|
Recommend to the Board the adoption of any new Company employee benefit plan or the termination of any existing employee benefit plan, as appropriate;
|
|
•
|
Review, at least annually, the Company’s investment strategies around and performance of the Company’s 401(k) plans;
|
|
•
|
Review and approve, at least annually, corporate goals and objectives relevant to compensation of the Company’s executive officers and employees who report directly to the Company’s Chief Executive Officer (collectively, the “CEO Direct Reports”) and evaluate each executive officer’s and CEO Direct Report’s performance in light of such goals and objectives;
|
|
•
|
Either as a Compensation Committee or in conjunction with the other independent directors (as directed by the
|
Board), adopt a compensation strategy and determine and approve each executive officer’s and CEO Direct Report’s salary, bonuses, and other compensation based on the strategy and the evaluation of each executive officer’s and CEO Direct Report’s performance and considering the results of the most recent shareholder advisory vote on executive compensation;
|
•
|
Regarding individual executive officer’s and CEO Direct Report’s compensation, consider a number of factors that include, but are not limited to, the Company’s financial and operational performance, relative shareholder return, the value of similar incentive awards to executives at comparable companies, awards given in past years, and the results of the most recent shareholder advisory vote on executive compensation;
|
|
•
|
Annually review and approve the annual base salaries and annual short-term and long-term incentive opportunities of the executive officers and CEO Direct Reports;
|
|
•
|
Periodically review and approve the following, as they affect executive officers and CEO Direct Reports: elements of compensation other than salaries and annual incentives; employment and severance agreements; change-in-control agreements and change-in-control provisions affecting any element of compensation or benefits; and any special or supplemental compensation and benefits for the executive officers, CEO Direct Reports, and individuals who formerly served as executive officers and CEO Direct Reports;
|
|
•
|
Award equity-based awards to executive officers, CEO Direct Reports, and to other employees of the Company pursuant to any plans approved by the Board which by its terms provide for administration by the Compensation Committee;
|
|
•
|
Make recommendations to the Board with respect to the compensation of Board members;
|
|
•
|
Assure that all compensation policies and programs comply with applicable laws and regulations;
|
|
•
|
Review and approve annual performance goals for performance-based compensation, including but not limited to performance goals for performance-based compensation that is intended to be tax deductible under Section 162(m) of the Internal Revenue Code, determine whether the performance goals and objectives are attained, and certify the level of attainment as applicable;
|
|
•
|
Review and approve annually the peer group used to assess the competitiveness of the Company’s compensation programs, including executive compensation;
|
|
•
|
Review the Company’s compensation policies and practices to determine whether they encourage excessive risk-taking, discuss annually the relationship between risk management policies and practices and compensation, and evaluate compensation policies and practices that could mitigate any such risk;
|
|
•
|
Consider the factors affecting independence set forth in Section 303A.05(c)(iv) of the NYSE Listed Company Manual when selecting or soliciting advice from any external legal counsel, compensation consultants, or
|
34
other advisor and evaluate whether any compensation consultant retained or to be retained by it has any conflict of interest in accordance with Item 407(e)(3)(iv) of Regulation S-K;
|
•
|
Review and approve the frequency that should be recommended to the Company’s shareholders with respect to how often the Company shall hold a shareholder advisory vote on executive compensation (“Say on Pay Vote”); review and approve the frequency with which the Company should submit to the shareholders a Say on Pay Vote, taking into consideration any prior Say on Pay Vote on the frequency with which the Company shall hold a Say on Pay Vote; and review the results of the most recent Say on Pay Vote when considering whether to make any adjustments to the Company’s executive compensation policies and practices;
|
|
•
|
Review and discuss the Company’s Compensation Discussion and Analysis (“CD&A”) and the related executive compensation information and recommend that the CD&A and related executive compensation information be included in the Company’s proxy statement and annual report on Form 10-K as required by the rules and regulations of the Securities and Exchange Commission;
|
|
•
|
Approve the Compensation Committee report on executive officer compensation included in the Company’s proxy statement or annual report on Form 10-K as required by the rules and regulations of the Securities and Exchange Commission;
|
|
•
|
Receive reports on compensation and benefits applicable to all employees; and
|
|
•
|
Oversee the Company’s compliance with, and take any other actions as may be required from time to time by, applicable law, the rules of the NYSE, the rules and regulations of the Securities and Exchange Commission, the Bylaws or the Board, including any requirement that shareholders approve equity compensation plans.
|
The Board has adopted a charter for the Compensation Committee, a copy of which is available on our website (
www.flotekind.com
) and in print to any stockholder who requests it.
Special Board Committees
In accordance with the Company’s Corporate Governance Guidelines, in addition to established Board Committees, the Board may, from time to time, establish other committees to assist it in carrying out its duties. The duties of each standing committee of the Board are to be spelled-out in a committee
charter which is to be periodically reviewed and approved by the Board.
On
January 30, 2019
, the Board formed the Strategic Capital Committee to evaluate and make recommendations to the Board regarding the manner in which the Company will deploy the remaining net proceeds from the sale of Florida Chemical Company, LLC (“FCC”), a wholly owned subsidiary of the Company. This includes the potential for additional investments in its business, returning capital to shareholders and other potential alternatives. The Strategic Capital Committee consists of
two
members of the executive management team and
four
independent members of the Board of Directors.
Director Stock Ownership Guidelines
To further promote sustained shareholder return and to ensure that the Company’s directors remain focused on both short-term and long-term objectives, the Company has established stock ownership guidelines. See the “Stock Ownership Guidelines” section within “Compensation Discussion and Analysis” for further details regarding our stock ownership guidelines for executives and directors.
Director Compensation
In 2018, members of the Board of Directors received an annual retainer of
$52,000
and additional retainers for serving as a chair or member of a Board committee. Directors did not receive fees for attending Board or committee meetings.
In 2018, the Lead Director was paid an annual retainer of
$24,000
, the chair of the Audit Committee was paid
$32,000
, the chair of the Corporate Governance and Nominating Committee was paid
$16,000
, and the chair of the Compensation Committee was paid
$20,000
. Members of each committee, including the chair, received an annual retainer ranging from $4,000 to $8,000, depending on the committee. The Board determines, based on recommendations of the Compensation Committee, retainers to be paid for the chair and any members of special Board committees.
Each non-employee director is also granted a restricted stock award annually, which for
2018
had a fair market value equal to approximately
$125,000
on the date of grant. These shares vest as of the annual stockholders’ meeting held in the following year.
Our President and Chief Executive Officer is not compensated for serving on the Board.
35
The following table provides the
2018
compensation of the non-employee directors.
|
Name
|
Board
Retainer (1) |
Committee
and Chair Retainers (1) |
Restricted
Stock Awards (2)(3) |
Total
|
||||||||||||
|
Michelle M. Adams
|
$
|
52,000
|
|
$
|
20,067
|
|
$
|
125,002
|
|
$
|
197,069
|
|
||||
|
Ted D. Brown
|
$
|
52,000
|
|
$
|
25,433
|
|
$
|
125,002
|
|
$
|
202,435
|
|
||||
|
L. Melvin Cooper
|
$
|
52,000
|
|
$
|
33,500
|
|
$
|
125,002
|
|
$
|
210,502
|
|
||||
|
L.V. “Bud” McGuire
|
$
|
67,097
|
|
$
|
12,604
|
|
$
|
125,002
|
|
$
|
204,703
|
|
||||
|
David Nierenberg
|
$
|
30,333
|
|
$
|
7,000
|
|
$
|
125,001
|
|
$
|
162,334
|
|
||||
|
Katherine T. Richard
|
$
|
15,935
|
|
$
|
—
|
|
$
|
125,001
|
|
$
|
140,936
|
|
||||
|
Kenneth T. Hern
(4)
|
$
|
29,731
|
|
$
|
11,908
|
|
$
|
125,002
|
|
$
|
166,641
|
|
||||
|
Carla S. Hardy
(5)
|
$
|
16,900
|
|
$
|
7,800
|
|
$
|
—
|
|
$
|
24,700
|
|
||||
|
John S. Reiland
(6)
|
$
|
16,900
|
|
$
|
14,300
|
|
$
|
—
|
|
$
|
31,200
|
|
||||
|
Paul W. Hobby
(7)
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
||||
|
(1)
|
Represents non-employee director fees earned in
2018
.
|
|
(2)
|
Represents the grant date fair value of restricted stock awards under the Company’s
2018
Long-Term Incentive Plan. These amounts are for awards granted during
2018
and reflect the amount of compensation for a full year based on the fair value of the awards on the date of grant. The
2018
annual grants for
Michelle M. Adams
,
Ted D. Brown
,
L. Melvin Cooper
,
L.V. “Bud” McGuire
and Kenneth T. Hern on
April 27, 2018
, for
David Nierenberg
on
June 1, 2018
, and for
Katherine T. Richard
on
July 11, 2018
are expensed from the grant date through
May 24, 2019
.
|
|
(3)
|
The following restricted stock awards were outstanding at
December 31, 2018
:
Michelle M. Adams
-
33,423
;
Ted D. Brown
-
33,423
;
L. Melvin Cooper
-
33,423
;
L.V. “Bud” McGuire
-
33,423
,
David Nierenberg
-
40,323
, and
Katherine T. Richard
-
40,850
.
|
|
(4)
|
Kenneth T. Hern resigned from the Board on
May 24, 2018
. Upon Mr. Hern’s resignation, all unvested restricted stock previously granted was forfeited.
|
|
(5)
|
Carla S. Hardy retired from the Board effective as of our April 27, 2018 annual meeting.
|
|
(6)
|
John S.. Reiland concluded his tenure on the Board effective as of our April 27, 2018 annual meeting.
|
|
(7)
|
Paul W. Hobby was appointed to the Board on March 19, 2019, and therefore, did not earn any compensation during 2018.
|
Other Board and Committee Items
Code of Business Conduct and Ethics
The Code of Business Conduct and Ethics of the Company applies to our directors, executive officers, and to all other employees and is available on our website (
www.flotekind.com
) and in print to any stockholder who requests it.
Compensation Committee Interlocks and Insider Participation
Ms. Adams and Messrs. Brown, Cooper, and Nierenberg served on the Compensation Committee during
2018
. No current member of the Compensation Committee is a current or former officer or employee of the Company or had any relationship requiring disclosure under applicable SEC rules. Additionally, none of the Company’s executive officers served as a director or member of the compensation committee of another entity, one of whose executive officers served as a director or member of the Company’s Compensation Committee.
Transactions with Related Persons
The Company recognizes that related person transactions can present potential or actual conflicts of interest and it is the Company’s preference that related person transactions are avoided as a general matter. However, the Company also recognizes that there are situations, including certain transactions negotiated on an arm’s length basis, where
related person transactions may be in, or may not be inconsistent with, the best interests of the Company and its stockholders. Therefore, the Corporate Governance and Nominating Committee of the Board will review, ratify, or approve, as necessary, any related person transaction prior to the transaction being entered into, or ratify any related person
transaction that has not been previously approved, in which a director, executive officer, five percent owner, or immediate family member of any such person has a material interest.
The Board believes that the following related party transaction is reasonable and fair to the Company. The daughter of Mr. Chisholm owns an information technology consulting firm that provided services to the Company during a portion of
2018
. In
2018
, the Company paid
$142,000
to this firm for IT consulting services in the ordinary course of business.
During
2018
, the Company did not participate in any other transactions in which any of the director nominees or executive officers, nor any of their immediate family members, had a direct or indirect material interest.
Board Leadership Structure
On March 19, 2019, the Company entered into a cooperation agreement (the “Agreement”) with BLR Partners LP and certain of its affiliates named therein (“BLR Partners”). Per the Agreement, the Board agreed to separate the roles of Chairman of the Board and Chief Executive Officer of the Company effective as of this 2019 Annual Meeting of Stockholders. Upon separation of these roles, the Board will
36
elect Mr. Nierenberg as Chairman of the Board effective as of this 2019 Annual Meeting of Stockholders. Prior to the Agreement, Mr. Chisholm, the Company’s President and Chief Executive Officer, has served as Chairman of the Board since July 13, 2010.
The Chairman is the presiding director at each of the Company’s Board meetings. The Board believes that the Mr. Nierenberg is best situated to serve as independent Chairman because of his knowledge of the Company’s business and industry, and his experience managing investment portfolios, which makes him the most capable of effectively identifying strategic priorities and leading the discussion and execution of strategy. Independent directors and management have different perspectives and roles in strategic development. The Company’s independent directors bring experience, oversight, and expertise from outside the company and industry, while the President brings company-specific experience and expertise. The Board believes that Mr. Nierenberg’s role as Chairman of the Board will promote strategic development and execution, and facilitate information flow between management and the Board, which are essential to effective governance.
One of the key responsibilities of the Board is to develop strategic direction and hold management accountable for the execution of the strategy developed. The Board believes the role of independent Chairman is consistent with the best interests of stockholders, as it provides the appropriate balance between strategic development and independent oversight of management.
Lead Director Role
The Board will continue to designate an additional non-management director as Lead Director. The Lead Director will preside at meetings of the Board of Directors at which the Chairman is not present, serving as an additional liaison between the non-management directors and the management director on Board issues, advising the Chairman as to an appropriate schedule of Board meetings and with input regarding agendas for Board meetings, and calling and setting agendas for meetings of the non-management directors of the Company. The Board has nominated Mr. McGuire to continue in his role as Lead Director.
Cooperation Agreement
On March 19, 2019, the Company entered into the Agreement with BLR Partners, which has a combined economic and beneficial ownership interest in approximately 2.8% of the Company’s outstanding shares of Common Stock.
Pursuant to the Agreement, the Company agreed to, among other things, (i) effective immediately, increase the size of the Board from
seven
to
eight
directors and appoint Paul W. Hobby to the Board, the Company’s Strategic Capital Committee and the Company’s Corporate Governance and Nominating Committee, and (ii) effective as of the Meeting, separate the roles of Chairman of the Board and Chief Executive Officer of the Company and elect David Nierenberg as non-executive Chairman of the Board. Additionally, prior to the regularly scheduled Board meeting in October 2019, the Company agreed that the Board shall determine and procure the resignation of one director from the Board (provided, such director shall not be Mr. Hobby or Mr. Nierenberg) and upon such resignation decrease the size of the Board from eight directors to seven directors.
BLR Partners has agreed that the requirement that the Board procure the resignation of one Board member and decrease the size of the Board to
seven
directors has been satisfied by Ms. Richard not standing for reelection at the Meeting and the number of members of the Board being accordingly reduced to
seven
members.
Section 16(a) Beneficial Ownership Reporting Compliance
Pursuant to Section 16(a) of the Exchange Act and the rules issued thereunder, the Company’s directors and executive officers are required to file with the SEC reports of ownership and changes in ownership of Common Stock. Copies of such forms are required to be filed with the Company. Based solely on its review of copies of such reports furnished to the Company, the Company believes that the directors and executive officers were in compliance with the filing requirements of Section 16(a) during the most recent fiscal year, except that (1) Messrs. Chisholm, Snively, and Walton and Ms. Richard did not timely file one Form 4 in
2018
reflecting one transaction and (2) Ms. Richard did not timely file her Form 3.
37
PROPOSAL
2
: APPROVAL OF THE FLOTEK INDUSTRIES, INC.
2019 NON-EMPLOYEE DIRECTOR INCENTIVE PLAN
On
March 13, 2019
, pursuant to the recommendation of the Compensation Committee, our Board of Directors (the “Board”) unanimously approved the Flotek Industries, Inc. 2019 Non-Employee Director Incentive Plan (the “
Director Incentive Plan
”), subject to stockholder approval. The maximum aggregate number of shares of our Common Stock under the
Director Incentive Plan
will be
1,000,000
shares, which was determined in conjunction with ISS Corporate Services, who was hired by the Company for purposes of advising the Compensation Committee on the appropriate number of shares to request under this Proposal
2
(the
Director Incentive Plan
), Proposal
3
(the “
2012 ESPP
”), and Proposal
4
(the “
2018 Plan
”). We are asking you to authorize
1,000,000
shares for future issuance under the
Director Incentive Plan
, which together with Proposal
3
and Proposal
4
, will contribute to a potential dilution of approximately
12.1%
. This potential dilution was calculated by adding (i) the total number of new shares requested under the
Director Incentive Plan
,
2012 ESPP
, and
2018 Plan
, (ii) the total number of shares available for issuance under the
2012 ESPP
and
2018 Plan
, and (iii) all unvested shares previously awarded and outstanding under the
2018 Plan
prior to their being amended; divided by the total number of shares of outstanding common stock of the Company.
If approved by the stockholders, the
Director Incentive Plan
will be effective as of
March 13, 2019
, the date our Board of Directors approved the
Director Incentive Plan
. Based on our historic and future usage patterns, the Compensation Committee estimates that the shares available under the
Director Incentive Plan
will be sufficient to provide grants for the next
two years
.
The
Director Incentive Plan
is intended to promote the interests of our Company by encouraging non-employee directors to acquire an equity interest in our Company and to provide a means whereby they may develop a sense of proprietorship and personal involvement in the development and financial success of our Company.
Additionally, each non-employee director would have the right to elect to receive common stock of our Company in lieu of a portion of his or her cash compensation. In order to make this election with respect to a Board of Director year, from one annual meeting to the next, a director must give written notice of the election during the first twenty days of that year. Once made, an election would be irrevocable. With respect to our non-employee directors who made a timely election, our Company shall grant a restricted stock award to the director covering a number of shares of our Common Stock equal to the cash compensation that would have otherwise been payable to the director for that year. The restricted stock award will vest, if at all, on a yearly basis at the annual meeting of the following year. If a non-employee director fails to provide continuous service to our Company during the year, then all shares subject to the restricted stock award that were earned during their service period would vest immediately and all remaining unearned shares would be immediately forfeited. If the
Director Incentive Plan
is not approved at our 2019 Annual Stockholders’ Meeting, then any prior elections by our non-employee directors to receive restricted stock awards will be automatically rescinded and director compensation will be paid in cash on a pro rata basis, quarterly in arrears.
Summary of Key Terms of the
Director Incentive Plan
The following is a summary of the key terms of the
Director Incentive Plan
. The summary does not purport to be a complete description of all provisions of the
Director Incentive Plan
and is qualified in its entirety by reference to the complete text of the
Director Incentive Plan
, which is incorporated herein by reference to Exhibit
A
to this Proxy Statement. Terms used but not defined herein should be given the meaning used under the
Director Incentive Plan
.
Shares Available; Types of Awards; Individual Limits
The aggregate number of shares with respect to which awards may be granted under the
Director Incentive Plan
, subject to stockholder approval, is up to
1,000,000
shares of our Common Stock.
The
Director Incentive Plan
permits the granting of the following types of awards to non-employee directors of our Company: (i) nonstatutory stock options to purchase shares of Common Stock (“Options”); (ii) restricted stock
(“Restricted Stock”); (iii) restricted stock units (“RSUs”); and (iv) other stock-based awards (“Other Stock-Based Awards,” and collectively with Options, Restricted Stock and RSUs, “Awards”).
The maximum grant date fair value that may be covered by Options granted to any Non-Employee Director in any calendar year is
$250,000
, and the maximum grant date fair value that may be covered by Restricted Stock, RSUs and Other Stock-Based Awards granted to any non-employee director in any calendar year is
$250,000
.
Eligibility for Participation
Only non-employee directors are eligible to participate in the
Director Incentive Plan
.
Administration
The
Director Incentive Plan
will be administered by our Board. Subject to the terms and conditions of the
Director Incentive Plan
, the Board will have authority to: (i) determine
38
the fair market value of Awards; (ii) determine the number of shares to be covered by each Award granted under the
Director Incentive Plan
; (iii) approve forms of Award agreements for use under the
Director Incentive Plan
; (iv) determine the terms and conditions of any Award granted, including but not limited to, the exercise price, the time or times when Awards may be exercised, any acceleration of vesting or waiver of forfeiture or repurchase restrictions and any restriction or limitation regarding any Award or the shares relating thereto, based in each case on such factors as the Board determines; (v) construe and interpret the terms of the
Director Incentive Plan
and Awards granted pursuant to the
Director Incentive Plan
; (vi) interpret and administer the
Director Incentive Plan
and any instrument or agreements relating to an Award; (vii) prescribe, amend and rescind rules and regulations relating to the
Director Incentive Plan
; (viii) amend the terms of any outstanding Award, including the discretionary authority to extend the post termination exercise period of Awards and accelerate the satisfaction of any vesting criteria or waiver of forfeiture or repurchase restrictions, provided that any amendment that would adversely affect the non-employee director’s rights under an outstanding Award shall not be made without the non-employee director’s written consent; (ix) allow a non-employee director to defer the receipt of the payment of cash or the delivery of shares that would otherwise be due to the non-employee director under an Award; (x) determine whether Awards shall be adjusted for dividend equivalents; and (xi) make all other determinations that the Board deems necessary or advisable for administering the
Director Incentive Plan
.
Amendment and Termination
The Board may at any time amend, alter, suspend or terminate the
Director Incentive Plan
.
Options
The Board will have the authority to grant Options to such participants, in such amounts and with such terms and conditions as it may from time to time approve, subject to the terms of the
Director Incentive Plan
.
Manner of Exercise.
Any Option will be exercisable according to the terms of the
Director Incentive Plan
and at such times and under such conditions as determined by the Board and set forth in the Award agreement. An Option will be deemed exercised when our Company receives: (x) written or electronic notice of exercise (in accordance with the Award agreement) from the person entitled to exercise the Option, and (y) full payment for the shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Board and permitted by the Award agreement and the
Director Incentive Plan
. Shares issued upon exercise of an Option will be issued in the name of the non-employee director or, if requested by the director, in the name of his or her spouse. Until the shares are issued (as evidenced by the appropriate entry on the books of our Company or of a duly authorized
transfer agent of our Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Award, notwithstanding the exercise of the Option. Our Company will issue (or cause to be issued) such shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the shares are issued, except as in certain circumstances described in “Adjustment to Shares” below or the applicable Award agreement. Exercising an Option in any manner will decrease the number of shares thereafter available for sale under the Option, by the number of shares as to which the option is exercised.
Exercise Price.
The price at which shares of Common Stock may be purchased upon the exercise of an Option will be determined by the Board at the time the Option is granted, but will not be less than the fair market value per share on the grant date.
Option Term.
The term of each Option will be stated in each Award agreement, but in no event will be more than ten years from the date of grant. At the time an Option is granted, the Board will fix the period within which the Option may be exercised and will determine any conditions that must be satisfied before the Option may be exercised. The Board, in its sole discretion, may accelerate the satisfaction of such conditions at any time.
Restricted Stock
Subject to the terms and provisions of the
Director Incentive Plan
, the Board, at any time and from time to time, may grant Shares of Restricted Stock to a Non-Employee Director in such amounts as the Board, in its sole discretion, shall determine. Each Award of Restricted Stock will be evidenced by an Award agreement that will specify the vesting schedule (if any), the number of shares granted, and such other terms and conditions as the Board, in its sole discretion, shall determine. Unless the Board determines otherwise, shares of Restricted Stock will be held by our Company as escrow agent until the restrictions on the Shares have lapsed. Shares of Restricted Stock covered by each Award will be released from escrow as soon as practical after the last day of the vesting schedule (if any). The Board, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed.
Voting Rights.
During the period of time the shares remain unvested (if at all), Non-Employee Directors holding shares of Restricted Stock may exercise full voting rights with respect to those shares, unless the Board determines otherwise.
Dividends and other Distributions.
During the vesting schedule (if any), Non-Employee Directors holding shares of Restricted Stock will be entitled to receive all dividends and other distributions paid with respect to the shares unless otherwise provided in the Award agreement. If any dividends or distributions are paid in shares, the shares will be subject to the same restrictions on transferability and forfeitability
39
as the shares of Restricted Stock with respect to which they were paid.
Return of Restricted Stock to the Company.
On the date set forth in the Award agreement, the Restricted Stock for which restrictions have not lapsed will revert to our Company and again shall become available for grant under the
Director Incentive Plan
.
Restricted Stock Units
The Board may grant Awards of Restricted Stock Units in such amounts and subject to such terms and conditions as the Board may determine, subject to the provisions of the
Director Incentive Plan
.
Other Stock-Based Awards
Other Stock-Based Awards may be granted either alone, in addition to, or in tandem with, other Awards granted under the
Director Incentive Plan
and/or cash awards made outside of this Plan. The Board will have authority to determine the Non-Employee Directors to whom and the time or times at which Other Stock-Based Awards will be made, the amount of such Other Stock-Based Awards, and all other conditions of the Other Stock-Based Awards, including any dividend or voting rights and whether the Award should be paid in cash.
General Provisions Regarding All Awards
Term of the
Director Incentive Plan
and Term of Awards.
The
Director Incentive Plan
has been adopted by the Board and became effective on
March 13, 2019
, provided that if the
Director Incentive Plan
is not approved by our Company’s stockholders at our 2019 Annual Meeting of Stockholders, then the
Director Incentive Plan
shall immediately and automatically thereafter terminate and any and all outstanding Awards granted thereunder shall be extinguished. Assuming the
Director Incentive Plan
is approved at our Company’s 2019 Annual Meeting of Stockholders on
May 24, 2019
, the
Director Incentive Plan
will continue to be in effect for a term of
ten years
from the effective date unless terminated earlier in accordance with the
Director Incentive Plan
.
Limits on Transfer of Awards.
Unless determined otherwise by the Board, an Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by shall or by the laws of descent or distribution and may be exercised, during the lifetime of the Non-Employee Director, only by the Non-Employee Director. If the Board makes an Award transferable, such Award will contain such additional terms and conditions as the Board deems appropriate.
Adjustments to Shares.
In the event of any change in the outstanding shares of our Company’s Common Stock by reason of any stock split, stock dividend or other non-recurring dividends or distributions, recapitalization, merger, consolidation, spin-off, combination, repurchase or exchange of stock, reorganization, liquidation, dissolution or other
similar corporate transaction that affects the Common Stock, an adjustment will be made, as the Board deems necessary or appropriate, in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the
Director Incentive Plan
. Such adjustment may include an adjustment to the number and class of shares which may be delivered under the
Director Incentive Plan
, the number, class and prcie of shares subject to outstanding Awards, the number and class of shares issuable pursuant to Options, and the numberical limits described above under “Shares Available, Types of Awards, Individual Limits”.
Change of Control
Un
less otherwise provided in an Award agreement or the Board determines otherwise, in the event of a Change of Control (as defined in the
Director Incentive Plan
), the Non-Employee Director will fully vest in and have the right to exercise his or her Options as to all of the Award, including shares as to which such Awards would not otherwise be vested or exercisable, and all restrictions on Restricted Stock, Restricted Stock Units and Other Stock-Based Awards, as applicable, will lapse.
Outstanding and Future Grants
It is not possible at this time to determine the awards that will be made in the future pursuant to the
Director Incentive Plan
. No grants have been made that are contingent on the approval of the
Director Incentive Plan
by our stockholders. Options and other awards may be granted in the future under the
Director Incentive Plan
within the discretion of the Board.
U.S. Federal Income Tax Consequences of the
Director Incentive Plan
In General.
The
Director Incentive Plan
is not qualified under Section 401(a) of the Internal Revenue Code (the “Code”).
The following summary is based on the applicable provisions of the Code as currently in effect and the income tax regulations and proposed income tax regulations thereunder.
Non-qualified Options
. Only non-qualified options may be granted under the
Director Incentive Plan
. Generally, no federal income tax is imposed on the option holder upon the grant of a non-qualified option. Upon the exercise of a non-qualified option, the option holder will be treated as receiving compensation, taxable as ordinary income in the year of exercise. The amount recognized as ordinary income upon exercise will be the excess of the fair market value of the shares of Common Stock at the time of exercise over the exercise price paid for such Common Stock. At the time Common Stock received upon exercise of a non-qualified option is disposed of, any difference between the fair market value of the shares of Common Stock at the time of exercise and the amount realized on the disposition will be treated as a capital gain or loss.
Upon an option holder’s exercise of a non-qualified option, our Company may claim a deduction for the compensation
40
paid at the same time and in the same amount as compensation is treated as being received by the option holder, assuming our Company satisfies the federal income tax reporting requirements with respect to such compensation. Our Company is not entitled to any tax deduction in connection with a subsequent disposition by the option holder of the shares of Common Stock.
Restricted Stock
. A grantee, generally, will not recognize taxable income upon the grant of Restricted Stock, and the recognition of any income will be postponed until such shares are no longer subject to restrictions on transfer or the risk of forfeiture. When either the transfer restrictions or the risk of forfeiture lapses, the grantee will recognize ordinary income equal to the fair market value of the Restricted Stock at the time of such lapse. A grantee may elect to be taxed at the time of the grant of Restricted Stock and, if this election is made, the grantee will recognize ordinary income equal to the excess of the fair market value of the Restricted Stock at the time of grant (determined without regard to any of the restrictions thereon) over the amount paid, if any, by the grantee for such Restricted Stock. In each case, our Company will be entitled to a deduction for the corresponding amount.
Other Stock-Based Awards.
. In general, a participant who receives an Other Stock-Based Award will not be taxed on receipt of the Award, but instead the fair market value of the cash or Common Stock received will be taxable as ordinary income on the date that the cash or common stock is received in payment of the Award. Our Company will be entitled to a deduction for the corresponding amount.
Vote Required and Recommendation of the Board of Directors
The affirmative vote of a majority of the total votes cast at the Meeting is required to approve the Flotek Industries, Inc. 2019 Non-Employee Director Incentive Plan.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED A RESOLUTION SEEKING STOCKHOLDER APPROVAL OF, AND RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL OF, THE FLOTEK INDUSTRIES, INC. 2019 NON-EMPLOYEE DIRECTOR INCENTIVE PLAN, WHICH IS DESIGNATED AS PROPOSAL NO.
2
ON THE ENCLOSED PROXY.
41
PROPOSAL
3
: APPROVAL OF AN AMENDMENT TO THE FLOTEK INDUSTRIES, INC.
2012 EMPLOYEE STOCK PURCHASE PLAN
On
April 13, 2019
, our Board of Directors adopted an amendment to the Company’s 2012 Employee Stock Purchase Plan (the “
2012 ESPP
”), subject to stockholder approval.
Stockholder Vote
We are asking you to approve an amendment to the Flotek Industries, Inc. 2012 Employee Stock Purchase Plan, to increase the number of shares of our Common Stock available for issuance thereunder from
500,000
to
1,000,000
(as of
December 31, 2018
,
3,719
shares of Common Stock remain available for future issuance under the
2012 ESPP
), which was determined in conjunction with ISS Corporate Services, who was hired by the Company for purposes of advising the Compensation Committee on the appropriate number of shares to request under this Proposal
3
(the
2012 ESPP
), Proposal
2
(the “
Director Incentive Plan
”), and Proposal
4
(the “
2018 Plan
”). We are asking you to authorize an additional
500,000
shares for future issuance under the
2012 ESPP
, which together with Proposal
2
and Proposal
4
, will contribute to a potential dilution of approximately
12.1%
. This potential dilution was calculated by adding (i) the total number of new shares requested under the
Director Incentive Plan
,
2012 ESPP
, and
2018 Plan
, (ii) the total number of shares available for issuance under the
2012 ESPP
and
2018 Plan
, and (iii) all unvested shares previously awarded and outstanding under the
2018 Plan
prior to their being amended; divided by the total number of shares of outstanding common stock of the Company. Based on our historic usage patterns, the Compensation Committee estimates that the shares available under the
2012 ESPP
will be sufficient to provide issuances for the next
three years
.
Our stockholders are being asked to approve the amendment to the
2012 ESPP
and the Board’s reservation of shares under the
2012 ESPP
for the purpose of qualifying such shares for special tax treatment under Section 423 of the Internal Revenue Code of 1986, as amended (the “Code”).
The only material aspect of the
2012 ESPP
being changed by the proposed amendment is the increase in the number of shares available for issuance. All other provisions of the
2012 ESPP
described herein would remain as already in effect.
Summary of the
2012 ESPP
The principal features of the
2012 ESPP
are summarized below. The following summary of the
2012 ESPP
does not purport to be a complete description of all the provisions of the
2012 ESPP
. It is qualified in its entirety by reference to the complete text of the
2012 ESPP
, which is in Exhibit
B
of this proxy statement. Any Flotek stockholder who wishes to obtain a copy of the
2012 ESPP
may do so upon written request to the Company’s Corporate Secretary at our principal executive offices.
General
The purpose of the
2012 ESPP
is to provide the employees of the Company and the Company’s subsidiaries with an opportunity to purchase our common stock through accumulated payroll deductions.
Administration
The
2012 ESPP
is administered by the Board, or a committee appointed by the Board. The Board has full power to interpret the
2012 ESPP
, and the decisions of the Board, or the committee if applicable, are final and binding upon all participants.
Eligibility
Any employee of the Company or any subsidiary of the Company on a given Offering Date (as defined below) (other than a “highly compensated employee” within the meaning of Section 423(b)(4)(D) of the Code) will be eligible to participate in the
2012 ESPP
beginning on that Offering Date, subject to the administrative rules established by the Board. An employee is generally defined as an individual who is an employee of the Company or its subsidiaries for tax purposes who is regularly employed for at least 20 hours per week. However, no employee is eligible to participate in the
2012 ESPP
to the extent that, immediately after the grant, that employee would own capital stock of the Company and/or hold outstanding options to purchase such stock possessing 5% or more of the total combined voting power or value of all classes of the capital stock of the Company or of any subsidiary, or to the extent that his or her rights to purchase stock under all employee stock purchase plans of the Company and its subsidiaries accrue at a rate which exceeds
$25,000
worth of stock (determined at the fair market value of the shares at the time such option is granted) for each calendar year in which such option is outstanding at any time. As of
March 29, 2019
, approximately
250
Flotek employees, including
5
executive officers, were eligible to participate in the
2012 ESPP
.
Participation in an Offering
The
2012 ESPP
is implemented by offering periods lasting for three months (an “Offering Period,” with the first day of each such period the “Offering Date”). Offering Periods commence on January 1, April 1, July 1, and October 1 of each year. Common stock is purchased under the
2012 ESPP
every three months on the last day of each Offering Period (a “Purchase Date”), unless the participant becomes ineligible to participate, withdraws from the
2012 ESPP
or terminates employment prior to such date. To participate in the
2012 ESPP
, each eligible employee must authorize contributions pursuant to the
2012 ESPP
, which shall be made only by payroll deductions. Such payroll deductions may not exceed 10% (or such other limit as the Board may establish
42
prior to the start of the applicable Offering Period) of a participant’s eligible compensation (limited to salary and/or wages) and are also subject to the limitations discussed above. A participant may increase or decrease his or her rate of contribution through payroll deductions at the beginning of an Offering Period, but at no time may such rate of contribution exceed 10%.
On the Offering Date of each Offering Period, each eligible employee participating in such Offering Period will be granted an option to purchase on the Purchase Date for such Offering Period (at the applicable Purchase Price, as defined below) up to a number of shares of the Company’s common stock determined by dividing such employee’s payroll deductions accumulated during an Offering Period and retained in the participant’s account as of the Purchase Date for such Offering Period by the applicable Purchase Price. Subject also to the limitations discussed above, an employee may not purchase more than
1,000
shares of common stock in any Offering Period.
Purchase Price; Shares Purchased
Shares of common stock may be purchased under the
2012 ESPP
at a “Purchase Price” equal to
85%
of the fair market value of the common stock on the Purchase Date; however, the Board has the discretion to adjust the purchase price in the future. On
March 29, 2019
, the closing price per share of Flotek common stock was
$3.24
. The number of whole shares of common stock a participant purchases in each Offering Period is determined by dividing the total amount of the participant’s contributions during that Offering Period by the Purchase Price, subject to the
1,000
share limit.
Termination of Employment
Termination of a participant’s employment for any reason, including death, automatically cancels his or her option and participation in the
2012 ESPP
. In such event, the contributions credited to the participant’s account will be returned without interest to him or her (or in the case of death, to the person or persons entitled to those contributions).
Adjustments upon Changes in Capitalization, Dissolution, Liquidation, Merger, Acquisition or Asset Sale
Subject to any required action by the stockholders of the Company, in the event that Flotek common stock is changed by reason of any stock split, reverse stock split, stock dividend, combination, reclassification or other similar changes in our capital structure effected without the receipt of consideration, appropriate proportional adjustments may be made in the number of shares of stock subject to the
2012 ESPP
, the number of shares of stock to be purchased pursuant to an option, the maximum number of shares of stock that may be purchased by a participant in an Offering Period and the price per share of common stock covered by an option. Any such adjustment will be made by the Board, whose determination shall be conclusive and binding. In the event
of a dissolution or liquidation of the Company, any Offering Period then in progress will be terminated immediately prior to the consummation of such action, unless otherwise provided by the Board. In the event of a proposed sale of all or substantially all of the assets of the Company or the merger or consolidation of the Company with another company, or the acquisition of more than 50% of the shares of voting stock of the Company then outstanding by certain persons, each outstanding option shall be assumed or an equivalent option substituted by the successor corporation or a parent or subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the outstanding options, each Offering Period then in progress will be accelerated to a New Purchase Date that is set before the date of the Company’s proposed sale or merger. The participant’s option shall be exercised automatically on the New Purchase Date, unless the participant has previously withdrawn from the Offering Period in accordance with the
2012 ESPP
.
Amendment and Termination of the Plan
The Board may terminate or amend the
2012 ESPP
at any time and for any reason, subject to the exceptions set forth in the
2012 ESPP
. The Company will obtain any necessary stockholder approvals to comply with Section 423 of the Code, securities laws and regulations and stock exchange requirements. The
2012 ESPP
will continue until
May 18, 2022
, unless otherwise terminated by the Board.
Withdrawal
Generally, a participant may withdraw from the
2012 ESPP
by giving written notice to the Company. A participant’s withdrawal from an Offering Period will not affect his or her eligibility to participate in succeeding Offering Periods.
New Plan Benefits
Because benefits under the
2012 ESPP
will depend on employees’ elections to participate and the fair market value of Flotek common stock at various future dates, it is not possible to determine the benefits that will be received by executive officers and other employees if the
2012 ESPP
is approved by the stockholders. Non-employee directors are not eligible to participate in the
2012 ESPP
.
U.S. Federal Income Tax Consequences
If the Company’s stockholders approve this proposal, the
2012 ESPP
, and the right of participants to make purchases thereunder, is intended to qualify as an “employee stock purchase plan” under the provisions of Section 423 of the Code. Under those provisions, no income will be taxable to a participant until the shares purchased under the
2012 ESPP
are sold or otherwise disposed of. Upon sale or other disposition of the shares, the participant will generally be subject to tax and the amount of the tax will depend upon whether the holding period(s) set forth in Section 423 of the Code have been satisfied. If the shares are sold or otherwise disposed of more than two years from the applicable Offering
43
Date and more than one year from the date of transfer of the shares to the participant, then the participant generally will recognize ordinary income measured as the lesser of (i) the excess of the amount received upon such sale or disposition over the Purchase Price, or (ii) an amount equal to 15% of the fair market value of the shares as of the Offering Date. Any additional gain should be treated as long-term capital gain. If the shares are sold or otherwise disposed of before the expiration of this holding period, the participant will recognize ordinary income generally as measured by the excess of the fair market value of the shares on the date the shares are purchased over the purchase price. Any additional gain or loss on such sale or disposition will be long-term or short-term capital gain or loss, depending on the holding period. The Company is not entitled to a deduction for amounts taxed as ordinary income or capital gain to a participant except ordinary income is recognized by participants upon a sale or disposition of shares prior to the expiration of the holding period(s) described above. In all other cases, no deduction is allowed to the Company.
The foregoing is only a summary of the effect of U.S. federal income taxation upon participants and the Company with respect to the
2012 ESPP
based upon the U.S. federal income
tax laws in effect as of the date of this proxy statement. It is not intended to be exhaustive and does not discuss the tax consequences arising in the context of the employee’s death or the income tax laws of any municipality, state or foreign country in which the employee’s income or gain may be taxable or the gift, estate, or any tax law other than U.S. federal income tax law. Because individual circumstances may vary, the Company advises all recipients to consult their own tax advisor concerning the tax implications of participation in the
2012 ESPP
.
Approval of the
2012 ESPP
requires the affirmative vote of a majority of the shares of Flotek common stock present in person or represented by proxy and entitled to be voted on the proposal at the annual meeting.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY ADOPTED A RESOLUTION SEEKING STOCKHOLDER APPROVAL OF, AND RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL OF, AN AMENDMENT TO THE FLOTEK INDUSTRIES, INC. 2012 EMPLOYEE STOCK PURCHASE PLAN, WHICH IS DESIGNATED AS PROPOSAL NO.
3
ON THE ENCLOSED PROXY.
44
PROPOSAL
4
: APPROVAL OF AN AMENDMENT TO THE FLOTEK INDUSTRIES, INC.
2018 LONG-TERM INCENTIVE PLAN
On
April 13, 2019
, our Board of Directors adopted an amendment to the Flotek Industries, Inc. 2018 Long-Term Incentive Plan (the “
2018 Plan
”), subject to stockholder approval.
Stockholder Vote
We are asking you to approve an amendment to the Flotek Industries, Inc. 2018 Long-Term Incentive Plan, to increase the number of shares of our Common Stock available for the granting of awards under the
2018 Plan
from
3,000,000
to
5,700,000
, or an increase of
2,700,000
shares, which was determined in conjunction with ISS Corporate Services, who was hired by the Company for purposes of advising the Compensation Committee on the appropriate number of shares to request under this Proposal
4
(the
2018 Plan
), Proposal
2
(the “
Director Incentive Plan
”), and Proposal
3
(the
2012 ESPP
). We are asking you to authorize an additional
2,700,000
shares for future issuance under the
2018 Plan
, which together with Proposal
2
and Proposal
3
, will contribute to a potential dilution of approximately
12.1%
. This potential dilution was calculated by adding (i) the total number of new shares requested under the
Director Incentive Plan
,
2012 ESPP
, and
2018 Plan
, (ii) the total number of shares available for issuance under the
2012 ESPP
and
2018 Plan
, and (iii) all unvested shares previously awarded and outstanding under the
2018 Plan
prior to their being amended; divided by the total number of shares of outstanding common
stock of the Company. Based on our historic and projected future usage patterns, the Compensation Committee estimates that the shares available under the
2018 Plan
will be sufficient to provide grants for the next
two years
.
The only material aspect of the
2018 Plan
being changed by the proposed amendment is the increase in the number of shares available for issuance. All other provisions of the
2018 Plan
described herein would remain as already in effect. All other provisions of the
2018 Plan
described herein would remain as already in effect. The material features of the
2018 Plan
are more fully described below.
Purpose of the Plan
The purpose of the
2018 Plan
is to assist us in (i) attracting and retaining the best available personnel for positions of substantial responsibility, (ii) motivating personnel by providing additional incentives to employees, non-employee directors, and individual consultants including providing financial incentives for individual performance, and (iii) promoting the success of the Company’s business interests. Additionally, the
2018 Plan
allows us to offer our employees, officers, directors, and consultants the opportunity to acquire and increase their proprietary interest in the Company, thereby more closely aligning their interests with those of our stockholders.
Equity Compensation Plan Information
The following table summarizes equity compensation plan information regarding equity securities authorized for issuance under individual compensation agreements as of
December 31, 2018
.
|
Plan category
|
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights
(2)
|
Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights
(3)
|
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
|
|||||||
|
(a)
|
(b)
|
(c)
|
||||||||
|
Equity compensation plans approved by security holders
(1)
|
1,352,138
|
|
$
|
—
|
|
1,492,737
|
|
|||
|
Equity compensation plans not approved by security holders
|
—
|
|
$
|
—
|
|
—
|
|
|||
|
Total
|
1,352,138
|
|
$
|
—
|
|
1,492,737
|
|
|||
|
(1)
|
Does not include the additional
2,700,000
shares that will become available for issuance under the amendment to the 2018 Long-Term Incentive Plan upon stockholder approval of Proposal
4
.
|
|
(2)
|
Includes shares for outstanding restricted stock awards (
1,050,372
shares) and restricted stock unit share equivalents (
301,766
shares).
|
|
(3)
|
The weighted-average exercise price is for outstanding stock options only and does not include outstanding restricted stock awards or restricted stock unit share equivalents that have no exercise price.
|
We currently have grants outstanding under the Amended and Restated 2010 Long-Term Incentive Plan, the Amended and Restated 2014 Long-Term Incentive Plan, and the 2018
Long-Term Incentive Plan (collectively, the “Existing Plans”), which will remain in effect in accordance with their terms. At
December 31, 2018
, there were
1,492,737
shares
45
authorized, but not subject to outstanding awards, under the Existing Plans. The Existing Plans will remain in place for purposes of governing current outstanding awards and, to
the extent permitted thereunder, any additional grants made pursuant to the Existing Plans.
Historic Usage of Shares for Awards
During
2018
and
2017
, shares awarded under the Amended and Restated 2014 Long-Term Incentive Plan and 2018 Long-Term Incentive Plan were as follows:
|
2018
|
2017
|
|||||||||||
|
Participant
|
Shares
|
%
|
Shares
|
%
|
||||||||
|
Named Executive Officers
|
1,009,756
|
|
(1)
|
48.1
|
%
|
948,359
|
|
(3)
|
63.9
|
%
|
||
|
Other Officers
|
422,436
|
|
(2)
|
20.1
|
%
|
354,338
|
|
(4)
|
23.9
|
%
|
||
|
Non-employee Directors
|
248,288
|
|
11.7
|
%
|
86,923
|
|
5.8
|
%
|
||||
|
Employees
|
422,400
|
|
20.1
|
%
|
79,773
|
|
5.4
|
%
|
||||
|
Service Providers
|
—
|
|
—
|
%
|
15,000
|
|
1.0
|
%
|
||||
|
Total
|
2,102,880
|
|
100.0
|
%
|
1,484,393
|
|
100.0
|
%
|
||||
|
(1)
|
Includes
294,284
shares to increase the long-term incentive award from target to maximum shares.
|
|
(2)
|
Includes
113,414
shares to increase the long-term incentive award from target to maximum shares.
|
|
(3)
|
Includes
440,013
shares to increase the long-term incentive award from target to maximum shares.
|
|
(4)
|
Includes
193,990
shares to increase the long-term incentive award from target to maximum shares.
|
Under the Existing Plans, shares are reserved in a number sufficient to satisfy the maximum shares that may be issued under an award. Restricted stock units awarded in
2018
and
2017
provide that units may convert into restricted shares, based upon actual achievement of performance goals, at a maximum of two shares for each unit. Shares awarded under the Existing Plans, with the exception of the 2018 Long-Term Incentive Plan, that terminate by expiration, forfeiture, cancellation, or otherwise without the issuance of shares are not again available for award under the Plans. Shares awarded under the 2018 Long-Term Incentive Plan that terminate by expiration, forfeiture, cancellation, or otherwise shall again be available for awards under the
2018 Plan
. At
December 31, 2018
, there were
292,369
shares available under this clause of the 2018 Long-Term Incentive Plan.
Description of the Plan
The following summary of the material features of the Plan is qualified in its entirety by reference to the full text of the Plan, which is incorporated herein by reference to Exhibit A to this Proxy Statement.
Eligibility and Available Awards
The Plan provides for the grant of incentive stock options and non-qualified options (collectively, “stock options”), restricted stock, stock appreciation rights, performance shares and performance units, restricted stock units, and other stock-based awards (each, an “Award”).
All employees and individual consultants of the Company or of any affiliate (as defined in the Plan) of the Company and non-employee directors of the Company are eligible to receive grants of Awards under the Plan. However, incentive stock options may be granted only to employees of the Company and certain of its affiliates. Further, non-qualified options and stock appreciation rights may only be granted to employees and consultants of the Company or entities in a chain of corporations in which the Company has a controlling interest and to non-employee directors of the Company. The selection of eligible individuals to whom Awards will be
granted is within the discretion of the Administrator. It is currently expected that some of our employees will participate in the Plan, along with all non-employee directors who serve on the Company’s Board of Directors.
Administration
The Plan is administered by our Board of Directors and any of its committees (in such capacity, each the “Administrator”). Except as otherwise determined by the Board of Directors, the Compensation Committee of the Board of Directors shall serve as the Administrator. No member of the Compensation Committee shall vote or act upon any matter relating solely to himself or herself. Grants of Awards to members of the Compensation Committee must be ratified by the Board of Directors.
Subject to the provisions of the Plan, the Administrator will, among other things, (i) determine who are service providers; (ii) determine the fair market value of Awards; (iii) select the service providers to whom Awards may be granted; (iv) determine the number of shares to be covered by each Award; (v) determine when Awards are to be granted and the applicable date of grant; (vi) approve forms of Award agreements; (vii) determine the terms and conditions, not
46
inconsistent with the terms of the Plan, of any Award, including but not limited to, the exercise price, the time or times when Awards may be exercised (which may be based on performance goals), any acceleration of vesting or waiver of forfeiture or repurchase restrictions (subject to any minimum vesting requirements), and any restriction or limitation regarding any Award or the shares relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (viii) construe and interpret the terms of the Plan, Award agreements and Awards; (ix) prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to the creation and administration of sub-plans; (x) amend the terms of any outstanding Award Agreement or Award, including the discretionary authority to extend the post termination exercise period of Awards and accelerate the satisfaction of any vesting criteria or waiver of forfeiture or repurchase restrictions, provided that any amendment that would adversely affect a participant’s rights under an outstanding Award shall not be made without the participant’s written consent; (xi) allow participants to satisfy withholding tax obligations by electing to have the Company withhold from the shares or cash to be issued upon exercise or vesting of an Award; (xii) authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Award previously granted by the Administrator; (xiii) allow a participant to defer the receipt of the payment of cash or the delivery of shares that would otherwise be due to the participant under an Award; (xiv) determine whether Awards shall be settled in shares, cash or in a combination thereof; (xv) determine whether Awards shall be adjusted for dividends or dividend equivalents; (xvi) create other stock-based awards for issuance under the Plan; (xvii) impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any resales by a participant or other subsequent transfers by the participant of any shares issued as a result of or under an Award, including without limitation, (A) restrictions under an insider trading policy, and (B) restrictions as to the use of a specified brokerage firm for such resales or other transfers; (xviii) establish one or more programs under the Plan to permit selected participants the opportunity to elect to defer receipt of consideration upon exercise of an Award, satisfaction of performance goals, or other event that absent the election, would entitle the participant to payment or receipt of shares or other consideration under an Award; (xix) interpret, administer, reconcile any inconsistency in, correct any defect in and/or supply any omission in the Plan, any Award agreement and any other instrument or agreement relating to an Award; and (xx) make all other determinations that the Administrator deems necessary or advisable for administering this Plan. The express grant in the Plan of any specific power to the Administrator shall not be construed as limiting any power or authority of the Administrator. However, the Administrator may not exercise any right or power reserved to the Board. Any action taken or determination made by the Administrator pursuant to the Plan will be binding on all parties. No member of the Board of Directors or one of its committees, in its capacity as
Administrator, will be liable for any action or determination made in good faith with respect to the Plan or an Award granted thereunder.
The Board may amend, alter, suspend, or terminate the Plan at any time without prior notice to or consent of any person; provided, however, except as specifically permitted under the Plan in connection with a change of control, no amendment (other than any amendment the Board deems necessary in order to permit Awards to meet the requirements of the Code, or other applicable laws, or to prevent adverse tax consequences to the participants), suspension or termination of the Plan may, without the consent of the holder of an Award, terminate such Award or adversely affect such person’s rights with respect to such Award in any material respect unless or to the extent specified in the Award itself. However, no amendment shall be effective prior to its approval by the stockholders, to the extent such approval is required by (i) applicable legal requirements or (ii) the requirements of any securities exchange on which the Company’s stock may be listed.
Stock Available for Issuance
Upon stockholder approval of the Plan and subject to adjustment as provided in the Plan, the maximum number of shares of common stock that may be issued under the Plan will be
5,700,000
shares, all of which may be issued pursuant to incentive stock options. Each share of common stock that is the subject of an Award granted under the Plan may be made available from authorized but unissued shares, treasury stock, or shares of common stock acquired in the open market. No fractional shares shall be issued under the Plan. Each share of common stock that is the subject of an Award, including each share underlying an Award that is measured by shares but that is intended to be settled in cash, shall be charged against the maximum share limitations at the time the Award is granted and generally may not again be made subject to Awards under the Plan pursuant to such limitations; provided, however, a share underlying an award may be made subject to Awards again under the Plan in certain limited circumstances, such as if the Award terminates by expiration, forfeiture, cancellation or otherwise without the issuance of the Shares.
Award Limits
The maximum number of shares of common stock subject to stock options and stock appreciation rights (combined) awarded to any one participant pursuant to the Plan in any calendar year shall not exceed 1,000,000 shares. The maximum number of shares of common stock which may be subject to Awards of restricted stock made to any one participant pursuant to the Plan in any calendar year shall be 1,000,000 shares. The maximum amount of compensation which may be paid to any participant in any calendar year pursuant to Awards of restricted stock units shall not exceed $10,000,000. The maximum amount of compensation that may be paid to any participant in any calendar year pursuant to other stock-based awards under the Plan, (i) if the
47
compensation under the other stock-based awards is denominated under the award agreement only in terms of shares of common stock or a multiple of the fair market value per share of common stock, shall not exceed the fair market value (determined as of the date of vesting) of 1,000,000 shares of common stock; or (ii) in all other cases, shall not exceed $10,000,000. The foregoing limitations on the numbers of shares of common stock that may be issued and that may be subject to Awards are subject to adjustment, as provided in the Plan.
Adjustments Upon Changes in Capitalization or Reorganization
In the event of any change in the outstanding shares of common stock by reason of any stock split, stock dividend or other non‑recurring dividends or distributions, recapitalization, merger, consolidation, spin‑off, combination, repurchase or exchange of stock, reorganization, liquidation, dissolution or other similar corporate transaction that affects the common stock, an adjustment shall be made, as the Administrator deems necessary or appropriate, in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan. Such adjustment may include an adjustment to the number and class of shares which may be delivered under this Plan, the number, class and price of shares subject to outstanding Awards, the number and class of Shares issuable pursuant to Options, and the numerical limits contained in the Plan. Notwithstanding the preceding, the number of Shares subject to any Award always shall be a whole number. The Plan does not permit the re-pricing of stock options or stock appreciation rights without stockholder approval.
Minimum Vesting
Awards shall be subject to a minimum vesting requirement of at least one year
from the date the Award was granted, and no portion of any such Award may vest or become exercisable earlier than the first anniversary of the date such Award was granted; provided, however, that for purposes of Awards granted to non-employee directors, “one year” may mean the approximately one-year period from one regular annual stockholder meeting to the immediately following regular annual stockholder meeting, as long as the period is not less than 50 weeks. The foregoing minimum vesting requirement shall not apply: (i) with respect to 5%
of the share reserve of
5,700,000
shares (such amount set forth above) or (ii) to the vesting of an Award that is accelerated as a result of a change of control or termination of the participant due to his or her death or disability, in all cases under terms consistent with the Plan.
Types of Awards
Stock Options
. Stock options entitle the holder to purchase a specified number of shares of common stock at an exercise price per share specified on the date of grant. The Administrator has the authority to grant stock options,
specifying the terms and conditions of each stock option (including the time or times at which and the circumstances under which the stock option is exercisable), subject to the terms of the Plan. The Administrator will also have the authority to determine whether stock options granted to employees will be incentive stock options or non-qualified options.
The exercise price at which shares of common stock may be purchased upon the exercise of a stock option will not be less than 100% of the fair market value of our common stock on the date that the stock option is granted. In the case of incentive stock options granted to an employee owning more than ten percent (10%) of the total combined voting power of us and certain of our affiliates, the exercise price at which shares of common stock may be purchased upon the exercise of such incentive stock option shall not be less than 110% of the fair market value of our common stock on the date of grant. The aggregate fair market value of shares of common stock granted pursuant to stock options (determined as of the date the stock option is granted under the Plan (or any other stock option plan of ours or certain of our affiliates)) that become exercisable with respect to an employee for the first time as incentive stock options during any one calendar year cannot exceed $100,000.
Except for grants of incentive stock options to employees owning more than ten percent (10%) of the total combined voting power of us and certain of our affiliates (which stock options may not be exercised later than five years after the date of grant), no stock option may be exercised later than the date which is ten years after the date of grant. To exercise a stock option granted under the Plan, the person entitled to exercise the stock option must provide written notice to us, setting forth the number of shares of common stock with respect to which the stock option is to be exercised, accompanied by full payment for the shares being purchased and any required withholding taxes, unless other arrangements have been made with the Administrator. The payment must be in cash, check acceptable to the Company, by the Company withholding shares otherwise issuable from the exercise of the stock option, or other method of payment at the Administrator’s discretion.
Restricted Stock
. Restricted stock is common stock that is subject to forfeiture and such other restrictions as the Administrator may impose, including performance criteria, transfer, and repurchase restrictions. The Administrator has authority and discretion to determine what restrictions apply to the restricted stock and when and how the restrictions of one Award of restricted stock may differ from those of any other Award of restricted stock.
Unless otherwise provided in the Award agreement, holders of restricted stock have the right to vote and the right to receive dividends or other distributions paid or made with respect to such shares. All such dividends and distributions shall be held back by the Company and shall be subject to the same restrictions on transferability, vesting and forfeit-ability as the shares of restricted stock with respect to which
48
they were paid. If for any reason the restrictions imposed by the Administrator are not met on the date set forth in the Award Agreement, the restricted stock for which restrictions have not lapsed shall automatically be forfeited by the participant and shall again be available for grant under this Plan.
Stock Appreciation Rights
. A stock appreciation right entitles a participant to receive (either in cash, common stock, or a combination thereof), upon exercise of the stock appreciation right, the excess, if any, of (i) the fair market value per share of common stock on the date of exercise over (ii) the fair market value per share of common stock on the date of grant. The Administrator may provide that the excess may not exceed a specified amount. Stock appreciation rights may be payable in cash, shares of common stock, or a combination thereof. The Administrator shall determine, at the date of grant, the number of shares of common stock to which the stock appreciation right applies, the time or times at which and the circumstances under which a stock appreciation right may vest and be exercised, the term of the stock appreciation right, subject to a ten year maximum term, and such other terms and conditions as the Administrator may determine. To exercise a stock appreciation right, the person entitled to exercise the stock appreciation right must provide written notice to us, setting forth the number of shares of common stock with respect to which the stock appreciation right is to be exercised, accompanied by full payment of any required withholding taxes, unless other arrangements have been made with the Administrator.
Performance Shares and Performance Units
. Performance shares and performance units may be granted pursuant to performance share Award or performance unit Award at any time and shall be determined by the Administrator in its sole discretion. In the case of a performance share, a share will be issued pursuant to the award agreement. A performance unit is an unfunded and unsecured promise to deliver shares, cash or other securities equal to the value set forth in the award agreement. Each performance unit and performance share shall have an initial value established by the Administrator on or before the date of grant. Performance shares shall have an initial value equal to the fair market value of a share on the date of grant. The applicable award agreement will set forth performance goals and the extent to which those goals were met at the end of the performance period shall generally determine the payout or removal of restrictions. Performance units may be paid in cash, shares of common stock, or a combination of cash and stock. On a date set forth in the applicable award agreement, all unearned or unvested performance units and performance shares shall automatically be forfeited to the Company, and the shares subject to such awards (if any) shall again be available for grant under the Plan.
Performance goals may include, but are not limited to, the following: (i) stock price; (ii) earnings per share; (iii) increase in revenues; (iv) increase in cash flow; (v) cash flow per share; (vi) increase in cash flow return; (vii) return on net
assets; (viii) return on assets; (ix) return on tangible assets; (x) return on investment; (xi) return on capital; (xii) return on equity; (xiii) return on invested capital; (xiv) return on capital employed; (xv) economic value added; (xvi) gross margin; (xvii) net income; (xviii) pretax earnings; (xix) pretax earnings before interest; (xx) pretax earnings before interest, taxes, depreciation and amortization; (xxi) pretax operating earnings after interest expense and before incentives, service fees and extraordinary or special items; (xxii) operating income; (xxiii) total stockholder return; (xxiv) debt reduction; (xxv) successful completion of an acquisition, initial public offering, private placement of equity or debt; (xxvi) reduction of expenses; or (xxvii) any combination or of a specified increase, decrease or change, as applicable, in any of the foregoing.
The Administrator may set performance goals based upon the achievement of Company‑wide, divisional, or individual goals (including solely continued service) or any other basis determined by the Administrator in its sole discretion.
Restricted Stock Units
. An award of a restricted stock unit is a right, subject to satisfaction of terms and conditions as imposed by the Administrator, to receive upon vesting, the value of the number of notional shares vested. The right to receive payment of an award of restricted stock units may be conditioned upon continued employment or achievement of performance goals. The holder of a restricted stock unit Award shall have no rights of a stockholder and shall have no voting rights with respect to any restricted stock unit Award. Restricted stock unit awards may be payable in cash, shares of common stock, or a combination thereof. The Administrator has the authority to determine the periods of restriction, the amount payable under the award, and any other terms and conditions consistent with the Plan.
Other Stock-Based Awards
. Other stock-based awards may be granted either alone, in addition to, or in tandem with, other awards granted under the Plan and/or cash awards made outside of the Plan. At the Administrator’s discretion, other stock-based awards may be payable in cash. The Administrator has the authority and discretion to determine the terms and conditions, if any, of other stock-based awards, including any dividend or voting rights.
Withholding
We are generally required to withhold tax on the amount of income recognized by a participant with respect to an Award. The Administrator may make such provision for the withholding of taxes as it deems necessary. Withholding requirements may be satisfied by, among other ways, (a) tender of a cash payment to us or (b) withholding of cash payable or of shares of common stock otherwise issuable under an Award.
Amendment of Awards
The Administrator may amend an Award; provided, however, except in the case of a change of control, no amendment of
49
an Award may, without the consent of the participant, adversely affect the participant’s rights with respect to such Award in any material respect.
Clawback
All compensation and Awards payable or paid under the Plan and any sub-plans shall be subject to the Company’s ability to recover incentive-based compensation from executive officers, as is or may be required by the provisions of any clawback policy implemented by the Company, the Dodd-Frank Wall Street Reform and Consumer Protection Act, any regulations or rules promulgated thereunder, or any other “clawback” provision required by applicable law or the listing standards of any applicable stock exchange or national market system.
Term of the Plan
The Board approved the Plan to be effective on
March 16, 2018
(the “Effective Date”), subject to the Company’s stockholders approving the Plan not more than one year after the date of this Plan’s adoption by the Board. The Plan shall continue in effect for a term of 10 years from the Effective Date unless terminated earlier pursuant to the terms of the Plan. No Award shall be granted under the Plan prior to the date on which the Plan is so approved by the Company’s stockholders, unless its grant, vesting and settlement are conditioned upon the approval of the Plan by the Company’s stockholders not more than one year after the date of this Plan’s adoption by the Board. If the Plan is not approved by the Company’s stockholders not more than one year after the date of this Plan’s adoption by the Board, all Awards, if any, granted under the Plan shall be immediately and automatically cancelled and terminated without any action required by the Company, the Board or the Administrator and without any payment or consideration with respect thereto.
Term of Awards
The term of each Award shall be for such period as may be determined by the Administrator; provided, however, that in no event shall the term of any such Award exceed a period of ten years (or such shorter terms as may be required in respect of an Incentive Stock Option under Section 422 of the Code).
Change of Control
Un
less otherwise provided in an Award, upon the occurrence of a change of control (defined generally as certain reorganizations, mergers, consolidations, sales of all or substantially all of our assets, or liquidations), the Board may, but is not required to, take any one or more of the following actions with respect to Awards: (i) accelerate vesting and the time at which all stock options and stock appreciation rights then outstanding may be exercised; (ii) waive, alter, and/or amend the performance criteria and other restrictions and conditions of Awards then outstanding, with the result that the affected Awards may be deemed vested, and any
applicable restricted period or other limitations on payment in full with respect thereto shall be deemed to have expired, as of the date of the change of control or such other date as may be determined by the Board; (iii) cause any acquirer to assume the Plan and the Awards or exchange the Awards for the acquirer’s stock; (iv) terminate the Plan; and (v) terminate and cancel all outstanding unvested or unexercised Awards as of the date of the change of control on such terms and conditions as it deems appropriate.
The Board will, in connection with a change of control, have the right to require all participants to transfer and deliver to us all Awards previously granted to the participants in exchange for an amount equal to the cash value of the Awards. The cash value of an Award will equal the sum of (i) the cash value of all benefits to which the participant would be entitled upon settlement or exercise of any Award that is not a stock option or restricted stock, and (ii) in the case of a stock option, stock appreciation right or restricted stock, the excess of the market value per share (as defined in the Plan) over the option price (in the case of an option), strike price (in the case of a stock appreciation right) or the market value per share of restricted stock, as applicable, multiplied by the number of shares as to which such Award is vested. If an Award is a stock option or stock appreciation right and no cash value exists with respect thereto, then such cash-out shall be effectuated with no cash (or other) payment to the party holding such Award.
Summary of Certain Federal Income Tax Considerations
The following summary is based on certain applicable provisions of the Code, as currently in effect, and the income tax regulations and proposed income tax regulations issued thereunder. This summary does not purport to cover all federal income tax consequences or any federal employment tax or other federal tax consequences that may be associated with the Plan, nor does it cover state, local, employment, foreign or other taxes.
Status of Stock Options
.
Stock options granted under the Plan may be either incentive stock options or non-qualified options. Under certain circumstances, an incentive stock option may be treated as a non-qualified option. The tax consequences, both to the option holder and to us, differ depending on whether a stock option is an incentive stock option or a non-qualified option.
Non-qualified Options
. Generally, no federal income tax is imposed on the option holder upon the grant of a non-qualified stock option. If the shares of common stock received by an option holder upon the exercise of a non-qualified option are not subject to certain restrictions in the hands of the option holder, then the option holder will be treated as receiving compensation, taxable as ordinary income in the year of exercise. The amount recognized as ordinary income upon such an exercise is the excess of the fair market value of the shares of common stock at the time
50
of exercise over the exercise price paid for such common stock.
Incentive Stock Options
. No federal income tax is imposed on the option holder upon the grant or exercise of an incentive stock option. The option holder will recognize no ordinary income for federal income tax purposes upon disposition of stock acquired pursuant to the exercise of an incentive stock option, if the option holder (i) does not dispose of the shares of common stock acquired pursuant to the exercise of an incentive stock option within two years from the date the option was granted or within one year after the shares of common stock were transferred to the option holder (the “Holding Period”), and (ii) is an employee of either (a) the corporation granting the option, (b) the parent corporation or a subsidiary corporation of the granting corporation, or (c) a corporation (or the parent corporation or a subsidiary corporation of such corporation) that has assumed such option of another corporation as a result of a corporate reorganization, merger, or similar transaction. Such employment must continue for the entire time from the date the option was granted until three months before the date of exercise or twelve months before the date of exercise if employment ceases due to permanent and total disability (as defined in Section 22(e)(3) of the Code). If common stock received upon exercise of an incentive stock option is disposed of after completion of the Holding Period, any difference between the exercise price paid for such common stock and the amount realized on the disposition will be treated as a capital gain or loss. The gain, if any, realized upon such a disposition will be treated as a long-term capital gain. Any loss realized upon such a disposition will be treated as a long-term capital loss. In the case of disposition of shares of common stock following expiration of the Holding Period, we would not be entitled to any deduction in connection with the grant or exercise of the incentive stock option or the disposition of the shares of common stock so acquired.
If, however, an option holder disposes of shares of common stock acquired pursuant to the exercise of an incentive stock option before expiration of the Holding Period (a “Disqualifying Disposition”), the option holder would be treated as having received, at the time of disposition, compensation taxable as ordinary income. The amount treated as compensation is the lesser of (i) the excess of the fair market value of the common stock at the time of exercise over the exercise price, or (ii) the excess of the amount realized on disposition over the exercise price. The balance of the gain, if any, realized upon such a disposition will be treated as a long-term or short-term capital gain depending on the holding period. If the amount realized at the time of the disposition is less than the exercise price, the option holder will not be required to treat any amount as ordinary income, provided that the disposition is of a type that would give rise to a recognizable loss. In such event, the loss will be treated as a long-term or short-term capital loss depending upon the holding period. A disposition generally includes a sale, exchange, gift or a transfer of legal title, but does not include certain other transfers, such as by reason of death or
a pledge or an exchange of shares described in Section 424(c) of the Code.
Although the exercise of an incentive stock option does not result in current taxable income, there are implications with regard to the Alternative Minimum Tax (“AMT”). The excess of the fair market value of shares of common stock acquired upon exercise of an incentive stock option over the exercise price paid for such shares of common stock is an adjustment to AMT income for the option holder’s taxable year in which such exercise occurs (unless the shares of common stock are disposed of in the same taxable year and the amount realized is less than the fair market value of the shares on the date of exercise, in which event the amount included in AMT income will not exceed the amount realized on the disposition over the adjusted basis of the shares).
Stock Appreciation Rights
. Upon the exercise of a stock appreciation right, if shares are received in settlement of the stock appreciation right, the fair market value of those shares received is recognized as income for federal income tax purposes at the time of exercise. If a participant receives cash upon the exercise of a stock appreciation right, the amount of cash received is recognized as income for federal income tax purposes at the time of exercise.
Restricted Stock
. Generally, the grant of restricted stock will not be a taxable event to the participant, and we will not receive a deduction. Absent an 83(b) election (described below), the participant will be taxed at ordinary income rates when the stock vests (an amount equal to the difference between the fair market value of the stock on the vesting date and the consideration paid, if any, for the shares), and we will receive a corresponding deduction. However, the participant may elect to make an 83(b) election not later than 30 days after the grant of the restricted stock. An 83(b) election is an election permitted under Section 83(b) of the Code that allows the participant to recognize compensation income on the restricted stock at the time of the grant equal to the difference between the fair market value of the stock on the date of grant and the amount paid, if any, for the shares. If the participant makes an 83(b) election, we receive a corresponding deduction at the time of the grant, and the participant is not taxed, nor do we receive any deduction, upon vesting of the shares.
When the participant sells the shares following vesting, he or she may realize a capital gain if the sales price is greater than his or her basis in the shares. The participant’s basis for this purpose is the fair market value at the time of vesting (if no 83(b) election is made) or at the time of grant (if an 83(b) election is made). We do not receive a deduction upon disposition of the stock by the participant. If, following vesting, the participant sells the shares and the amount realized is more than the participant’s basis in the stock, the participant will recognize a capital gain. If, following vesting, the participant sells the shares and the amount realized is less than the participant’s basis in the stock, the participant will recognize a capital loss. The capital gain or loss will be either short-term or long-term, depending on the holding period of
51
the shares. The holding period commences upon vesting (if no 83(b) election is made) or upon grant (if an 83(b) election is made).
Restricted Stock Units
. In general, a participant who receives a restricted stock unit award will not be taxed on receipt of the Award; instead, upon vesting (or potentially settlement, depending upon how the restricted stock unit is structured), the amount paid to the participant (whether in cash, shares, or a combination thereof) denominated in cash will be taxable as compensation to the participant.
Other Tax Considerations
In the event of a change of control of the Company, certain payments in the nature of compensation to certain individuals, if contingent on the change of control, could be nondeductible to us and subject to an additional 20% tax to the participant. Awards under the Plan that are made, vest, or become payable in connection with a change of control may be required to be taken into account in determining whether these penalties apply.
Some Awards granted under the Plan may be considered non-qualified deferred compensation that is subject to special rules and an additional 20% tax to the participant if not compliant with Section 409A of the Code. The Administrator intends to design and administer such Awards either to be exempt from or to comply with Section 409A of the Code and avoid the imposition of any additional tax under Section 409A of the Code, but is not required to do so. There is no commitment or guarantee that any federal, state, local, or foreign tax treatment will (or will not) apply or be available to any participant with respect to any Award.
Inapplicability of ERISA
Based on current law and published interpretations, we do not believe that the Plan is subject to any of the provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).
Notwithstanding the foregoing, the Plan expressly provides that there is no commitment or guarantee that any federal, state, or local tax treatment will (or will not) apply or be available to any person who participates or is eligible to participate in the Plan.
Plan Benefits
Except as set forth above in the table in the section titled “New Plan Benefits,” information cannot be provided with respect to the number of Awards that will be received by any particular individual employee or group of employees pursuant to the Plan, since the grant of such Awards is within the discretion of the Administrator. All other future grants under the Plan are within the discretion of our Board of Directors or the Administrator (if not the Board of Directors) and, as such, the benefits of such grants are not currently determinable.
No other incentive compensation has been awarded under the Plan to date. All such awards of restricted stock and restricted stock units made under the Plan will be forfeited unless they become effective upon the stockholder approval solicited by this Proxy Statement or within one year following the date of the Plan’s adoption by the Board.
Vote Required and Recommendation of the Board of Directors
The affirmative vote of a majority of the total votes cast at the Meeting is required to approve an amendment to the Flotek Industries, Inc. 2018 Long-Term Incentive Plan.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY ADOPTED A RESOLUTION SEEKING STOCKHOLDER APPROVAL OF, AND RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL OF, AN AMENDMENT TO THE FLOTEK INDUSTRIES, INC. 2018 LONG-TERM INCENTIVE PLAN, WHICH IS DESIGNATED AS PROPOSAL NO.
4
ON THE ENCLOSED PROXY.
52
PROPOSAL
5
: ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION
We are providing our stockholders with an opportunity to vote to approve, on an advisory, non-binding basis, the compensation of our named executive officers as disclosed in this proxy statement pursuant to Item 402 of Regulation S-K and in accordance with the SEC’s rules. This proposal, which may be referred to as a “say-on-pay” proposal, is required by Section 14A of the Exchange Act, which was put in place by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
Our executive compensation program is designed to attract, motivate, and retain our executive officers, who are critical to our success. As described in the “Summary Compensation Table” and “Outstanding Equity Awards at Fiscal Year-End” tables, as well as our accompanying narrative disclosure to such tables, our executive compensation program contains elements of cash and equity-based compensation. We believe our program is designed to align the interests of our named executive officers with those of our stockholders and to reward our named executive officers for the achievement of our near-term and longer-term financial and strategic goals.
At the
2018
Annual Meeting of Stockholders,
94.9%
of voting stockholders approved the compensation of our named executive officers. The Company considers this vote a positive endorsement of its executive compensation practices and decisions.
Management routinely engages with investors and has engaged in dialogue with many of our largest stockholders to solicit their feedback and gather information on their views and opinions on various operations and governance issues, including executive compensation practices. The Compensation Committee considers the annual stockholders advisory vote, as well as other stockholder input, when
reviewing executive compensation programs, principles, and policies.
The Board of Directors is asking our stockholders to approve a non-binding advisory vote on the following resolution:
RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission under the headings “Compensation Discussion and Analysis,” “Summary Compensation Table” and “Outstanding Equity Awards at Fiscal Year-End,” including the related footnotes and accompanying narrative disclosure, is hereby approved.
Though this proposal calls for a non-binding advisory vote, our Board and Compensation Committee value the opinions of our stockholders and will consider the outcome of the vote when making future compensation decisions for our named executive officers.
Vote Required and Recommendation of the Board of Directors
The affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote on the matter is required to approve this Proposal
5
. In determining whether this proposal has received the requisite number of affirmative votes, abstentions will not be counted and will have the same effect as a vote against the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE RESOLUTION APPROVING THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS.
53
PROPOSAL
6
: ADVISORY VOTE ON THE FREQUENCY OF FUTURE ADVISORY
VOTES ON EXECUTIVE COMPENSATION
In Proposal
5
above, we are providing our stockholders with an opportunity to vote to approve, on an advisory, non-binding basis, the compensation of our named executive officers. In this Proposal
6
, we are asking our stockholders to cast a non-binding advisory vote regarding the frequency of future “say-on-pay” votes. Stockholders may vote for a frequency of every one, two, or three years, or may abstain from voting. This proposal, which may be referred to as a “say-on-frequency” proposal, also is required by the Dodd-Frank Act.
Because this proposal calls for a non-binding advisory vote, it will not be binding on the Company, and the Board and the Compensation Committee may determine to hold “say-on-pay” votes more or less frequently than the option selected by our stockholders (though no less frequently than once every three years, as required by the Dodd-Frank Act).
However, our Board and the Compensation Committee value the opinions of our stockholders and will consider the outcome of the vote when determining the frequency of future “say-on-pay” votes. In the future, we will provide a “say-on-frequency” vote at least once every six years as required by the Dodd-Frank Act.
After careful consideration, the Board recommends that a “say-on-pay” vote be held every year. An annual vote will facilitate more direct stockholder input about executive compensation. An annual vote is consistent with our policy of reviewing our compensation program annually, as well as seeking frequent input from our stockholders on corporate governance and executive compensation matters. Therefore, the Board recommends that you vote “every year” for the frequency of the advisory “say-on-pay” vote.
Vote Required and Recommendation of the Board of Directors
No voting standard is applicable to this proposal. Stockholders may vote to set the frequency of the “say-on-pay” votes at every one, two, or three years, or may abstain from voting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU SELECT “EVERY YEAR” ON THE PROPOSAL RECOMMENDING THE FREQUENCY OF ADVISORY VOTES ON NAMED EXECUTIVE OFFICER COMPENSATION.
54
PROPOSAL
7
: RATIFICATION OF SELECTION OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has selected Moss Adams LLP (“Moss Adams”) as the independent registered public accounting firm to perform the audit of our consolidated financial statements for the year ending
December 31, 2019
. A representative of Moss Adams is expected to attend the
2019
Annual Meeting. Such representative will have the opportunity to make a statement, if he or she desires to do so, and will be available to respond to appropriate questions. The Board recommends that the stockholders ratify the selection of Moss Adams as our independent registered public accounting firm.
On November 16, 2017, the Audit Committee appointed Moss Adams as our independent registered public accounting firm for the fiscal year ended December 31, 2017.
Prior to the appointment of Moss Adams, Hein & Associates LLP (“Hein”) served as our independent registered public accounting firm. See “Changes in Independent Registered Accounting Firm” below. Hein acted as our independent registered public accounting firm for all interim periods of 2017.
Audit Fees
Moss Adams billed the Company and its subsidiaries fees as set forth in the table below for (i) the audit of the Company’s
2018
and
2017
annual financial statements, (ii) the reviews for
2018
of quarterly financial statements and review of other documents filed with the Securities and Exchange Commission, and (iii) assurance and other services reasonably related to the audit or review of the Company’s financial statements, including due diligence services. There were no other fees billed by such independent registered public accounting firm during
2018
.
|
2018
|
2017
|
||||||
|
Audit fees
|
$
|
746,500
|
|
$
|
490,000
|
|
|
|
Audit related fees
|
37,350
|
|
—
|
|
|||
|
Tax fees
|
—
|
|
—
|
|
|||
|
All other fees
|
—
|
|
—
|
|
|||
|
Total
|
$
|
783,850
|
|
$
|
490,000
|
|
|
Hein billed the Company and its subsidiaries fees as set forth in the table below for (i) the reviews for 2017 of quarterly financial statements and review of other documents filed with the Securities and Exchange Commission and (ii) assurance and other services reasonably related to the audit or review of the Company’s financial statements, including due diligence services. There were no other fees billed by such independent registered public accounting firm during 2017.
|
2018
|
2017
|
||||||
|
Audit fees
|
$
|
—
|
|
$
|
207,500
|
|
|
|
Audit related fees
|
—
|
|
37,000
|
|
|||
|
Tax fees
|
—
|
|
—
|
|
|||
|
All other fees
|
—
|
|
—
|
|
|||
|
Total
|
$
|
—
|
|
$
|
244,500
|
|
|
The Audit Committee of the Board has adopted a policy requiring pre-approval of all services provided by our independent registered public accounting firm. All of the services provided by Moss Adams or Hein during fiscal years
2018
and
2017
were pre-approved by the Audit Committee.
Changes in Independent Registered Public Accounting Firm
As previously reported, effective November 16, 2017, Hein, the independent registered public accounting firm for Flotek Industries, Inc. (the “Company”), combined with Moss Adams. As a result of this transaction, on November 16, 2017, Hein resigned as the independent registered public accounting firm for the Company. Concurrent with such resignation, the Company’s audit committee approved the engagement of Moss Adams as the new independent registered public accounting firm for the Company.
The audit reports of Hein on the Company’s financial statements for the years ended December 31, 2016 and 2015 did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles.
During the two most recent fiscal years ended December 31, 2016 and through the subsequent interim period preceding Hein’s resignation, there were no disagreements between the Company and Hein on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures which, if not resolved to the satisfaction of Hein, would have caused them to make reference thereto in their reports on the Company’s financial statements for such years. In addition, during the periods identified above, there were no reportable events within the meaning set forth in Item 304(a)(1)(v) of Regulation S-K.
During the two most recent fiscal years ended December 31, 2016 and through the subsequent interim period preceding Moss Adams’ engagement, the Company did not consult with Moss Adams on either (1) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that may be rendered on the Company’s financial statements, and Moss Adams did not provide either a written report or oral advice to the Company that Moss Adams concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing, or financial reporting issue; or (2) any matter that was either the subject of a disagreement, as defined in Item 304(a)(1)(iv) of Regulation S-K, or a reportable event, as defined in item 304(a)(1)(v) of Regulation S-K.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” PROPOSAL NO.
7
TO RATIFY THE SELECTION OF MOSS ADAMS LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING
DECEMBER 31, 2019
.
55
OTHER MATTERS
The Board is not aware of any other matters that may come before the Meeting. However, the proxies may be voted with discretionary authority with respect to any other matters that may properly come before the Meeting.
ANNUAL REPORT
An Annual Report to Stockholders of the Company for the fiscal year ended
December 31, 2018
is enclosed herewith.
This report does not form any part of the material for solicitation of proxies.
FUTURE STOCKHOLDER
PROPOSALS AND STOCKHOLDER COMMUNICATIONS
Stockholders are entitled to submit proposals on matters appropriate for stockholder action consistent with regulations of the SEC and the Company’s bylaws.
In order for a stockholder proposal or nomination to be properly brought before next year’s annual meeting, written notice of the proposal that complies with the Company’s bylaws must be received by the Company’s secretary (at the address below) no earlier than 120 days and no later than 90 days prior to the one year anniversary of the preceding year’s annual meeting, which is expected to be held in May
2020
. For the
2020
Annual Meeting, notice of such business or nominations must be received by the Company no earlier than
January 25, 2020
and no later than
February 24, 2020
, as set forth more fully in the bylaws, and must comply with the other requirements as set forth in the bylaws.
In addition to the foregoing, should a stockholder wish to have a proposal appear in the Company’s proxy statement and form of proxy for next year’s annual meeting of stockholders, under regulations of the SEC, such proposal must be received by the Company’s secretary at 10603 W. Sam Houston Parkway N., Suite 300, Houston, Texas 77064 on or before
December 26, 2019
.
Stockholders and interested parties who wish to communicate with the Board, or with any individual director, may do so by (1) calling Lighthouse Services Inc., a third party call center, at (800) 785-1003 or (2) correspondence addressed to the Board, or to an individual director, at the principal executive offices of the Company. All communications received from stockholders are sent directly to Board members.
HOUSEHOLDING OF PROXY MATERIALS
The SEC permits a single set of notices, annual reports, and proxy statements to be sent to any household at which two or more stockholders reside if they appear to be members of the same family. Each stockholder continues to receive a separate proxy card. 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 notice, annual report, and proxy statement unless any stockholder at that address has given the broker contrary instructions. However, if any beneficial stockholder residing at an address of which two or more stockholders reside wishes to receive a separate notice, annual report, or proxy statement in the future, or if any beneficial stockholder that elected to continue to receive separate notice, annual reports, or proxy statements wishes to receive a single notice, annual report, or proxy statement in the future, that stockholder should contact his or her broker or send a request to our Corporate Secretary at our principal executive offices, 10603 W. Sam Houston Parkway N., Suite 300, Houston, Texas 77064, telephone number (713) 849-9911. We will deliver, promptly upon written or oral request to our Corporate Secretary, a separate copy of the notice,
2018
annual report, and this proxy statement to a beneficial stockholder at a shared address to which a single copy of the documents was delivered.
56
EXHIBIT
A
FLOTEK INDUSTRIES, INC.
2019 NON-EMPLOYEE DIRECTOR INCENTIVE PLAN
1.
Purpose of this Plan
. The purpose of this Plan is to: (i) attract and retain highly qualified individuals to serve as Non-Employee Directors of the Company, (ii) provide additional incentives to Non-Employee Directors, and (iii) promote the success of the Company's business interests. This Plan permits the grant of Options, Restricted Stock, Restricted Stock Units, and Other Stock-Based Awards.
2.
Definitions
. As used in this Plan, the following definitions shall apply:
(a)
“
Aw
ard”
means, individually or collectively, a grant under this Plan of Options, Restricted Stock, Restricted Stock Units, or Other Stock‑Based Awards.
(b)
“Award Agreement”
means the written or electronic agreement setting forth the terms and provisions applicable to each Award granted under this Plan. The Award Agreement is subject to the terms and conditions of this Plan.
(c)
“Awarded Stock”
means the Common Stock subject to an Award.
(d)
“Board”
means the Board of Directors of the Company.
(e)
“Cash Value”
of an Award means the sum of (i) in the case of any Award which is not an Option or Restricted Stock, the value of all benefits to which the Non-Employee Director would be entitled as if the Award were vested and settled or exercised and (ii) (A) in the case of an Option, the excess, if any, of the Fair Market Value per Share over the exercise price or strike price, respectively, or (B) in the case of Restricted Stock, the Fair Market Value per Share of Restricted Stock, multiplied by the number of Shares subject to such Award, all as determined by the Board as of the date of the Change of Control or such other date as may be determined by the Board.
(f)
“Change of Control”
means, except as otherwise provided in the Award Agreement, the consummation of any of the following events:
(i)
any “person” or “persons” (as defined in Section 3(a)(9) of the Exchange Act, and as modified in Sections 13(d) and 14(d) of the Exchange Act) other than and excluding (1) the Company or any of its subsidiaries, (2) any employee benefit plan of the Company or any of its subsidiaries, (3) any affiliate of the Company, (4) an entity owned, directly or indirectly, by stockholders of the Company in substantially the same proportions as their ownership of the Company, or (5) an underwriter temporarily holding securities pursuant to an offering of such securities, becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing more than 50% of the shares of voting stock of the Company then outstanding;
(ii)
the consummation of any merger, organization, business combination, or consolidation of the Company or one of its subsidiaries with or into any other entity, other than a merger, reorganization, business combination, or consolidation which would result in the holders of the voting securities of the Company outstanding immediately prior thereto and their respective affiliates holding securities which represent immediately after such merger, reorganization, business combination, or consolidation more than 50% of the combined voting power of the voting securities of the Company or the surviving company or the parent of such surviving company;
(iii)
the consummation of a sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition if the holders of the voting securities of the Company outstanding immediately prior thereto and their respective affiliates hold securities immediately thereafter which represent more than 50% of the combined voting power of the voting securities of the acquiror, or parent of the acquiror, of such assets;
(iv)
the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company; or
(v)
the Incumbent Board ceases for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election by the Board was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an election contest with respect to the election or removal of directors or other solicitation of proxies
A-1
or consents by or on behalf of a person other than the Board.
“
Incumbent Board”
means individuals who, as of the Effective Date, constitute the Board.
Further, in the case of any item of income under an Award to which the foregoing definition would otherwise apply with the effect that the income tax under Section 409A of the Code would apply or be imposed on income under that Award, but where such tax would not apply or be imposed if the meaning of the term “Change of Control” met the requirements of Section 409A(a)(2)(A)(v) of the Code, then the term “Change of Control” herein shall mean, but only with respect to the income so affected, a transaction, circumstance, or event that constitutes a “Change of Control” (as defined above) and that also constitutes a “change in control event” within the meaning of Treas. Reg. §1.409A-3(i)(5).
(g)
“Code”
means the Internal Revenue Code of 1986, as amended from time to time, and the U.S. Treasury regulations promulgated thereunder. Any reference to a section of the Code shall be deemed a reference to any successor or amended section of the Code.
(h)
“Common Stock”
means the common stock, $0.0001 par value per Share, of the Company.
(i)
“Company”
means Flotek Industries, Inc., a Delaware corporation, and any successor to thereto.
(j)
“Dividend Equivalent”
means a notional credit, made at the sole discretion of the Board, to a bookkeeping account with respect to a Non-Employee Director in an amount equal to the value of dividends paid on one Share for each Share subject to an Award held by such Non-Employee Director. Under no circumstances shall the payment of a Dividend Equivalent be made contingent on the exercise of an Option or Stock Appreciation Right. Additionally, Dividend Equivalents shall be subject to the same restrictions on transferability, vesting and forfeitability as the Award with respect to which they are credited. Dividend Equivalents will be granted only if a grant thereof is explicitly made in the applicable Award Agreement.
(k)
“Effective Date”
means
March 13, 2019
, the date this Plan was adopted by the Board. The effectiveness of this Plan is contingent upon its approval by the Company's stockholders not more than one year after the date of this Plan's adoption by the Board.
(l)
“Exchange Act”
means the Securities Exchange Act of 1934, as amended.
(m)
“Fair Market Value”
means, as of any date, the value of Common Stock determined as follows:
(i)
If the Common Stock is listed on any established stock exchange or a national market system, or if the Common Stock is regularly quoted by a recognized securities dealer, the Fair Market Value shall be the closing price of the Common Stock on such exchange or system for the Common Stock for the day of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable; or
(ii)
In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Board by a reasonable application of a reasonable valuation method.
Notwithstanding the foregoing to the contrary, for federal, state, and local income tax reporting purposes and for such other purposes as the Board deems appropriate, Fair Market Value shall be determined by the Board in accordance with uniform and nondiscriminatory standards adopted by it from time to time.
(n)
“Non-Employee
Director”
means a member of the Board who is not a current employee of the Company or any of its subsidiaries.
(o)
“Option”
means a nonstatutory stock option to purchase Common Stock granted pursuant to this Plan.
(p)
“Other Stock-Based Awards”
means any other awards not specifically described in this Plan that are payable by delivery of Shares or valued in whole or in part by reference to, or are otherwise based on, Shares and are created by the Board pursuant to Section 9 of this Plan.
(q)
“Person”
shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a “group” as defined in Section 13(d) thereof.
(r)
“Plan”
means this 2019 Non-Employee Director Incentive Plan. In accordance with Section 13, this Plan became effective on the Effective Date, subject to the Company's stockholders approving this Plan not more than one year after the date of this Plan's adoption by the Board.
(s)
“Restricted Stock”
means Shares issued pursuant to a Restricted Stock Award under Section 7 of this Plan.
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(t)
“Restricted Stock Unit”
means, pursuant to Section 8 of this Plan, an unfunded and unsecured promise to deliver Shares, cash or other securities equal in value to the Fair Market Value of one Share in the Company on the date of vesting or settlement, as applicable, or as otherwise set forth in the Award Agreement.
(u)
“Share”
means a share of Common Stock, as adjusted in accordance with Section 11 of this Plan.
3.
Stock Subject to this Plan
.
(a)
Stock Subject to this Plan
. Subject to the provisions of Section 11 of this Plan, the maximum aggregate number of Shares that may be issued pursuant to all Awards under this Plan is
1,000,000
Shares.
(b)
Share Usage
. Shares shall not be deemed to have been issued pursuant to this Plan with respect to any portion of an Award that is settled in cash. Upon payment in Shares pursuant to the exercise or settlement of an Award, the number of Shares available for issuance under this Plan shall be reduced only by the number of Shares actually issued in such payment. If any outstanding Award expires or is terminated or canceled without having been exercised or settled in full, or if Shares acquired pursuant to an Award subject to forfeiture or repurchase are forfeited or repurchased by the Company, the Shares allocable to the terminated portion of the Award or the forfeited or repurchased Shares shall again be available for grant under this Plan.
(c)
Share Reserve
. The Company, during the term of this Plan, shall at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of this Plan.
(d)
Certain Limitations on Awards
. Subject to Section 11 of this Plan, any Award shall not exceed the following grant date Fair Market Value limitations per calendar year: (i)
$250,000
(for Options); and (ii)
$250,000
(for Restricted Stock, Restricted Stock Units and Other Stock-Based Awards).
4.
Administration of this Plan
.
(a)
Powers of the Board
. The Board shall be responsible for administering this Plan. The Board's decisions, determinations, actions and interpretations shall be final, conclusive and binding on all persons having an interest in this Plan, and the Board's determinations under this Plan need not be the same for all persons. Subject to the provisions of this Plan, the Board shall have the authority to take any actions it deems necessary or advisable for the Board of this Plan, including, but not limited to:
(i)
determine the Fair Market Value of Awards;
(ii)
determine the number of Shares to be covered by each Award granted under this Plan;
(iii)
approve forms of Award Agreements for use under this Plan;
(iv)
determine the terms and conditions, not inconsistent with the terms of this Plan, of any Award granted under this Plan, including but not limited to, the exercise price, the time or times when Awards may be exercised, any vesting acceleration or waiver of forfeiture or repurchase restrictions, and any restriction or limitation regarding any Award or the Shares relating thereto, based in each case on such factors as the Board, in its sole discretion, shall determine;
(v)
construe and interpret the terms of this Plan and Awards granted pursuant to this Plan;
(vi)
prescribe, amend and rescind rules and regulations relating to this Plan;
(vii)
correct any defect, supplying any omission or reconciling any inconsistency in this Plan or any Award Agreement;
(viii)
amend the terms of any outstanding Award, including the discretionary authority to extend the post‑termination exercise period of Awards and accelerate the satisfaction of any vesting criteria or waiver of forfeiture or repurchase restrictions, provided that any amendment that would adversely affect the Non-Employee Director's rights under an outstanding Award shall not be made without the Non-Employee Director's written consent;
(ix)
allow a Non-Employee Director to defer the receipt of the payment of cash or the delivery of Shares that would otherwise be due to the Non-Employee Director under an Award;
(x)
determine whether Awards shall be settled in Shares, cash or in a combination of Shares and cash;
(xi)
determine whether Awards shall be adjusted for Dividend Equivalents;
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(xii)
create Other Stock-Based Awards for issuance under this Plan;
(xiii)
establish one or more programs under this Plan to permit selected Non-Employee Directors the opportunity to elect to defer receipt of consideration upon exercise of an Award or other event that absent the election, would entitle the Non-Employee Director to payment or receipt of Shares or other consideration under an Award;
(xiv)
authorizing any person to execute on behalf of the Company any instrument required to effect the grant of an Award previously authorized by the Board or this Plan; and
(xv)
make all other determinations that the Board deems necessary or advisable for administering this Plan.
(b)
Prohibition on Repricing of Options
. Notwithstanding anything in this Plan to the contrary, no repricing of Options may be effectuated without the prior approval of the Company's stockholders; provided, however, that the foregoing prohibition shall not apply to the extent an adjustment is required under Section 11. The exercise price of Options may not be reduced and Options may not be cancelled in exchange for other awards, or cancelled in exchange for Options having a lower exercise price, or cancelled in exchange for cash, without stockholder approval.
(c)
Indemnification
. The Company shall, to the maximum extent permitted by law, defend and indemnify members of the Board, officers and employees of the Company or of an affiliate thereof to whom authority to act for the Board, or the Company is delegated (“
Indemnitees
”) against (i) all reasonable expenses, including reasonable attorneys' fees incurred in connection with the defense of any claim, investigation, action, suit or proceeding, or in connection with any appeal therein (collectively, a “
Claim”
), to which any of them is a party by reason of any action taken or failure to act in connection with this Plan, or in connection with any Award granted under this Plan; and (ii) all amounts required to be paid by them in settlement of a Claim (provided the settlement is approved by the Company) or required to be paid by them in satisfaction of a judgment in any Claim. However, no person shall be entitled to indemnification to the extent it is determined in such Claim that such person did not in good faith and in a manner reasonably believed to be in the best interests of the Company (or in the case of a criminal proceeding, had no reason to believe that the conduct complained of was unlawful). In addition, to be entitled to indemnification, the Indemnitee must, within thirty (30) days after written notice of the Claim, offer the Company, in writing, the opportunity, at the Company's expense, to defend the Claim. The right to indemnification shall be in addition to all other rights of indemnification available to the Indemnitee.
5.
Eligibility
. Only Non-Employee Directors are eligible to participate in this Plan.
6.
Options
.
(a)
Grant of Options
. Subject to the terms and provisions of this Plan, the Board, at any time and from time to time, may grant Options to Non-Employee Directors in such amounts s the Board, in its sole discretion, shall determine.
(b)
Option Agreement
. Each Award of an Option shall be evidenced by an Award Agreement that shall specify the exercise price, the term of the Option, the number of Shares subject to the Option, the exercise restrictions (if any) applicable to the Option, and such other terms and conditions as the Board, in its sole discretion, shall determine.
(c)
Term of Option
. The term of each Option shall be stated in the Award Agreement, but shall in no event be more than ten years from the date of grant.
(d)
Option Exercise Price and Exercise Dates
.
(i)
Exercise Price
. The per Share exercise price shall be determined by the Board, but shall not be less than Fair Market Value per Share on the date of grant.
(ii)
Waiting Period and Exercise Dates
. At the time an Option is granted, the Board shall fix the period within which the Option may be exercised and shall determine any conditions that must be satisfied before the Option may be exercised. The Board, in its sole discretion, may accelerate the satisfaction of such conditions at any time.
(e)
Form of Consideration
. The Board shall determine the acceptable form of consideration for exercising an Option, including the method of payment.
(f)
Exercise of Option
. Any Option granted under this Plan shall be exercisable according to the terms of this Plan and at such times and under such conditions as determined by the Board and set forth in the Award Agreement. An Option shall be deemed exercised when the Company receives: (x) written or electronic notice of exercise (in accordance with the Award Agreement) from the person entitled to exercise the Option, and (y) full payment for the Shares with respect to which the Option
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is exercised. Full payment may consist of any consideration and method of payment authorized by the Board and permitted by the Award Agreement and this Plan. Shares issued upon exercise of an Option shall be issued in the name of the Non-Employee Director or, if requested by the Non-Employee Director, in the name of the Non-Employee Director and his spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Award, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 11 of this Plan or the applicable Award Agreement. Exercising an Option in any manner shall decrease the number of Shares thereafter available for sale under the Option, by the number of Shares as to which the Option is exercised.
7.
Restricted Stock
.
(a)
Grant of Restricted Stock
. Subject to the terms and provisions of this Plan, the Board, at any time and from time to time, may grant Shares of Restricted Stock to a Non-Employee Director in such amounts as the Board, in its sole discretion, shall determine.
(b)
Restricted Stock Agreement
. Each Award of Restricted Stock shall be evidenced by an Award Agreement that shall specify the vesting schedule (if any), the number of Shares granted, and such other terms and conditions as the Board, in its sole discretion, shall determine.
(c)
Removal of Restrictions
. The Board, in its sole discretion, may accelerate the time at which any restrictions shall lapse or be removed.
(d)
Voting Rights
. Non-Employee Directors holding Shares of Restricted Stock may exercise full voting rights with respect to those Shares, unless the Board determines otherwise.
(e)
Dividends and Other Distributions
. Shares of Restricted Stock shall be entitled to receive all dividends and other distributions paid with respect to such Shares. All such dividends and distributions shall be held back by the Company and shall be subject to the same restrictions on transferability, vesting and forfeitability as the Shares of Restricted Stock with respect to which they were paid.
(f)
Return of Restricted Stock to Company
. If Shares of Restricted Stock do not vest in accordance with this Plan and the Award Agreement, then such Restricted Stock shall automatically be forfeited by the Non-Employee Director and shall again be available for grant under this Plan as set forth in Section 3.
8.
Restricted Stock Units
.
(a)
Grant of Restricted Stock Units
. Subject to the terms and provisions of this Plan, the Board, at any time and from time to time, may grant Restricted Stock Units to a Non-Employee Director in such amounts as the Board, in its sole discretion, shall determine.
(b)
Restricted Stock Unit Agreement
. Each Award of Restricted Stock Units shall be evidenced by an Award Agreement that shall specify the vesting schedule (if any), the number of Restricted Stock Units granted, and such other terms and conditions as the Board, in its sole discretion, shall determine.
(c)
Holder
'
s Rights as Stockholder
. The holder of a Restricted Stock Unit Award shall have no rights of a stockholder with respect to the Restricted Stock Unit Award. A holder shall have no voting rights with respect to any Restricted Stock Unit Award.
(d)
Form and Timing of Payment of Restricted Stock Units
. Payment of earned Restricted Stock Units shall be made upon vesting (or as soon as practicable thereafter) or on the settlement date set forth in the Award Agreement, as applicable. The Board, in its sole discretion, may pay earned Restricted Stock Units in the form of cash, in Shares (which have an aggregate Fair Market Value equal to the value of the earned Restricted Stock Units) or in a combination of cash and Shares.
(e)
Cancellation of Restricted Stock Units
. If Restricted Stock Units do not vest in accordance with this Plan and the Award Agreement, then such Restricted Stock Units shall automatically be forfeited, and the Shares subject to such Awards shall again be available for grant under this Plan as set forth in Section 3.
9.
Other Stock-Based Awards
. Other Stock-Based Awards may be granted either alone, in addition to, or in tandem with, other Awards granted under this Plan and/or cash awards made outside of this Plan. The Board shall have authority to determine the Non-Employee Directors to whom and the time or times at which Other Stock-Based Awards shall be made, the
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amount of such Other Stock-Based Awards, and all other conditions of the Other Stock-Based Awards, including any dividend or voting rights and whether the Award should be paid in cash.
10.
Non-Transferability of Awards
. Unless determined otherwise by the Board, an Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by shall or by the laws of descent or distribution and may be exercised, during the lifetime of the Non-Employee Director, only by the Non-Employee Director. If the Board makes an Award transferable, such Award shall contain such additional terms and conditions as the Board deems appropriate.
11.
Adjustments; Dissolution or Liquidation; Change of Control
.
(a)
Adjustments
. In the event of any change in the outstanding Shares of Common Stock by reason of any stock split, stock dividend or other non-recurring dividends or distributions, recapitalization, merger, consolidation, spin-off, combination, repurchase or exchange of stock, reorganization, liquidation, dissolution or other similar corporate transaction that affects the Common Stock, an adjustment shall be made, as the Board deems necessary or appropriate, in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Plan. Such adjustment may include an adjustment to the number and class of Shares which may be delivered under this Plan, the number, class and price of Shares subject to outstanding Awards, the number and class of Shares issuable pursuant to Options, and the numerical limits in Section 3 of this Plan. Notwithstanding the preceding, the number of Shares subject to any Award always shall be a whole number.
(b)
Dissolution or Liquidation
. In the event of the proposed dissolution or liquidation of the Company, the Board shall notify each Non-Employee Director as soon as practical prior to the effective date of the proposed transaction. The Board, in its sole discretion, may provide for a Non-Employee Director to have the right to exercise his Award, to the extent applicable, until ten (10) days prior to the transaction as to all of the Awarded Stock covered thereby, including Shares as to which the Award would not otherwise be exercisable. In addition, the Board may provide that any Award vesting shall accelerate 100%, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised or vested, an Award shall terminate immediately prior to the consummation of such proposed action.
(c)
Change of Control
. Unless otherwise provided in an Award Agreement or the Board determines otherwise, in the event of a Change of Control, the Non-Employee Director shall fully vest in and have the right to exercise his Options as to all of the Award, including Shares as to which such Awards would not otherwise be vested or exercisable, and all restrictions on Restricted Stock, Restricted Stock Units and Other Stock-Based Awards, as applicable, shall lapse.
(d)
Right to Cash-Out
. The Board shall, in connection with a Change of Control, have the right to require all, but not less than all, Non-Employee Directors to transfer and deliver to the Company all Awards previously granted to the Non-Employee Directors in exchange for an amount equal to the Cash Value of the Awards. Such right shall be exercised by written notice to all affected Non-Employee Directors. The amount payable to each Non-Employee Director by the Company pursuant to this Section 11(d) shall be in cash or by certified check paid within five (5) days following the transfer and delivery of such Award (but in no event later than fifty (50) days following the date of the Change of Control). If an Award is an Option and no Cash Value exists with respect thereto, then such cash-out shall be effectuated with no cash (or other) payment to the Non-Employee Director holding such Award.
(e)
Company Rights Regarding Transactions
. The existence of outstanding Awards shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business, any merger or consolidation of the Company, any issue of bonds, debentures, preferred or prior preference shares ahead of or affecting Shares or Share rights, the dissolution or liquidation of the Company, any sale or transfer of all or any part of its assets or business or any other corporate act or proceeding, whether of a similar character or otherwise.
12.
Date of Grant
. The date of grant of an Award shall be, for all purposes, the date on which the Board makes the determination granting such Award, or a later date as is determined by the Board. Notice of the determination shall be provided to each Non-Employee Director within a reasonable time after the date of such grant.
13.
Board and Stockholder Approval; Term of Plan
. The Board approved this Plan to be effective on the Effective Date, subject to the Company's stockholders approving this Plan not more than one year after the date of this Plan's adoption by the Board. This Plan shall continue in effect for a term of ten years from the Effective Date unless terminated earlier under Section 14 of this Plan. No Award shall be granted under this Plan prior to the date on which this Plan is so approved by the Company's stockholders, unless its grant, vesting and settlement are conditioned upon the approval of this Plan by the Company's stockholders not more than one year after the date of this Plan's adoption by the Board. If this Plan is not approved by the Company's stockholders within one year of the date of this Plan's adoption by the Board, all Awards, if any, granted under this Plan shall be immediately and automatically cancelled and terminated without any action required by the Company or the Board and without any payment or consideration with respect thereto. If this Plan is timely approved by the Company's stockholders and becomes effective, neither
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Awards properly granted under this Plan nor the authority of the Board to amend, alter, adjust, suspend, discontinue, or terminate any such Award or to waive any conditions or rights under such Award, shall terminate by reason of the expiration of the term of this Plan.
14.
Amendment and Termination of this Plan
.
(a)
Amendment and Termination
. The Board may at any time amend, alter, suspend or terminate this Plan.
(b)
Stockholder Approval
. The Company shall obtain stockholder approval of any Plan amendment to the extent necessary to comply with applicable laws.
(c)
Effect of Amendment or Termination
. Except as provided in Section 11(d), no amendment, alteration, suspension, or termination of this Plan shall materially or adversely impair the rights of any Non-Employee Director, unless otherwise mutually agreed upon by the Non-Employee Director and the Board, which agreement must be in writing and signed by the Non-Employee Director and the Company. Termination of this Plan shall not affect the Board's ability to exercise the powers granted to it under this Plan with respect to Awards granted under this Plan prior to the date of termination.
(d)
Amendment of Awards
. The Board at any time, and from time to time, may amend the terms of any one or more Awards; provided that any amendment that would adversely affect the Non-Employee Director's rights under an outstanding Award shall not be made without the Non-Employee Director's written consent. Notwithstanding the foregoing, an amendment shall not be treated as adversely affecting the rights of the Non-Employee Director if the amendment is made to the minimum extent necessary to avoid the adverse tax consequences of Section 409A of the Code.
(e)
Conflict Between Plan and Award Agreements
. In the event of a conflict or inconsistency between the terms of this Plan and the terms of any Award Agreement, the terms of this Plan shall control.
15.
Legal Compliance
. Shares shall not be issued pursuant to the exercise of an Award unless the exercise of the Award and the issuance and delivery of such Shares shall comply with applicable laws.
16.
Severability
. Notwithstanding any contrary provision of this Plan or an Award to the contrary, if any one or more of the provisions (or any part thereof) of this Plan or the Awards shall be held invalid, illegal, or unenforceable in any respect, such provision shall be modified so as to make it valid, legal, and enforceable, and the validity, legality, and enforceability of the remaining provisions (or any part thereof) of this Plan or Award, as applicable, shall not in any way be affected or impaired thereby.
17.
Inability to Obtain Authority
. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.
18.
No Rights to Awards
. No Non-Employee Director or other person shall have any claim to be granted any Award pursuant to this Plan, and neither the Company nor the Board shall be obligated to treat Non-Employee Directors or any other person uniformly.
19.
No Stockholder Rights
. Except as otherwise provided in this Plan or an Award Agreement, a Non-Employee Director shall have none of the rights of a stockholder with respect to Shares covered by an Award until the Non-Employee Director becomes the record owner of the Shares.
20.
Fractional Shares
. No fractional Shares shall be issued and the Board shall determine, in its sole discretion, whether cash shall be given in lieu of fractional Shares or whether such fractional Shares shall be eliminated by rounding up or down as appropriate.
21.
Governing Law
. This Plan, all Award Agreements, and all related matters, shall be governed by the laws of the State of Delaware, without regard to choice of law principles that direct the application of the laws of another state.
22.
Unfunded Obligation
. This Section 22 shall only apply to Awards that are not settled in Shares. Non-Employee Directors shall have the status of general unsecured creditors of the Company. Any amounts payable to Non-Employee Directors pursuant to this Plan shall be unfunded and unsecured obligations for all purposes, including, without limitation, Title I of the Employee Retirement Income Security Act of 1974, as amended. The Company shall be required to segregate any monies from its general funds, or to create any trusts, or establish any special accounts with respect to such obligations. The Company shall retain at all times beneficial ownership of any investments, including trust investments, which the Company may make to fulfill its payment obligations under this Plan. Any investments or the creation or maintenance of any trust for any Non-Employee Directors account shall not create or constitute a trust or fiduciary relationship between the Board, the Company and Non-Employee
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Directors, or otherwise create any vested or beneficial interest in any Non-Employee Directors or the Non-Employee Director's creditors in any assets of the Company. The Non-Employee Directors shall have no claim against the Company for any changes in the value of any assets that may be invested or reinvested by the Company with respect to this Plan.
23.
Section 409A
. Awards under this Plan are intended either to provide compensation that is exempt from Section 409A of the Code, or that satisfies the requirements of Section 409A of the Code, and this Plan and all Awards shall be construed and interpreted accordingly. If and to the extent any amount of compensation under an Award is determined by the Board to constitute deferred compensation that is not exempt from Section 409A of the Code and that is to be paid, settled or provided by reason of a Non-Employee Director's termination of employment, then (a) such compensation shall be paid, settled or provided by reason of a Non-Employee Director's termination of employment only if that termination also constitutes a “separation from service” within the meaning of that term under Section 409A of the Code, and (b) if the Non-Employee Director is determined by the Board to be a “specified employee” within the meaning of Section 409A of Code, all payments or provisions compensation that would otherwise be paid, settled or provided before the first day of the seventh calendar month beginning after the date the Non-Employee Director's separation from service (or, if earlier, the Non-Employee Director's date of death) shall be withheld and accumulated and paid or provided without interest on or as soon as practicable after the first day of the seventh calendar month beginning after the date the Non-Employee Director's separation from service (or, if earlier, the Non-Employee Director's date of death). Each payment or provision of compensation under an Award shall be treated as a separate payment for purposes of Section 409A of the Code. References to termination of employment and similar concepts in this Plan and Awards Agreements shall be interpreted and applied in accordance with the foregoing provisions. In the case of any Award intended to be exempt from Section 409A of the Code, if the time of distribution or settlement thereof is not otherwise specified in this Plan or Award Agreement or other governing document, the distribution or settlement shall be made no later than March 15 of the calendar year following the calendar year in which such Award vested or the risk of forfeiture with respect thereto lapsed.
24.
Construction
. Headings in this Plan are included for convenience and shall not be considered in the interpretation of this Plan. References to sections are to Sections of this Plan unless otherwise indicated. Pronouns shall be construed to include the masculine, feminine, neutral, singular or plural as the identity of the antecedent may require. This Plan shall be construed according to its fair meaning and shall not be strictly construed against the Company.
25.
No Guarantee of Tax Consequences
. The Non-Employee Director shall be solely responsible for and liable for any and all tax consequences (including but not limited to any interest or penalties) as a result of participation in the Plan and the grant, vesting, payment or settlement of any Award hereunder. Neither the Board nor the Company makes any commitment or guarantee that any federal, state, local or other tax treatment will (or will not) apply or be available to any person participating or eligible to participate hereunder and assumes no responsibility or liability whatsoever for the tax consequences to the Non-Employee Directors.
* * * * *
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EXHIBIT
B
FLOTEK INDUSTRIES, INC.
2012 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the Amended 2012 Employee Stock Purchase Plan of Flotek Industries, Inc.
1.
Purpose
. The purpose of the Plan is to provide eligible employees of the Company and its Subsidiaries with an opportunity to purchase Common Stock of the Company through payroll deductions, to enhance such employees’ sense of participation in the affairs of the Company and its Subsidiaries, and to provide an incentive for continued employment. It is the intention of the Company to have the Plan qualify as an “Employee Stock Purchase Plan” under Section 423 of the Code. The provisions of the Plan shall, accordingly, be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code.
2.
Definitions
.
(a)
“
Board
” means the Board of Directors of the Company.
(b)
“
Code
” means the Internal Revenue Code of 1986, as amended.
(c)
“
Common Stock
” means the common stock, par value $.0001 per share, of the Company.
(d)
“
Company
” means Flotek Industries, Inc., a Delaware corporation.
(e)
“
Compensation
” means salary and/or wages received by an Employee from the Company or a Subsidiary. By way of illustration, but not limitation, Compensation excludes bonuses, commissions, incentive compensation, relocation, expense reimbursements, or other reimbursements and income realized as a result of participation in any stock option, stock purchase, or similar plan of the Company or any Subsidiary.
(f)
“
Continuous Status as an Employee
” means the absence of any interruption or termination of service as an Employee. Continuous Status as an Employee shall not be considered interrupted in the case of (i) sick leave; (ii) military leave; (iii) any other leave of absence approved by the Company, provided that such leave is for a period of not more than 90 days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute, or unless provided otherwise pursuant to Company policy adopted from time to time; or (iv) transfers between locations of the Company or between the Company and its Subsidiaries.
(g)
“
Contributions
” means all amounts credited to the account of a participant pursuant to the Plan.
(h)
“
Corporate Transaction
”
shall be deemed to have occurred upon any of the following events: (a) any “person” or “persons” (as defined in Section 3(a)(9) of the Exchange Act, and as modified in Sections 13(d) and 14(d) of the Exchange Act) other than and excluding (i) the Company or any of its Subsidiaries, (ii) any employee benefit plan of the Company or any of its subsidiaries, (iii) any Subsidiary of the Company, (iv) an entity owned, directly or indirectly, by stockholders of the Company in substantially the same proportions as their ownership of the Company or (v) an underwriter temporarily holding securities pursuant to an offering of such securities, becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing more than 50% of the shares of voting stock of the Company then outstanding; (b) the consummation of any merger, organization, business combination or consolidation of the Company with or into any other entity, other than a merger, reorganization, business combination or consolidation which would result in the holders of the voting securities of the Company outstanding immediately prior thereto and their respective affiliates holding securities which represent immediately after such merger, reorganization, business combination or consolidation more than 50% of the combined voting power of the voting securities of the Company or the surviving company or the parent of such surviving company; or (c) the consummation of a sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition if the holders of the voting securities of the Company outstanding immediately prior thereto and their respective affiliates hold securities immediately thereafter which represent more than 50% of the combined voting power of the voting securities of the acquirer, or parent of the acquiror, of such assets.
(i)
“
Employee
” means any person, including an Officer, who is an employee of the Company or one of its Subsidiaries for tax purposes and who is customarily employed for at least twenty (20) hours per week by the Company or one of its Subsidiaries.
(j)
“
Exchange Act
” means the Securities Exchange Act of 1934, as amended.
(k)
“
First Offering Period
” means the three (3) month period commencing on
October 1, 2012
.
(l)
“
Offering Date
” means the first business day of each calendar quarter.
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(m)
“
Offering Period
” means each continuous three (3) month period commencing on January 1, April 1, July 1 and October 1 of each year except for the First Offering Period as set forth in Section 4 of this Plan.
(n)
“
Officer
” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
(o)
“
Plan
” means this Amended 2012 Employee Stock Purchase Plan.
(p)
“
Purchase Date
” means the last day of each Offering Period of the Plan.
(q)
“
Purchase Price
” means with respect to an Offering Period an amount equal to 85% of the Fair Market Value (as defined in Section 7(b) below) of a Share of Common Stock on the Purchase Date.
(r)
“
Share
” means a share of Common Stock, as adjusted in accordance with Section 19 of the Plan.
(s)
“
Subsidiary
” means any corporation in which the Company, directly or indirectly, owns 50% or more of the combined voting power whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary.
3.
Eligibility
.
(a)
Any person who is an Employee as of the Offering Date of a given Offering Period (including the First Offering Period) shall be eligible to participate in such Offering Period under the Plan, subject to the requirements of Section 5(a) and the limitations imposed by Section 423(b) of the Code. Notwithstanding the foregoing, Employees who as of the Offering Date of a given Offering Period (including the First Offering Period) are highly compensated Employees within the meaning of Section 423(b)(4)(D) of the Code will not be eligible to participate in such Offering Period under the Plan.
(b)
Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan (i) if, immediately after the grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 424(d) of the Code) would own capital stock of the Company and/or hold outstanding options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any subsidiary of the Company, or (ii) if, as specified in Section 423(b)(8) and applicable regulations of the Code, such option would permit his or her rights to purchase stock under all employee stock purchase plans (described in Section 423 of the Code) of the Company and its Subsidiaries to accrue at a rate that exceeds Twenty-Five Thousand Dollars (
$25,000
) of the Fair Market Value (as defined in Section 7(b) below) of such stock (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time.
4.
Offering Periods
. The Plan shall be implemented by a series of Offering Periods of three (3) months’ duration, with new Offering Periods commencing on the 1st day of each calendar quarter (or at such other time or times as may be determined by the Board) except for the First Offering Period which shall be three (3) months’ duration commencing on
October 1, 2012
and continuing until
December 31, 2012
. The Plan shall continue for a term of ten (10) years per Section 22 or until terminated earlier in accordance with Section 19 hereof. The Board shall have the power to change the duration and/or the frequency of Offering Periods with respect to future offerings without stockholder approval if such change is announced at least five (5) days prior to the scheduled beginning of the first Offering Period to be affected.
5.
Participation
.
(a)
An eligible Employee may become a participant in the Plan by completing a subscription agreement and any other required documents (“Enrollment Documents”) provided by the Company and submitting them to the Company’s Human Resources Department or the stock brokerage or other financial services firm designated by the Company (“Designated Broker”) prior to the applicable Offering Date, unless a later time for submission of the Enrollment Documents is set by the Board for all eligible Employees with respect to a given Offering Period. The Enrollment Documents and their submission may be electronic, as directed by the Company. The Enrollment Documents shall set forth the percentage of the participant’s Compensation (subject to Section 6(a) below) to be paid as Contributions pursuant to the Plan. A participant’s payroll deductions shall remain in effect for all future Offering Periods unless changed by the participant.
(b)
Payroll deductions shall commence on the first full payroll following an Offering Date and shall end on the last payroll paid on or prior to the Purchase Date of the Offering Period to which the Enrollment Documents are applicable, unless sooner terminated by the participant as provided in Section 10.
6.
Method of Payment of Contributions
.
(a)
A participant shall elect to have payroll deductions made on each payday during the Offering Period in an amount not less than one percent (1%) and not more than ten percent (10%) (or such greater percentage as the Board may establish from time to time before an Offering Date) of such participant’s Compensation on each payday during the Offering
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Period. All payroll deductions made by a participant shall be credited to his or her account under the Plan. A participant may not make any additional payments into such account.
(b)
A participant may discontinue his or her participation in the Plan as provided in Section 10.
(c)
Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(b) herein, a participant’s payroll deductions may be decreased during any Offering Period scheduled to end during the current calendar year to 0%. Payroll deductions shall re-commence at the rate provided in such participant’s Enrollment Documents at the beginning of the first Offering Period that is scheduled to end in the following calendar year, unless terminated by the participant as provided in Section 10.
7.
Grant of Option
.
(a)
On each Offering Date of each Offering Period, each eligible Employee participating in such Offering Period shall be granted an option to purchase on the Purchase Date a number of Shares of the Company’s Common Stock determined by dividing such Employee’s Contributions accumulated prior to such Purchase Date and retained in the participant’s account as of the Purchase Date by the applicable Purchase Price; provided however that the maximum number of Shares an Employee may purchase during each Offering Period shall be
1,000
Shares (subject to any adjustment pursuant to Section 18 below), and provided further that such purchase shall be subject to the limitations set forth in Sections 3(b) and 12.
(b)
The fair market value of the Company’s Common Stock on a given date (the “Fair Market Value”) shall be determined by the Board in its discretion based on the closing sales price of the Common Stock on the New York Stock Exchange for such date (or, in the event that the Common Stock is not traded on such date, on the immediately preceding trading date).
8.
Exercise of Option
. Unless a participant withdraws from the Plan as provided in Section 10, his or her option for the purchase of Shares will be exercised automatically on the Purchase Date of an Offering Period, and the maximum number of Shares subject to the option will be purchased at the applicable Purchase Price with the accumulated Contributions in his or her account. Fractional Shares shall be issued, as necessary. The Shares purchased upon exercise of an option hereunder shall be deemed to be transferred to the participant on the Purchase Date. During his or her lifetime, a participant’s option to purchase Shares hereunder is exercisable only by him or her.
9.
Delivery
. As promptly as practicable after a Purchase Date, the number of Shares purchased by each participant upon exercise of his or her option shall be deposited into an account established in the participant’s name with the Designated Broker. Any payroll deductions accumulated in a participant’s account that are not applied toward the purchase of Shares on a Purchase Date due to limitations imposed by the Plan shall be returned to the participant.
10.
Voluntary Withdrawal; Termination of Employment
.
(a)
A participant may withdraw all but not less than all the Contributions credited to his or her account under the Plan at any time prior to a Purchase Date by submitting a completed “Notice of Withdrawal” form to the Company’s Human Resources Department or electronically completing the required documentation provided by the Company through the Designated Broker, as directed by the Company’s Human Resources Department. All of the participant’s Contributions credited to his or her account will be paid to him or her promptly after receipt of his or her notice of withdrawal and his or her option for the current period will be automatically terminated, and no further Contributions for the purchase of Shares will be made during the Offering Period.
(b)
Upon termination of the participant’s Continuous Status as an Employee prior to the Purchase Date of an Offering Period for any reason, whether voluntary or involuntary, including retirement or death, the Contributions credited to his or her account will be returned to him or her or, in the case of his or her death, to the person or persons entitled thereto under Section 14, and his or her option will be automatically terminated.
(c)
In the event an Employee fails to remain in Continuous Status as an Employee of the Company for at least twenty (20) hours per week during the Offering Period in which the employee is a participant, he or she will be deemed to have elected to withdraw from the Plan and the Contributions credited to his or her account will be returned to him or her and his or her option terminated.
(d)
A participant’s withdrawal from an offering will not have any effect upon his or her eligibility to participate in a succeeding offering or in any similar plan that may hereafter be adopted by the Company.
11.
Interest
. No interest shall accrue on the Contributions of a participant in the Plan.
12.
Stock
.
(a)
Subject to adjustment as provided in Section 18, the maximum number of Shares that shall be made available for sale under the Plan shall be [Delete:
500,000
] [Insert:
1,000,000
] Shares. If the Board determines that, on a given Purchase Date, the number of shares with respect to which options are to be exercised may exceed (1) the number of shares of
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Common Stock that were available for sale under the Plan on the Offering Date of the applicable Offering Period, or (2) the number of shares available for sale under the Plan on such Purchase Date, the Board may in its sole discretion provide (x) that the Company shall make a pro rata allocation of the Shares of Common Stock available for purchase on such Offering Date or Purchase Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Purchase Date, and continue the Plan as then in effect, or (y) that the Company shall make a pro rata allocation of the Shares available for purchase on such Offering Date or Purchase Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Purchase Date, and terminate the Plan pursuant to Section 19 below. The Company may make a pro rata allocation of the Shares available on an Offering Date of any applicable Offering Period pursuant to the preceding sentence, notwithstanding any authorization of additional Shares for issuance under the Plan by the Company’s stockholders subsequent to such Offering Date.
(b)
The participant shall have no interest or voting right in Shares covered by his or her option until such option has been exercised.
(c)
Shares to be delivered to a participant under the Plan will be registered in the name of the participant or in the name of the participant and his or her spouse.
13.
Administration
. The Board, or a committee named by the Board, shall supervise and administer the Plan and shall have full power to adopt, amend and rescind any rules deemed desirable and appropriate for the administration of the Plan and not inconsistent with the Plan, to construe and interpret the Plan, and to make all other determinations necessary or advisable for the administration of the Plan.
14.
Designation of Beneficiary
.
(a)
A participant may designate a beneficiary who is to receive any Shares and cash, if any, from the participant’s account under the Plan in the event of such participant’s death subsequent to the end of an Offering Period but prior to delivery to him or her of such Shares and cash. In addition, a participant may designate a beneficiary who is to receive any cash from the participant’s account under the Plan in the event of such participant’s death prior to the Purchase Date of an Offering Period. If a participant is married and the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective. Beneficiary designations under this Section 14(a) shall be made as directed by the Human Resources Department of the Company, which may require electronic submission of the required documentation with the Designated Broker.
(b)
Such designation of beneficiary may be changed by the participant (and his or her spouse, if any) at any time by submission of the required notice, which required notice may be electronic. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant’s death, the Company shall deliver such Shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such Shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.
15.
Transferability
. Neither Contributions credited to a participant’s account nor any rights with regard to the exercise of an option or to receive Shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution, or as provided in Section 14) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds in accordance with Section 10.
16.
Use of Funds
. All Contributions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such Contributions.
17.
Reports
. Individual accounts will be maintained for each participant in the Plan. Statements of account will be provided to participating Employees by the Company or the Designated Broker at least annually, which statements will set forth the amounts of Contributions, the per Share Purchase Price, the number of Shares purchased and the remaining cash balance, if any.
18.
Adjustments Upon Changes in Capitalization; Corporate Transactions
.
(a)
Adjustment
. Subject to any required action by the stockholders of the Company, the number of Shares covered by each option under the Plan that has not yet been exercised, the number of Shares that have been authorized for issuance under the Plan but have not yet been placed under option (collectively, the “Reserves”), the maximum number of Shares of Common Stock that may be purchased by a participant in an Offering Period, the number of Shares of Common Stock set forth in Section 12(a)(i) above, and the price per Share of Common Stock covered by each option under the Plan that has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock (including any such change in the number of Shares
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of Common Stock effected in connection with a change in domicile of the Company), or any other increase or decrease in the number of Shares effected without receipt of consideration by the Company; provided however that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.” Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an option.
(b)
Corporate Transactions
.
In the event the stockholders of the Company approve a plan of complete dissolution or liquidation of the Company, any Offering Period then in progress will terminate immediately prior to the consummation of such action, unless otherwise provided by the Board. In the event of a Corporate Transaction, each option outstanding under the Plan shall be assumed or an equivalent option shall be substituted by the successor corporation or a parent or subsidiary of such successor corporation. In the event that the successor corporation refuses to assume or substitute for outstanding options, each Offering Period then in progress shall be shortened and a new Purchase Date shall be set (the “New Purchase Date”), as of which date any Offering Period then in progress will terminate. The New Purchase Date shall be on or before the date of consummation of the transaction and the Board shall notify each participant in writing, at least ten (10) days prior to the New Purchase Date, that the Purchase Date for his or her option has been changed to the New Purchase Date and that his or her option will be exercised automatically on the New Purchase Date, unless prior to such date he or she has withdrawn from the Offering Period as provided in Section 10. For purposes of this Section 18, an option granted under the Plan shall be deemed to be assumed, without limitation, if, at the time of issuance of the stock or other consideration upon a Corporate Transaction, each holder of an option under the Plan would be entitled to receive upon exercise of the option the same number and kind of shares of stock or the same amount of property, cash or securities as such holder would have been entitled to receive upon the occurrence of the transaction if the holder had been, immediately prior to the transaction, the holder of the number of Shares of Common Stock covered by the option at such time (after giving effect to any adjustments in the number of Shares covered by the option as provided for in this Section 18); provided however that if the consideration received in the transaction is not solely common stock of the successor corporation or its parent (as defined in Section 424(e) of the Code), the Board may, with the consent of the successor corporation, provide for the consideration to be received upon exercise of the option to be solely common stock of the successor corporation or its parent equal in Fair Market Value to the per Share consideration received by holders of Common Stock in the transaction.
The Board may, if it so determines in the exercise of its sole discretion, also make provision for adjusting the Reserves, as well as the price per Share of Common Stock covered by each outstanding option, in the event that the Company effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of Shares of its outstanding Common Stock, and in the event of the Company’s being consolidated with or merged into any other corporation.
19.
Amendment or Termination
.
(a)
The Board may at any time and for any reason terminate or amend the Plan. Except as provided in Section 18, no such termination of the Plan may affect options previously granted, provided that the Plan or an Offering Period may be terminated by the Board on a Purchase Date or by the Board’s setting a new Purchase Date with respect to an Offering Period then in progress if the Board determines that termination of the Plan and/or the Offering Period is in the best interests of the Company and the stockholders or if continuation of the Plan and/or the Offering Period would cause the Company to incur adverse accounting charges as a result of a change after the effective date of the Plan in the generally accepted accounting rules applicable to the Plan. Except as provided in Section 18 and in this Section 19, no amendment to the Plan shall make any change in any option previously granted that adversely affects the rights of any participant. In addition, to the extent necessary to comply with Rule 16b-3 under the Exchange Act, or under Section 423 of the Code (or any successor rule or provision or any applicable law or regulation), the Company shall obtain stockholder approval in such a manner and to such a degree as so required.
(b)
Without stockholder consent and without regard to whether any participant rights may be considered to have been adversely affected, the Board (or its committee) shall be entitled to change the Offering Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a participant in order to adjust for delays or mistakes in the Company’s processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each participant properly correspond with amounts withheld from the participant’s Compensation, and establish such other limitations or procedures as the Board (or its committee) determines in its sole discretion advisable that are consistent with the Plan.
20.
Notices
. All notices or other communications by a participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.
21.
Conditions Upon Issuance of Shares
. Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such Shares pursuant thereto shall comply with all applicable provisions of law,
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domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, applicable state securities laws and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law.
22.
Term of Plan; Effective Date
. The Plan shall become effective upon approval by the Company’s stockholders, which approval must be within twelve (12) months after the date the Plan is adopted by the Board. No option to purchase Shares of the Company’s Common Stock hereunder will be granted unless and until the Plan has been approved by the Company’s stockholders. The Plan shall continue in effect for a term of ten (10) years from the effective date unless sooner terminated under Section 19.
23.
Additional Restrictions of Rule 16b-
3
.
The terms and conditions of options granted hereunder to, and the purchase of Shares by, persons subject to Section 16 of the Exchange Act shall comply with the applicable provisions of Rule 16b-3. This Plan shall be deemed to contain, and such options shall contain, and the Shares issued upon exercise thereof shall be subject to, such additional conditions and restrictions as may be required by Rule 16b-3 to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions.
24.
Notice of Disposition of Shares
. Each participant shall notify the Company in writing if the participant disposes of any of the Shares purchased on the Purchase Date of any Offering Period if such disposition occurs within two (2) years from the Offering Date or within one (1) year from the Purchase Date on which such shares were purchased and the Shares are not held by the Designated Broker. The Company may place a legend on any certificate representing Shares acquired pursuant to this Plan requesting the Company’s transfer agent to notify the Company of any transfer of the Shares. The obligation of the participant to provide such notice shall continue notwithstanding the placement of any such legend on the certificates.
* * * * *
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EXHIBIT
C
FLOTEK INDUSTRIES, INC.
2018 LONG-TERM INCENTIVE PLAN
1.
Purpose of this Plan
. The purpose of this Plan is to: (i) attract and retain the best available personnel for positions of substantial responsibility, (ii) provide additional incentive to Employees, Non-Employee Directors and Consultants, and (iii) promote the success of the Company’s business interests. This Plan permits the grant of Incentive Stock Options, Non-Qualified Options, Restricted Stock, Stock Appreciation Rights, Performance Units, Performance Shares, Restricted Stock Units, and Other Stock‑Based Awards.
2.
Definitions
. As used in this Plan, the following definitions shall apply:
(a)
“
Administrator
” means the Board or any of its Committees that shall be administering this Plan, in accordance with Section 4 of this Plan. Except as otherwise determined by the Board, the Compensation Committee shall be the Administrator.
(b)
“
Affiliate
” means (i) any entity in which the Company, directly or indirectly, owns 50% or more of the combined voting power, as determined by the Administrator, (ii) any trades or businesses, whether or not incorporated, which are members of controlled group or are under common control (as defined in Sections 414(b) or (c) of the Code) with the Company, or (iii) any other entity, approved as an Affiliate by the Administrator, in which the Company or any of its other Affiliates has a material equity interest;
provided
,
however
, that with respect to Incentive Stock Options, the term “Affiliate” shall mean only a “parent corporation” of the Company or a “subsidiary corporation” of the Company or of any such parent corporation (as such terms are defined in Sections 424(e) and (f) of the Code and determined in accordance with Section 421 of the Code);
and provided further
, that with respect to Non-Qualified Options and Stock Appreciation Rights, the term “Affiliate” shall mean only a corporation or other entity in a chain of corporations and/or other entities in which the Company has a “controlling interest” within the meaning of Treas. Reg. §1.414(c)-2(b)(2)(i), but using the threshold of 50% ownership wherever 80% appears.
(c)
“
Applicable Laws
” means the requirements relating to the administration of equity-based awards or equity compensation plans under U.S. federal and state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Awards are, or shall be, granted under this Plan.
(d)
“
Award
” means, individually or collectively, a grant under this Plan of Incentive Stock Options, Non-Qualified Options, Restricted Stock, Stock Appreciation Rights, Performance Units, Performance Shares, Restricted Stock Units, and Other Stock‑Based Awards.
(e)
“
Award Agreement
” means the written or electronic agreement setting forth the terms and provisions applicable to each Award. An Award Agreement is subject to the terms and conditions of this Plan.
(f)
“
Awarded Stock
” means the Common Stock subject to an Award.
(g)
“
Board
” means the Board of Directors of the Company.
(h)
“
Cash Value
” of an Award means the sum of (i) in the case of any Award which is not an Option, Stock Appreciation Right or an Award of Restricted Stock, the value of all benefits to which the Participant would be entitled as if the Award were vested and settled or exercised and (ii) (A) in the case of any Award that is an Option or Stock Appreciation Right, the excess, if any, of the Fair Market Value per Share over the exercise price or strike price, respectively, or (B) in the case of an Award of Restricted Stock, the Fair Market Value per Share of Restricted Stock, multiplied by the number of Shares subject to such Award, all as determined by the Board as of the date of the Change of Control or such other date as may be determined by the Board.
(i)
“
Cause
”, unless otherwise defined in the applicable Award Agreement, means, with respect to the termination of a Participant: (i) the Participant‘s continued failure to substantially perform one or more of his or her essential duties and obligations to the Company (other than any such failure resulting from a Disability) which, to the extent such failure is remediable, the Participant fails to remedy in a reasonable period of time (not to exceed 30 days) after receipt of written notice from the Company; (ii) the Participant’s refusal or failure to comply with the reasonable and legal directives of the Board after written notice from the Board describing the Participant’s failure to comply and, if such failure is remediable, the Participant’s failure to remedy same within 10 days of receiving written notice; (iii) any act of personal dishonesty, fraud or misrepresentation
C-1
taken by the Participant which was intended to result in substantial gain or personal enrichment of the employee at the expense of the Company; (iv) the Participant’s violation of a federal or state law or regulation applicable to the Company’s business which violation was or is reasonably likely to be materially injurious to the Company; (v) the Participant’s conviction of, or plea of nolo contendere or guilty to, a felony under the laws of the United States or any State that is reasonably likely to be materially injurious to the Company; (vi) the Participant’s abuse of drugs, other narcotics or alcohol during working hours or where such abuse (whenever occurring) impacts on the Participant’s service to the Company; (vii) the Participant’s breach of any of his or her material obligations under any written agreement with the Company (including without limitation his or her employment agreement, if any, and any proprietary information and inventions assignment agreement with the Company); or (viii) the Participant’s violation of a material policy of the Company which, to the extent such failure is remediable, the Participant fails to remedy in a reasonable period of time (not to exceed 30 days) after receipt of written notice from the Company. The Administrator shall determine whether Cause exists and whether a termination is or was for Cause, and each Participant shall agree, by acceptance of the grant of an Award and the execution of an Award Agreement, that the Administrator’s determinations are conclusive and binding on all persons for all purposes of the Plan.
(j)
“
Change of Control
” shall be deemed to have occurred upon any of the following events:
(i)
any “person” or “persons” (as defined in Section 3(a)(9) of the Exchange Act, and as modified in Sections 13(d) and 14(d) of the Exchange Act) other than and excluding (1) the Company or any of its subsidiaries, (2) any employee benefit plan of the Company or any of its subsidiaries, (3) any Affiliate of the Company, (4) an entity owned, directly or indirectly, by stockholders of the Company in substantially the same proportions as their ownership of the Company, or (5) an underwriter temporarily holding securities pursuant to an offering of such securities, becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing more than 50% of the shares of voting stock of the Company then outstanding;
(ii)
the consummation of any merger, organization, business combination, or consolidation of the Company or one of its subsidiaries with or into any other entity, other than a merger, reorganization, business combination, or consolidation which would result in the holders of the voting securities of the Company outstanding immediately prior thereto and their respective Affiliates holding securities which represent immediately after such merger, reorganization, business combination, or consolidation more than 50% of the combined voting power of the voting securities of the Company or the surviving company or the parent of such surviving company;
(iii)
the consummation of a sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition if the holders of the voting securities of the Company outstanding immediately prior thereto and their respective Affiliates hold securities immediately thereafter which represent more than 50% of the combined voting power of the voting securities of the acquiror, or parent of the acquiror, of such assets;
(iv)
the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company; or
(v)
the Incumbent Board ceases for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election by the Board was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an election contest with respect to the election or removal of directors or other solicitation of proxies or consents by or on behalf of a person other than the Board.
Further, in the case of any item of income under an Award to which the foregoing definition would otherwise apply with the effect that the income tax under Section 409A of the Code would apply or be imposed on income under that Award, but where such tax would not apply or be imposed if the meaning of the term “Change of Control” met the requirements of Section 409A(a)(2)(A)(v) of the Code, then the term “Change of Control” herein shall mean, but only with respect to the income so affected, a transaction, circumstance, or event that constitutes a “Change of Control” (as defined above) and that also constitutes a “change in control event” within the meaning of Treas. Reg. §1.409A-3(i)(5).
(k)
“
Code
” means the Internal Revenue Code of 1986, as amended from time to time, and the U.S. Treasury regulations promulgated thereunder. Any reference to a section of the Code shall be deemed a reference to any successor or amended section of the Code.
(l)
“
Committee
” means a committee of Directors or other individuals that satisfies Applicable Laws and was appointed by the Board in accordance with Section 4 of this Plan. Except as otherwise determined by the Board, “Committee” shall mean the Compensation Committee.
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(m)
“
Common Stock
” means the common stock, $0.0001 par value per Share, of the Company.
(n)
“
Company
” means Flotek Industries, Inc., a Delaware corporation, and any successor to thereto.
(o)
“
Compensation Committee
” means the Compensation Committee of the Board;
provided, however
, if the Compensation Committee is not comprised of two or more members of the Board, each of whom qualifies as a “non-employee director” (within the meaning of Rule 16b-3 under the Exchange Act), then the Board shall appoint a committee (which shall constitute the “Compensation Committee”) of two or more members of the Board, each of whom qualifies as a “non-employee director” (within the meaning of Rule 16b-3 under the Exchange Act).
(p)
“
Consultant
” means any natural person, including an advisor (but excluding a Director), engaged by the Company or an Affiliate thereof to render services to such entity as a consultant or independent contractor.
(q)
“
Director
” means a member of the Board.
(r)
“
Disability
” means the condition of being unable to perform the Employee’s or Non-Employee Director’s material services for the Company for a period of 90 consecutive days or a total of 180 days, during any 365-day period, in either case as a result of incapacity due to mental or physical illness, which is determined to be total and permanent. A determination of Disability shall be made by a physician reasonably satisfactory to both the Participant (or his or her guardian) and the Company, provided that if the Employee or Non-Employee Director (or his or her guardian) and the Company do not agree on a physician, the Employee or Non-Employee Director (or his or her guardian) and the Company shall each select a physician and these two together shall select a third physician, whose determination as to Disability shall be final, binding, and conclusive with respect to all parties. Eligibility for disability benefits under any policy for long-term disability benefits provided to the Participant by the Company shall conclusively establish the Participant’s Disability. Notwithstanding the foregoing, (i) with respect to any item of income under an Award to which the foregoing definition would apply with the effect that the income tax under Section 409A of the Code would apply or be imposed on income under that Award, but where such tax would not apply or be imposed if the meaning of the term “Disability” included and met the requirements of a “disability” within the meaning of Treas. Reg. §1.409A-3(i)(4), then the term “Disability” shall mean, but only with respect to the income so affected, (a) the inability of the Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve months or (b) the receipt of income replacements by the Participant, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve months, for a period of not less than three months under the Company’s accident and health plan; and (ii) with respect to an Incentive Stock Option, “Disability” shall mean the inability of the Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve months, determined in accordance with Sections 22(e)(3) and 422(c)(6) of the Code.
(s)
“
Disqualifying Disposition
” means, with respect to shares of Common Stock acquired by the exercise of an Incentive Stock Option, a “disqualifying disposition” within the meaning of Section 422 of the Code.
(t)
“
Dividend Equivalent
” means a notional credit, made at the sole discretion of the Administrator, to a bookkeeping account with respect to a Participant in an amount equal to the value of dividends paid on one Share for each Share subject to an Award held by such Participant. Under no circumstances shall the payment of a Dividend Equivalent be made contingent on the exercise of an Option or Stock Appreciation Right. Additionally, Dividend Equivalents shall be subject to the same restrictions on transferability, vesting and forfeitability as the Award with respect to which they are credited. Dividend Equivalents will be granted only if a grant thereof is explicitly made in the applicable Award Agreement.
(u)
“
Effective Date
” means
March 16, 2018
, the date this Plan was adopted by the Board. The effectiveness of this Plan is contingent upon its approval by the Company’s stockholders not more than one year after the date of this Plan’s adoption by the Board.
(v)
“
Employee
” means any natural person employed by the Company or any Affiliate thereof. Neither service as a Director only nor payment of a director’s fee by the Company or any Affiliate thereof shall be sufficient to constitute “employment” for purposes of the Plan.
(w)
“
Exchange Act
” means the Securities Exchange Act of 1934, as amended.
(x)
“
Fair Market Value
” means, as of any date, the value of Common Stock determined as follows:
(i)
If the Common Stock is listed on any established stock exchange or a national market system, or if the Common Stock is regularly quoted by a recognized securities dealer, the Fair Market Value shall be the closing price of
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the Common Stock on such exchange or system for the Common Stock for the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or
(ii)
In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Administrator by a reasonable application of a reasonable valuation method.
Notwithstanding the foregoing to the contrary, for federal, state, and local income tax reporting purposes and for such other purposes as the Administrator deems appropriate, Fair Market Value shall be determined by the Administrator in accordance with uniform and nondiscriminatory standards adopted by it from time to time.
(y)
“
Forfeit
” and variations thereof (whether or not capitalized) means to lose a Participant’s rights under an Award prior to its vesting (or, in the case of an Option or a Stock Appreciation Right, prior to its exercise, even if such Option or Stock Appreciation Right has vested) as a result of cancellation, revocation, lapse, or expiration of the Award in accordance with the Plan and the terms of the Award Agreement; and “forfeiture” means the loss of the rights that are so forfeited.
(z)
“
Incentive Stock Option
” means an Option intended to qualify and receive favorable tax treatment as an incentive stock option within the meaning of Section 422 of the Code, as designated in the applicable Award Agreement.
(aa)
“
Incumbent Board
” means individuals who, as of the Effective Date, constitute the Board.
(bb) “
Non-Employee Director
” means a Director who is neither an Employee nor a Consultant.
(cc) “
Non-Qualified Option
” means an Option that by its terms does not qualify or is not intended to qualify as an Incentive Stock Option.
(dd) “
Option
” means an Incentive Stock Option or a Non-Qualified Option to purchase Common Stock granted pursuant to this Plan.
(ee) “
Other Stock-Based Awards
” means any other awards not specifically described in this Plan that are payable by delivery of Shares or valued in whole or in part by reference to, or are otherwise based on, Shares and are created by the Administrator pursuant to Section 12 of this Plan.
(ff) “
Participant
” means a Service Provider who has been granted and holds an outstanding Award under this Plan or, if applicable, such other person who holds an outstanding Award.
(gg) “
Performance Goals
” means goals which have been established by the Administrator in connection with an Award and are based on one or more criteria, including, but not limited to, the following: (i) stock price; (ii) earnings per share; (iii) increase in revenues; (iv) increase in cash flow; (v) cash flow per share; (vi) increase in cash flow return; (vii) return on net assets; (viii) return on assets; (ix) return on tangible assets; (x) return on investment; (xi) return on capital; (xii) return on equity; (xiii) return on invested capital; (xiv) return on capital employed; (xv) economic value added; (xvi) gross margin; (xvii) net income; (xviii) pretax earnings; (xix) pretax earnings before interest; (xx) pretax earnings before interest, taxes, depreciation and amortization; (xxi) pretax operating earnings after interest expense and before incentives, service fees and extraordinary or special items; (xxii) operating income; (xxiii) total stockholder return; (xiv) debt reduction; (xv) successful completion of an acquisition, initial public offering, private placement of equity or debt; (xvi) reduction of expenses; or (xvii) any combination or of a specified increase, decrease or change, as applicable, in any of the foregoing.
(hh) “
Performance Period
” means the time period during which the Performance Goals must be met.
(ii) “
Performance Share
” means Shares issued pursuant to a Performance Share Award under Section 10 of this Plan.
(jj) “
Performance Unit
” means, pursuant to Section 10 of this Plan, an unfunded and unsecured promise to deliver Shares, cash or other securities equal to the value set forth in the Award Agreement.
(kk) “
Plan
” means this Flotek Industries, Inc. 2018 Long-Term Incentive Plan. In accordance with Section 17, this Plan became effective on the Effective Date, subject to the Company’s stockholders approving this Plan not more than one year after the date of this Plan’s adoption by the Board.
(ll) “
Restricted Stock
” means Shares issued pursuant to a Restricted Stock Award under Section 8 of this Plan.
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(mm) “
Restricted Stock Unit
” means, pursuant to Section 11 of this Plan, an unfunded and unsecured promise to deliver Shares, cash or other securities equal in value to the Fair Market Value of one Share in the Company on the date of vesting or settlement, as applicable, or as otherwise set forth in the Award Agreement.
(nn) “
Rule 16b-3
” means Rule 16b-3 of the Exchange Act or any successor to Rule 16b‑3, as in effect when discretion is being exercised with respect to this Plan.
(oo) “
Securities Act
” means the Securities Act of 1933, as amended.
(pp) “
Service Provider
” means an Employee, Non-Employee Director or Consultant.
(qq) “
Share
” means a share of Common Stock, as adjusted in accordance with Section 15 of this Plan.
(rr) “
Stock Appreciation Right
” means, pursuant to Section 9 of this Plan, an unfunded and unsecured promise to deliver Shares, cash or other securities equal in value to the excess, if any, of the Fair Market Value of a Share as of the date such Stock Appreciation Right is exercised over the Fair Market Value of a Share as of the date such Stock Appreciation Right was granted, or as otherwise set forth in the Award Agreement.
(ss) “
Termination
” and variations thereof (whether or not capitalized) means, with respect to a Service Provider’s service to the Company or its Affiliates, the end of the Participant’s employment, status as a Non-Employee Directior, or engagement or relationship as a Consultant, as the case may be, which is intended and reasonably anticipated by the Company to result in the permanent cessation of services by the Participant to the Company and its Affiliates in such capacity. Further, in the case of any item of income under an Award to which the foregoing definition would otherwise apply with the effect that the income tax under Section 409A of the Code would apply or be imposed on income under an Award, but where such tax would not apply or be imposed if the meaning of the term “termination” included and met the requirements of a “separation from service” within the meaning of Treas. Reg. §1.409A-1(h), then the term “termination” herein shall mean, but only with respect to the income so affected, an event, circumstance, or condition that constitutes both a “termination” as defined in the preceding sentence and a “separation from service” within the meaning of Treas. Reg. §1.409A-1(h). In the case of an Incentive Stock Option, “termination” shall mean the cessation of the requisite employment relationship determined in accordance with Section 421 of the Code.
(tt) “
Vest
,” “
vesting
”, and variations thereof (whether or not capitalized), means with respect to an Award, the lapsing or elimination of the Participant’s risk of forfeiture with respect to such Award.
3.
Stock Subject to this Plan
.
(a)
Stock Subject to this Plan
. Subject to the provisions of Section 15 of this Plan, the maximum aggregate number of Shares that may be issued pursuant to all Awards under this Plan is [Delete:
3,000,000
] [Insert:
5,700,000
] Shares, all of which may be issued pursuant to Incentive Stock Options. The Shares to be delivered under the Plan shall be fully paid and nonassessable and may be made available from authorized but unissued Shares, treasury stock, or Shares acquired in the open market.
(b)
Share Usage
. In the event that an Award is granted that, pursuant to the terms of the Award Agreement, cannot be settled in Shares, the aggregate number of Shares that may be made the subject of Awards under the Plan shall not be reduced. Any Shares related to an Award granted under the Plan that terminates by expiration, forfeiture, cancellation or otherwise without the issuance of the Shares shall again be available for Awards under the Plan. Any Shares tendered or repurchased (i) to pay the exercise price of an Option granted under the Plan or (ii) to satisfy tax withholding obligations associated with an Award granted under the Plan, shall not become available again for grant under the Plan. The full number of Stock Appreciation Rights granted that are to be settled by the issuance of Shares shall be counted against the aggregate number of Shares that may be made subject to Awards under the Plan, regardless of the number of Shares actually issued upon settlement of such Stock Appreciation Rights.
(c)
Share Reserve
. The Company, during the term of this Plan, shall at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of this Plan.
(d)
Certain Limitations on Awards
. The maximum number of Shares subject to Options and Stock Appreciation Rights (combined) awarded to any one Participant pursuant to this Plan in any calendar year shall not exceed 1,000,000 shares. The maximum number of Shares which may be subject to Awards of Restricted Stock made to any one Participant pursuant to this Plan in any calendar year shall be 1,000,000 Shares. The maximum amount of compensation which may be paid to any Participant in any calendar year pursuant to Awards of Restricted Stock Units shall not exceed the Fair Market Value (determined as of the date of vesting) of 1,000,000 Shares. The maximum amount of compensation that may be paid to any Participant in any calendar year pursuant to Other Stock-Based Awards under this Plan, (i) if the compensation under the Other Stock-Based Awards is denominated under the Award Agreement only in terms of Shares or a multiple of the Fair Market Value per Share, shall not
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exceed the Fair Market Value (determined as of the date of vesting) of 1,000,000 Shares; or (ii) in all other cases, shall not exceed $10,000,000. The maximum number of Shares which may be subject to Awards of Performance Shares made to any one Participant pursuant to this Plan in any calendar year shall be 1,000,000 Shares. The maximum amount of compensation any Participant can be paid in any calendar year pursuant to Awards of Performance Units shall not exceed $10,000,000. The foregoing limitations on the number of shares of Common Stock that may be issued and that may be subject to Awards are subject to adjustment as provided in Section 15(a).
4.
Administration of this Plan
.
(a)
Procedure
.
(i)
Multiple Administrative Bodies
. Different Committees with respect to different groups of Service Providers may administer this Plan.
(ii)
Rule 16b-3
. If a transaction is intended to be exempt under Rule 16b-3, then it shall be structured to satisfy the requirements for exemption under Rule 16b-3.
(iii)
Other Administration
. Other than as provided herein, this Plan shall be administered by (A) the Board or (B) a Committee constituted to satisfy Applicable Laws. Except as otherwise determined by the Board, the Compensation Committee shall be the Administrator.
(b)
Powers of the Administrator
. Subject to the provisions of this Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion to:
(i)
determine who are Service Providers;
(ii)
determine the Fair Market Value of Awards;
(iii)
select the Service Providers to whom Awards may be granted under this Plan;
(iv)
determine the number of Shares to be covered by each Award granted under this Plan;
(v)
determine when Awards are to be granted under this Plan and the applicable date of grant;
(vi)
approve forms of Award Agreements for use under this Plan;
(vii)
determine the terms and conditions, not inconsistent with the terms of this Plan, of any Award granted under this Plan, including but not limited to, the exercise price, the time or times when Awards may be exercised (which may be based on Performance Goals), any acceleration of vesting or waiver of forfeiture or repurchase restrictions (subject to the provisions of Section 6), and any restriction or limitation regarding any Award or the Shares relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine;
(viii)
construe and interpret the terms of this Plan, Award Agreements and Awards granted pursuant to this Plan;
(ix)
prescribe, amend and rescind rules and regulations relating to this Plan, including rules and regulations relating to the creation and administration of sub-plans;
(x)
amend the terms of any outstanding Award Agreement or Award, including the discretionary authority to extend the post‑termination exercise period of Awards and accelerate the satisfaction of any vesting criteria or waiver of forfeiture or repurchase restrictions, provided that any amendment that would adversely affect the Participant’s rights under an outstanding Award shall not be made without the Participant’s written consent. Notwithstanding the foregoing, an amendment shall not be treated as adversely affecting the rights of the Participant if the amendment causes an Incentive Stock Option to become a Non-Qualified Option or if the amendment is made to the minimum extent necessary to avoid the adverse tax consequences of Section 409A of the Code;
(xi)
allow Participants to satisfy withholding tax obligations by electing to have the Company withhold from the Shares or cash to be issued upon exercise or vesting of an Award up to the number of Shares or cash having a Fair Market Value equal to the amount required to be withheld based on any amount up to the minimum supplemental income tax rate in the applicable jurisdiction. The Fair Market Value of any Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined, and all elections by a Participant to have Shares or cash withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable;
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(xii)
authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Award previously granted by the Administrator;
(xiii)
allow a Participant to defer the receipt of the payment of cash or the delivery of Shares that would otherwise be due to the Participant under an Award;
(xiv)
determine whether Awards shall be settled in Shares, cash or in a combination thereof;
(xv)
determine whether Awards shall be adjusted for dividends or Dividend Equivalents, provided, however, that to the extent an Award is to be settled in Shares, any dividends or Dividend Equivalents shall not be issued or granted with respect to unvested Awards, and instead shall be held (or, in the case of Dividend Equivalents, credited to a notional bookkeeping account for the benefit of the Participant) by the Company and delivered to the Participant, if at all, only upon such Award becoming vested or settled, as applicable;
(xvi)
create Other Stock-Based Awards for issuance under this Plan;
(xvii)
impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any resales by a Participant or other subsequent transfers by the Participant of any Shares issued as a result of or under an Award, including without limitation, (A) restrictions under an insider trading policy, and (B) restrictions as to the use of a specified brokerage firm for such resales or other transfers;
(xviii)
establish one or more programs under this Plan to permit selected Participants the opportunity to elect to defer receipt of consideration upon exercise of an Award, satisfaction of Performance Goals, or other event that absent the election, would entitle the Participant to payment or receipt of Shares or other consideration under an Award;
(xix)
to interpret, administer, reconcile any inconsistency in, correct any defect in and/or supply any omission in this Plan, any Award Agreement and any other instrument or agreement relating to an Award; and
(xx)
make all other determinations that the Administrator deems necessary or advisable for administering this Plan.
The express grant in this Plan of any specific power to the Administrator shall not be construed as limiting any power or authority of the Administrator. However, the Administrator may not exercise any right or power reserved to the Board. To the extent the Compensation Committee serves as the Administrator with respect to grants of Awards, no member of the Compensation Committee shall vote or act upon any matter relating solely to himself/herself; grants of Awards to members of the Compensation Committee must be ratified by the Board.
(c)
Prohibition on Repricing of Options and Stock Appreciation Rights
. Notwithstanding anything in this Plan to the contrary, no repricing of Options or Stock Appreciation Rights may be effectuated without the prior approval of the Company’s stockholders; provided, however, that the foregoing prohibition shall not apply to the extent an adjustment is required under Section 15. The exercise price of Options may not be reduced and Options may not be cancelled in exchange for other awards, or cancelled in exchange for Options having a lower exercise price, or cancelled in exchange for cash, without stockholder approval.
(d)
Effect of Administrator’s Decision
. The Administrator’s decisions, determinations, actions and interpretations shall be final, conclusive and binding on all persons having an interest in this Plan.
(e)
Indemnification
. The Company shall, to the maximum extent permitted by law, defend and indemnify members of the Board, each Committee, the Administrator, officers and Employees of the Company or of an Affiliate thereof to whom authority to act for the Board, each Committee, the Administrator or the Company is delegated (“
Indemnitees
”) against (i) all reasonable expenses, including reasonable attorneys’ fees incurred in connection with the defense of any claim, investigation, action, suit or proceeding, or in connection with any appeal therein (collectively, a “
Claim
”), to which any of them is a party by reason of any action taken or failure to act in connection with this Plan, or in connection with any Award granted under this Plan; and (ii) all amounts required to be paid by them in settlement of a Claim (provided the settlement is approved by the Company) or required to be paid by them in satisfaction of a judgment in any Claim. However, no person shall be entitled to indemnification to the extent it is determined in such Claim that such person did not in good faith and in a manner reasonably believed to be in the best interests of the Company (or in the case of a criminal proceeding, had no reason to believe that the conduct complained of was unlawful). In addition, to be entitled to indemnification, the Indemnitee must, within 30 days after written notice of the Claim, offer the Company, in writing, the opportunity, at the Company’s expense, to defend the Claim. The right to indemnification shall be in addition to all other rights of indemnification available to the Indemnitee.
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5.
Eligibility
. With the exception of Incentive Stock Options, Awards may be granted to Employees, Non-Employee Directors and Consultants. Incentive Stock Options may be granted only to Employees.
6.
Minimum Vesting Requirement
. Except as permitted under the Carve-Out Exception (defined below), all Awards shall be subject to a minimum vesting requirement of at least one year from the date the Award was granted, and no portion of any such Award may vest or become exercisable earlier than the first anniversary of the date such Award was granted; provided, however, that for purposes of Awards granted to Non-Employee Directors, “one year” may mean the approximately one-year period from one regular annual stockholder meeting to the immediately following regular annual stockholder meeting, as long as the period is not less than 50 weeks. The foregoing minimum vesting requirement shall not apply: (i) with respect to 5% of the Share reserve as initially set forth in Section 3(a) (such 5% being referred to herein as the “
Carve-Out Exception
”) or (ii) to the vesting of an Award that is accelerated as a result of a Change of Control or termination of the Participant due to his or her death or Disability, in all cases under terms consistent with this Plan. To the extent Section 3(a) is amended to increase the number of Shares reserved therein, then 5% of the Shares subject to such increase shall be added to, and increase, the number of Shares subject to the Carve-Out Exception.
7.
Options
.
(a)
Grant of Options
. Subject to the terms and provisions of this Plan, the Administrator, at any time and from time to time, may grant Options to Service Providers in such amounts as the Administrator, in its sole discretion, shall determine.
(b)
Option Agreement
. Each Award of an Option shall be evidenced by an Award Agreement that shall specify the exercise price, the term of the Option, the number of Shares subject to the Option, the exercise restrictions (if any) applicable to the Option, and such other terms and conditions as the Administrator, in its sole discretion, shall determine.
(c)
Term of Option
. The term of each Option shall be stated in the Award Agreement. In the case of an Incentive Stock Option, the maximum term shall be 10 years from the date of grant or such shorter term as may be provided in the Award Agreement. Moreover, in the case of an Incentive Stock Option granted to a Participant who, at the time the Incentive Stock Option is granted, owns stock representing more than 10% of the total combined voting power of all classes of stock of the Company or any Affiliate, the maximum term of the Incentive Stock Option shall be five years from the date of grant or such shorter term as may be provided in the Award Agreement. Unless set forth otherwise in the Award Agreement, a Non-Qualified Option shall have a maximum term of 10 years. In no event shall a Non-Qualified Option have a maximum term longer than 10 years.
(d)
$100,000 Limitation for Incentive Stock Options
. Each Option shall be designated in the Award Agreement as either an Incentive Stock Option or a Non-Qualified Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year (under all plans of the Company and any Affiliate) exceeds $100,000, such Options shall be treated as Non-Qualified Options. For purposes of this Section 7(d), Incentive Stock Options shall be taken into account in the order in which granted. The Fair Market Value of the Shares shall be determined as of the time the Options with respect to such Shares are granted.
(e)
Option Exercise Price and Consideration
.
(i)
Exercise Price
. The per Share exercise price for the Shares to be issued pursuant to the exercise of an Option shall be determined by the Administrator, subject to the following:
(1)
In the case of an Incentive Stock Option:
(A)
granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than 10% of the total combined voting power of all classes of stock of the Company or any Affiliate, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant.
(B)
granted to any Employee other than an Employee described in paragraph (A) immediately above, the per Share exercise price shall be not less than 100% of the Fair Market Value per Share on the date of grant.
(2)
In the case of a Non-Qualified Option, the per Share exercise price shall be determined by the Administrator, but shall not be less than the Fair Market Value per Share on the date of grant.
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(3)
Notwithstanding the foregoing, Options may be granted with a per Share exercise price of less than 100% of the Fair Market Value per Share on the date of grant pursuant to a transaction described in, and in a manner consistent with, Section 424(a) of the Code.
(ii)
Waiting Period and Exercise Dates
. At the time an Option is granted, the Administrator shall fix the period within which the Option may be exercised and shall determine any conditions that must be satisfied before the Option may be exercised. Subject to the provisions of Section 6, the Administrator may, in its sole discretion, accelerate the satisfaction of such conditions at any time.
(f)
Form of Consideration
. The Administrator shall determine the acceptable form of consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the Administrator shall determine the acceptable form of consideration at the time of grant. Consideration, to the extent permitted by Applicable Laws, for exercising an Option may consist entirely of:
(i)
cash;
(ii)
check acceptable to the Company;
(iii)
in the discretion of the Administrator, other Shares which meet the conditions established by the Administrator to avoid adverse accounting consequences;
(iv)
in the discretion of the Administrator, consideration received by the Company under a cashless exercise or net exercise program implemented by the Company in connection with this Plan;
(v)
in the discretion of the Administrator, any combination of the foregoing methods of payment; or
(vi)
in the discretion of the Administrator, any other consideration and method of payment for the issuance of Shares permitted by Applicable Laws.
(g)
Exercise of Option
.
(i)
Procedure for Exercise; Rights as a Stockholder
. Any Option granted under this Plan shall be exercisable according to the terms of this Plan and at such times and under such conditions as determined by the Administrator and set forth in the Award Agreement. An Option shall be deemed exercised when the Company receives: (x) written or electronic notice of exercise (in accordance with the Award Agreement) from the person entitled to exercise the Option, and (y) full payment for the Shares with respect to which the Option is exercised (including provision for any applicable tax withholding). Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Award Agreement and this Plan. Shares issued upon exercise of an Option shall be issued in the name of the Participant or, if requested by the Participant, in the name of the Participant and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Awarded Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 15 of this Plan or the applicable Award Agreement. Exercising an Option in any manner shall decrease the number of Shares thereafter available for sale under the Option by the number of Shares as to which the Option is exercised.
(ii)
Termination of Relationship as a Service Provider (Other Than Death or Disability)
. If a Participant ceases to be a Service Provider, other than upon the Participant’s death or Disability, the Participant may exercise the vested portion of his or her Option within the time period specified in the Award Agreement (but in no event later than the expiration of the maximum term of such Option as set forth in the Award Agreement). If the Award Agreement does not specify a time period within which the vested portion of such Option must be exercised following a Participant ceasing to be a Service Provider, the vested portion of such Option shall be exercisable for 3 months following his or her ceasing to be a Service Provider (other than upon the Participant’s death or Disability) (but in no event later than the expiration of the maximum term of such Option as set forth in the Award Agreement). Unless otherwise provided by the Administrator, if the Participant is not vested as to his or her entire Option on the date he or she ceases to be a Service Provider (other than upon the Participant’s death or Disability), then immediately thereafter, the Participant shall immediately forfeit the unvested portion or his or her Option and the Shares covered by the unvested portion of the Option shall again be available for grant under this Plan as set forth in Section 3. Additionally, if the Participant does not exercise his or her Option as to all of the vested Shares within the applicable time period, then immediately thereafter, the Option shall automatically terminate and the Shares covered by the unexercised portion of the Option shall again be available for grant under this Plan as set forth in Section 3.
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(iii)
Disability of Participant
. If a Participant ceases to be a Service Provider as a result of his or her Disability, the Participant may exercise the vested portion of his or her Option within the time period specified in the Award Agreement (but in no event later than the expiration of the maximum term of the Option as set forth in the Award Agreement). If the Award Agreement does not specify a time period within which the vested portion of such Option must be exercised following a Participant ceasing to be a Service Provider as a result of his or her Disability, the vested portion of such Option shall be exercisable for 12 months following the Participant ceasing to be a Service Provider as a result of his or her Disability (but in no event later than the expiration of the maximum term of such Option as set forth in the Award Agreement). Unless otherwise provided by the Administrator, if the Participant is not vested as to his or her entire Option on the date he or she ceases to be a Service Provider as a result of his or her Disability, then immediately thereafter, the Participant shall immediately forfeit the unvested portion or his or her Option and the Shares covered by the unvested portion of the Option shall again be available for grant under this Plan as set forth in Section 3. Additionally, if the Participant does not exercise his or her Option as to all of the vested Shares within the applicable time period, then immediately thereafter, the Option shall automatically terminate and the Shares covered by the unexercised portion of the Option shall again be available for grant under this Plan as set forth in Section 3.
(iv)
Death of Participant
. If a Participant dies while a Service Provider, the vested portion of the Option may be exercised within the time period specified in the Award Agreement (but in no event later than the expiration of the term of the Option as set forth in the Award Agreement), by the beneficiary designated by the Participant prior to his or her death; provided that such designation must be in a form acceptable to and accepted by the Administrator. If the Participant designates his or her spouse as the beneficiary for purposes of this Section 7(g)(iv) and the Participant ceases to be married to such individual, then such beneficiary designation shall be deemed revoked and of no force or effect as of the date of the termination of such marriage. If no beneficiary has been designated by the Participant (or no proper beneficiary designation is in place), then the vested portion of the Option may be exercised, as applicable, by the personal representative of the Participant’s estate or by the persons to whom the Option is transferred pursuant to the Participant’s will or in accordance with the laws of descent and distribution. If the Award Agreement does not specify a time period within which the vested portion of such Option must be exercised following a Participant’s death, the vested portion of such Option shall be exercisable for 12 months following his or her death (but in no event later than the expiration of the maximum term of such Option as set forth in the Award Agreement). Unless otherwise provided by the Administrator, if the Participant is not vested as to his or her entire Option on the date he or she ceases to be a Service Provider as a result of his or her death, then immediately thereafter, the Participant shall immediately forfeit the unvested portion or his or her Option and the Shares covered by the unvested portion of the Option shall again be available for grant under this Plan as set forth in Section 3. Additionally, if the Participant’s beneficiary, personal representative or permitted transferee does not exercise the Option as to all of the vested Shares within the applicable time period, then immediately thereafter, the Option shall automatically terminate and the Shares covered by the unexercised portion of the Option shall again be available for grant under this Plan as set forth in Section 3.
(h)
Notification of Disqualifying Disposition
. Any Employee who receives an Incentive Stock Option shall be required to notify the Administrator in writing, within ten days of a Disqualifying Disposition, of such Disqualifying Disposition of any Shares issued pursuant to the exercise of the Incentive Stock Option.
8.
Restricted Stock
.
(a)
Grant of Restricted Stock
. Subject to the terms and provisions of this Plan, the Administrator, at any time and from time to time, may grant Shares of Restricted Stock to Service Providers in such amounts as the Administrator, in its sole discretion, shall determine.
(b)
Restricted Stock Agreement
. Each Award of Restricted Stock shall be evidenced by an Award Agreement that shall specify the number of Shares granted, and such other terms and conditions as the Administrator, in its sole discretion, shall determine.
(c)
Removal of Restrictions
. Subject to the provisions of Section 6, the Administrator may, in its sole discretion, accelerate the time at which any restrictions shall lapse or be removed.
(d)
Voting Rights
. Service Providers holding Shares of Restricted Stock may exercise full voting rights with respect to those Shares, unless the Administrator determines otherwise.
(e)
Dividends and Other Distributions
. Shares of Restricted Stock shall be entitled to receive all dividends and other distributions paid with respect to such Shares. All such dividends and distributions shall be held back by the Company and shall be subject to the same restrictions on transferability, vesting and forfeitability as the Shares of Restricted Stock with respect to which they were paid.
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(f)
Return of Restricted Stock to Company
. If Shares of Restricted Stock do not vest in accordance with the Plan and the Award Agreement, then such Restricted Stock shall automatically be forfeited by the Participant and shall again be available for grant under this Plan as set forth in Section 3.
9.
Stock Appreciation Rights
.
(a)
Grant of Stock Appreciation Rights
. Subject to the terms and conditions of this Plan, a Stock Appreciation Right may be granted to a Service Provider at any time and from time to time as shall be determined by the Administrator, in its sole discretion. The Administrator shall have complete discretion to determine the number of Stock Appreciation Rights granted to any Service Provider. Subject to the provisions of Section 6, the Administrator shall have complete discretion to determine the terms and conditions of Stock Appreciation Rights granted under this Plan, including the sole discretion to accelerate exercisability at any time, provided, however, that the per Share strike price that will determine the amount of the payment the Company receives upon exercise of a Stock Appreciation Right shall not be less than the Fair Market Value per Share on the date of grant.
(b)
Stock Appreciation Right Agreement
. Each Stock Appreciation Right grant shall be evidenced by an Award Agreement that shall specify the strike price, the term, the conditions of exercise, and such other terms and conditions as the Administrator, in its sole discretion, shall determine.
(c)
Expiration of Stock Appreciation Rights
. A Stock Appreciation Right granted under this Plan shall expire upon the date determined by the Administrator, in its sole discretion, as set forth in the Award Agreement; provided, however, no Stock Appreciation Right shall be exercisable later than 10 years after the date of grant. Notwithstanding the foregoing, the rules of Sections 7(g)(i), to the extent applicable, 7(g)(ii), 7(g)(iii) and 7(g)(iv) shall also apply to Stock Appreciation Rights.
(d)
Payment of Stock Appreciation Right Amount
. Upon exercise of a Stock Appreciation Right, a Participant shall be entitled to receive payment from the Company in an amount determined by multiplying:
(i)
The excess, if any, of the Fair Market Value of a Share on the date of exercise over the strike price; times
(ii)
The number of Shares with respect to which the Stock Appreciation Right is exercised.
At the sole discretion of the Administrator, the payment upon the exercise of a Stock Appreciation Right may be in cash, in Shares of equivalent value, or in some combination thereof.
10.
Performance Units and Performance Shares
.
(a)
Grant of Performance Units and Performance Shares
. Subject to the terms and conditions of this Plan, Performance Units and Performance Shares may be granted to Service Providers at any time and from time to time, as shall be determined by the Administrator in its sole discretion. The Administrator shall have complete discretion in determining the number of Performance Units and Performance Shares granted to each Service Provider.
(b)
Value of Performance Units and Performance Shares
. Each Performance Unit and Performance Share shall have an initial value established by the Administrator on or before the date of grant. Each Performance Share shall have an initial value equal to the Fair Market Value of a Share on the date of grant.
(c)
Performance Goals and Other Terms
. The Administrator shall set Performance Goals in its sole discretion which, depending on the extent to which they are met, shall determine the number or value of Performance Units and Performance Shares that shall be paid out to the Participant. Each award of Performance Units or Performance Shares shall be evidenced by an Award Agreement that shall specify the Performance Period and such other terms and conditions as the Administrator in its sole discretion shall determine. The Administrator may set Performance Goals based upon the achievement of Company‑wide, divisional, or individual goals (including solely continued service) or any other basis determined by the Administrator in its sole discretion.
(d)
Earning of Performance Units and Performance Shares
. After the applicable Performance Period has ended, the holder of Performance Units or Performance Shares shall be entitled to receive settlement or removal of restrictions, as applicable, with respect to the number of Performance Units or Performance Shares earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding Performance Goals have been achieved.
(e)
Form and Timing of Payment of Performance Units and Performance Shares
. Payment or removal of restrictions, as applicable, of earned Performance Units and earned Performance Shares, if any, shall be made after the expiration of the applicable Performance Period at the time determined by the Administrator. The Administrator, in its sole discretion, may
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pay earned Performance Units in the form of cash, in Shares (which have an aggregate Fair Market Value equal to the value of the earned Performance Units, as applicable, at the close of the applicable Performance Period) or in a combination of cash and Shares.
(f)
Cancellation of Performance Units or Performance Shares
. If Performance Units or Performance Shares do not vest in accordance with the Plan and the Award Agreement, then such Performance Units or Performance Shares shall automatically be forfeited, and the Shares subject to such Awards shall again be available for grant under this Plan as set forth in Section 3.
11.
Restricted Stock Units
.
(a)
Grant of Restricted Stock Units
. Subject to the terms and conditions of this Plan, Restricted Stock Units may be granted to Service Providers at any time and from time to time, as shall be determined by the Administrator in its sole discretion.
(b)
Restricted Stock Unit Agreement
. Each Award of Restricted Stock Units shall be evidenced by an Award Agreement that shall specify the number of Restricted Stock Units granted, and such other terms and conditions as the Administrator, in its sole discretion, shall determine.
(c)
Holder’s Rights as Stockholder
. The holder of a Restricted Stock Unit Award shall have no rights of a stockholder with respect to the Restricted Stock Unit Award. A holder shall have no voting rights with respect to any Restricted Stock Unit Award.
(d)
Form and Timing of Payment of Restricted Stock Units
. Payment of earned Restricted Stock Units shall be made upon vesting (or as soon as practicable thereafter) or on the settlement date set forth in the Award Agreement, as applicable. The Administrator, in its sole discretion, may pay earned Restricted Stock Units in the form of cash, in Shares (which have an aggregate Fair Market Value equal to the value of the earned Restricted Stock Units) or in a combination of cash and Shares.
(e)
Cancellation of Restricted Stock Units
. If Restricted Stock Units do not vest in accordance with the Plan and the Award Agreement, then such Restricted Stock Units shall automatically be forfeited, and the Shares subject to such Awards shall again be available for grant under this Plan as set forth in Section 3.
12.
Other Stock-Based Awards
. Other Stock-Based Awards may be granted either alone, in addition to, or in tandem with, other Awards granted under this Plan and/or cash awards made outside of this Plan. The Administrator shall have authority to determine the Service Providers to whom and the time or times at which Other Stock-Based Awards shall be made, the amount of such Other Stock-Based Awards, and all other conditions of the Other Stock-Based Awards, including any dividend or voting rights and whether the Award shall be paid in cash.
13.
Leaves of Absence
. Unless the Administrator provides otherwise, vesting of Awards granted under this Plan shall be suspended during any unpaid leave of absence and shall resume on the date the Participant returns to work on a regular schedule as determined by the Company; provided, however, that no vesting credit shall be awarded for the time vesting has been suspended during such leave of absence. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company or any Affiliate thereof. For purposes of Incentive Stock Options, no leave of absence may exceed 90 days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not guaranteed by statute or contract, then at the end of three months following the expiration of the leave of absence, any Incentive Stock Option held by the Participant shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Non-Qualified Option.
14.
Non-Transferability of Awards
. Unless determined otherwise by the Administrator, an Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Participant, only by the Participant. If the Administrator makes an Award transferable, such Award shall contain such additional terms and conditions as the Administrator deems appropriate.
15.
Adjustments; Change of Control
.
(a)
Adjustments
. In the event of any change in the outstanding Shares of Common Stock by reason of any stock split, stock dividend or other non‑recurring dividends or distributions, recapitalization, merger, consolidation, spin‑off, combination, repurchase or exchange of stock, reorganization, liquidation, dissolution or other similar corporate transaction that affects the Common Stock, an adjustment shall be made, as the Administrator deems necessary or appropriate, in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Plan. Such adjustment may
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include an adjustment to the number and class of Shares which may be delivered under this Plan, the number, class and price of Shares subject to outstanding Awards, the number and class of Shares issuable pursuant to Options, and the numerical limits contained in Sections 3 and 6 of this Plan. Notwithstanding the preceding, the number of Shares subject to any Award always shall be a whole number.
(b)
Change of Control
.
(i)
In General
. Unless otherwise provided in the Award, in connection with a Change of Control, the Board shall have the authority in its sole discretion to take any one or more of the following actions with respect to the Awards:
(1)
the Board may accelerate vesting and the time at which all Options and Stock Appreciation Rights then outstanding may be exercised so that those types of Awards may be exercised in full for a limited period of time on or before a specified date fixed by the Board, after which specified date all unexercised Options and Stock Appreciation Rights and all rights of Participants thereunder shall terminate, or the Board may accelerate vesting and the time at which Options and Stock Appreciation Rights may be exercised so that those types of Awards may be exercised in full for their then remaining term;
(2)
the Board may waive, alter, and/or amend the Performance Goals and other restrictions and conditions of Awards then outstanding, with the result that the affected Awards may be deemed vested, and the period during which the Award is subject to forfeiture and/or is not exercisable or other limitations on payment in full with respect thereto shall be deemed to have expired, as of the date of the Change of Control or such other date as may be determined by the Board;
(3)
the Board may cause the acquirer to assume the Plan and the Awards or exchange the Awards for awards for the acquiror’s stock;
(4)
the Board may terminate the Plan; and
(5)
the Board may terminate and cancel all outstanding unvested or unexercised Awards as of the date of the Change of Control on such terms and conditions as it deems appropriate.
Notwithstanding the above provisions of this Section 15(b), the Board shall not be required to take any action described in the preceding provisions of this Section 15(b), and any decision made by the Board, in its sole discretion, not to take some or all of the actions described in the preceding provisions of this Section 15(b) shall be final, binding and conclusive with respect to the Company and all other interested persons.
(ii)
Right to Cash-Out
. The Board shall, in connection with a Change of Control, have the right to require all, but not less than all, Participants to transfer and deliver to the Company all Awards previously granted to the Participants in exchange for an amount equal to the Cash Value of the Awards. Such right shall be exercised by written notice to all affected Participants. The amount payable to each Participant by the Company pursuant to this Section 15(b)(ii) shall be in cash or by certified check paid within five (5) days following the transfer and delivery of such Award (but in no event later than fifty (50) days following the date of the Change of Control) and shall be reduced by any taxes required to be withheld. If an Award is an Option or Stock Appreciation Right and no Cash Value exists with respect thereto, then such cash-out shall be effectuated with no cash (or other) payment to the Participant holding such Award.
(c)
Company Rights Regarding Transactions
. The existence of outstanding Awards shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company’s capital structure or its business, any merger or consolidation of the Company, any issue of bonds, debentures, preferred or prior preference shares ahead of or affecting Shares or Share rights, the dissolution or liquidation of the Company, any sale or transfer of all or any part of its assets or business or any other corporate act or proceeding, whether of a similar character or otherwise.
16.
Date of Grant
. The date of grant of an Award shall be, for all purposes, the date on which the Administrator makes the determination granting such Award, or a later date as is determined by the Administrator. Notice of the determination shall be provided to each Participant within a reasonable time after the date of such grant.
17.
Board and Stockholder Approval; Term of Plan
. The Board approved this Plan to be effective on the Effective Date, subject to the Company’s stockholders approving this Plan not more than one year after the date of this Plan’s adoption by the Board. This Plan shall continue in effect for a term of 10 years from the Effective Date unless terminated earlier under Section 19 of this Plan. No Award shall be granted under the Plan prior to the date on which the Plan is so approved by the Company’s stockholders, unless its grant, vesting and settlement are conditioned upon the approval of the Plan by the Company’s stockholders not more than one year after the date of this Plan’s adoption by the Board. If the Plan is not approved by the Company’s stockholders
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not more than one year after the date of this Plan’s adoption by the Board, all Awards, if any, granted under the Plan shall be immediately and automatically cancelled and terminated without any action required by the Company, the Board or the Administrator and without any payment or consideration with respect thereto. If the Plan is timely approved by the Company’s stockholders and becomes effective, neither Awards properly granted under the Plan nor the authority of the Board or the Administrator to amend, alter, adjust, suspend, discontinue, or terminate any such Award or to waive any conditions or rights under such Award, shall terminate by reason of the expiration of the term of the Plan.
18.
Term of Awards
. The term of each Award shall be for such period as may be determined by the Administrator; provided, however, that in no event shall the term of any such Award exceed a period of ten years (or such shorter terms as may be required in respect of an Incentive Stock Option under Section 422 of the Code).
19.
Amendment and Termination of this Plan; Amendment of Awards
.
(a)
Amendment and Termination
. The Board may at any time amend, alter, suspend or terminate this Plan.
(b)
Stockholder Approval
. The Company shall obtain stockholder approval of any Plan amendment to the extent necessary to comply with Applicable Laws.
(c)
Effect of Amendment or Termination
. Except as provided in Section 15(b), no amendment, alteration, suspension, or termination of this Plan shall materially or adversely impair the rights of any Participant (other than any amendment the Board deems necessary in order to permit Awards to meet the requirements of the Code, or other Applicable Laws, or to prevent adverse tax consequences to the participants), unless otherwise mutually agreed upon by the Participant and the Administrator, which agreement must be in writing and signed by the Participant and the Company. Termination of this Plan shall not affect the Administrator’s ability to exercise the powers granted to it under this Plan with respect to Awards granted under this Plan prior to the date of termination.
(d)
Amendment of Awards
. The Administrator at any time, and from time to time, may amend the terms of any one or more Awards; provided that any amendment that would adversely affect the Participant’s rights under an outstanding Award shall not be made without the Participant’s written consent. Notwithstanding the foregoing, an amendment shall not be treated as adversely affecting the rights of the Participant if the amendment causes an Incentive Stock Option to become a Non-Qualified Option or if the amendment is made to the minimum extent necessary to avoid the adverse tax consequences of Section 409A of the Code.
(e)
Conflict Between Plan and Award Agreements
. In the event of a conflict or inconsistency between the terms of the Plan and the terms of any Award Agreement, the terms of the Plan shall control.
20.
Conditions upon Issuance of Shares
.
(a)
Legal Compliance
. Shares shall not be issued pursuant to the exercise of an Award unless the exercise of the Award and the issuance and delivery of such Shares shall comply with Applicable Laws.
(b)
Tax Withholding
. No Shares or other remuneration shall be delivered under this Plan to any Participant or other person until the Participant or other person has made arrangements acceptable to the Administrator for the satisfaction of all applicable non-U.S., U.S.-federal, U.S.-state, and local income and employment tax withholding obligations, including, without limitation, obligations incident to the receipt of Shares. Upon exercise, vesting or settlement, as applicable, of an Award, the Company shall withhold or collect from the Participant an amount sufficient to satisfy such tax obligations, including, but not limited to, by surrender of up to the whole number of Shares covered by the Award sufficient to satisfy the withholding obligations incident to the exercise or vesting of an Award based on the minimum supplemental rate in the applicable jurisdiction.
21.
Severability
. Notwithstanding any contrary provision of this Plan or an Award to the contrary, if any one or more of the provisions (or any part thereof) of this Plan or any Award Agreement shall be held invalid, illegal, or unenforceable in any respect, such provision shall be modified so as to make it valid, legal, and enforceable, and the validity, legality, and enforceability of the remaining provisions (or any part thereof) of this Plan or Award Agreement, as applicable, shall not in any way be affected or impaired thereby.
22.
Inability to Obtain Authority
. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.
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23.
No Rights to Awards
. No eligible Service Provider or other person shall have any claim to be granted any Award pursuant to this Plan, and neither the Company nor the Administrator shall be obligated to treat Participants or any other person uniformly.
24.
No Stockholder Rights
. Except as otherwise provided in an Award Agreement, a Participant shall have none of the rights of a stockholder with respect to Shares covered by an Award until the Participant becomes the record owner of the Shares.
25.
Fractional Shares
. No fractional Shares shall be issued and the Administrator shall determine, in its sole discretion, whether cash shall be given in lieu of fractional Shares or whether such fractional Shares shall be eliminated by rounding up or down as appropriate.
26.
Governing Law
. This Plan, all Award Agreements, and all related matters, shall be governed by the laws of the State of Delaware, without regard to choice of law principles that direct the application of the laws of another state.
27.
No Effect on Terms of Employment, Directorship or Consulting Relationship
. This Plan shall not confer upon any Participant any right as a Service Provider, nor shall it interfere in any way with his or her right or the right of the Company or any Affiliate thereof to terminate the Participant’s service at any time, with or without cause, and with or without notice.
28.
Unfunded Obligation
. This Section 28 shall only apply to Awards that are not settled in Shares. Participants shall have the status of general unsecured creditors of the Company. Any amounts payable to Participants pursuant to this Plan shall be unfunded and unsecured obligations for all purposes, including, without limitation, Title I of the Employee Retirement Income Security Act of 1974, as amended. Neither the Company nor any Affiliate thereof shall be required to segregate any monies from its general funds, or to create any trusts, or establish any special accounts with respect to such obligations. The Company shall retain at all times beneficial ownership of any investments, including trust investments, which the Company may make to fulfill its payment obligations under this Plan. Any investments or the creation or maintenance of any trust for any Participant account shall not create or constitute a trust or fiduciary relationship between the Administrator, the Company or any Affiliate thereof and the Participant, or otherwise create any vested or beneficial interest in any Participant or the Participant’s creditors in any assets of the Company or any Affiliate thereof. The Participants shall have no claim against the Company or any Affiliate thereof for any changes in the value of any assets that may be invested or reinvested by the Company with respect to this Plan.
29.
Section 409A
. Awards under the Plan are intended either to provide compensation that is exempt from Section 409A of the Code, or that satisfies the requirements of Section 409A of the Code, and the Plan and all Awards shall be construed and interpreted accordingly. If and to the extent any amount of compensation under an Award is determined by the Administrator to constitute deferred compensation that is not exempt from Section 409A of the Code and that is to be paid, settled or provided by reason of a Participant’s termination of employment, then (a) such compensation shall be paid, settled or provided by reason of a Participant’s termination of employment only if that termination also constitutes a “separation from service” within the meaning of that term under Section 409A of the Code, and (b) if the Participant is determined by the Administrator to be a “specified employee” within the meaning of Section 409A of Code, all payments or provisions compensation that would otherwise be paid, settled or provided before the first day of the seventh calendar month beginning after the date the Participant’s separation from service (or, if earlier, the Participant’s date of death) shall be withheld and accumulated and paid or provided without interest on or as soon as practicable after the first day of the seventh calendar month beginning after the date the Participant’s separation from service (or, if earlier, the Participant’s date of death). Each payment or provision of compensation under an Award shall be treated as a separate payment for purposes of Section 409A of the Code. References to termination of employment and similar concepts in the Plan and Awards Agreements shall be interpreted and applied in accordance with the foregoing provisions. In the case of any Award intended to be exempt from Section 409A of the Code, if the time of distribution or settlement thereof is not otherwise specified in this Plan or Award Agreement or other governing document, the distribution or settlement shall be made no later than March 15 of the calendar year following the calendar year in which such Award vested or the risk of forfeiture with respect thereto lapsed.
30.
No Guarantee of Tax Consequences
. The Participant shall be solely responsible for and liable for any and all tax consequences (including but not limited to any interest or penalties) as a result of participation in the Plan and the grant, vesting, payment or settlement of any Award hereunder. None of the Board, the Company or the Administrator makes any commitment or guarantee that any federal, state, local or other tax treatment will (or will not) apply or be available to any person participating or eligible to participate hereunder and assumes no responsibility or liability whatsoever for the tax consequences to the Participants.
31.
Construction
. Headings in this Plan are included for convenience and shall not be considered in the interpretation of this Plan. References to sections are to Sections of this Plan unless otherwise indicated. Pronouns shall be construed to include the masculine, feminine, neutral, singular or plural as the identity of the antecedent may require. This Plan shall be construed according to its fair meaning and shall not be strictly construed against the Company.
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32.
Compensation Recoupment
. All compensation and Awards payable or paid under this Plan and any sub-plans shall be subject to the Company’s ability to recover incentive-based compensation from executive officers, as is or may be required by the provisions of any clawback policy implemented by the Company, the Dodd-Frank Wall Street Reform and Consumer Protection Act, any regulations or rules promulgated thereunder, or any other clawback provision required by applicable law or the listing standards of any applicable stock exchange or national market system.
33.
Lock-Up Agreement
. In the event of any underwritten public offering of the Company’s securities made by the Company pursuant to an effective registration statement filed under the Securities Act, the Administrator shall have the right to impose market stand-off restrictions on each Award recipient whereby such Participant shall not offer, sell, contract to sell, pledge, hypothecate, grant any option to purchase or make any short sale of, or otherwise dispose of any shares of stock of the Company or any rights to acquire stock of the Company for such period of time from and after the effective date of such registration statement as may be established by the underwriter for such public offering; provided, however, that such period of time shall not exceed one hundred eighty (180) days from the effective date of the registration statement to be filed in connection with such public offering. The foregoing limitation shall not apply to shares registered in the public offering under the Securities Act.
34.
Stockholder Agreements/Investment Representations
. As a condition to the exercise of an Option or the issuance of Common Stock hereunder, the Administrator may require the Participant to enter into such agreements (including but not limited to a buy/sell or voting trust agreement) with respect to the shares as may be required of other stockholders of the Company. In addition, the Administrator may require the Participant to represent and warrant at the time of any such exercise or issuance that the shares are being purchased only for investment and without any present intention to sell or distribute such shares, if, in the opinion of counsel for the Company, such a representation is required by any relevant provisions of law.
* * * * *
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PROXY
FLOTEK INDUSTRIES, INC.
2019
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AT FLOTEK’S CORPORATE OFFICE
10603 W. SAM HOUSTON PARKWAY N., SUITE 300, HOUSTON, TEXAS 77064
ON FRIDAY,
MAY 24, 2019
AT 10:00 A.M. LOCAL TIME
THE UNDERSIGNED STOCKHOLDER OF FLOTEK INDUSTRIES, INC. (the “Company”) HEREBY APPOINTS John W. Chisholm, President and CEO of the Company, or failing this person, Casey Doherty, Corporate Secretary of the Company, or in the place of the foregoing, , (print the name), as proxyholder for and on his behalf, with full power of substitution, to attend, act and vote for and on behalf of the undersigned at the Annual Meeting of Stockholders of the Company (the “Meeting”) to be held on Friday,
May 24, 2019
, and at every adjournment thereof, to the same extent and with the same powers as if the undersigned were present at the Meeting, or any adjournment thereof. The stockholder hereby directs the proxyholder to vote the securities of the Company registered in the name of the undersigned as specified herein.
This Proxy is being solicited by the Board of Directors. This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors’ recommendations.
(Continued and to be signed on the reverse side.)
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ANNUAL MEETING OF STOCKHOLDERS OF
FLOTEK INDUSTRIES, INC.
May 24, 2019
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PROXY VOTING INSTRUCTIONS
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FLOTEK INDUSTRIES, INC.
ATTN: CASEY DOHERTY
10603 W SAM HOUSTON PKWY N, SUITE 300
HOUSTON, TX 77064
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VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information. Vote by 11:59 P.M. ET on 05/23/2019 for shares held directly and by 11:59 P.M. ET on 05/21/2019 for shares held in a Plan. Have your proxy card in hand when you access the website and follow the instructions to obtain your records and to create an electronic voting instruction form.
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ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
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VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions. Vote by 11:59 P.M. ET on 05/23/2019 for shares held directly and by 11:59 P.M ET on 05/21/2019 for shares held in a Plan. Have your proxy card in hand when you call and then follow the instructions.
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VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Boradridge, 51 Mercedes Way, Edgewood, NY 11717.
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NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL
:
The Notice of Meeting, proxy statement, proxy card and Annual Report
are available at www.flotekind.com/proxymaterials and www.proxyvote.com.
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Please detach along perforated line and mail in the envelope provided
IF
you are not voting via telephone or the Internet.
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PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE
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The Board of Directors recommends you vote FOR the following:
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FOR
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AGAINST
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ABSTAIN
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PROPOSAL 1:
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Election of Directors
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Nominees
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Michelle M. Adams
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Ted D. Brown
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John W. Chisholm
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L. Melvin Cooper
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Paul W. Hobby
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L.V. “Bud” McGuire
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David Nierenberg
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The Board of Directors recommends you vote FOR proposals 2, 3, 4, and 5.
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FOR
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AGAINST
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ABSTAIN
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PROPOSAL 2:
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Approval of the Flotek Industries, Inc. 2019 Non-Employee Director Incentive Plan.
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PROPOSAL 3:
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Approval of an amendment to the Flotek Industries, Inc. 2012 Employee Stock Purchase Plan.
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PROPOSAL 4:
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Approval of an amendment to the Flotek Industries, Inc. 2018 Long-Term Incentive Plan.
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PROPOSAL 5:
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Approval of Non-Binding Advisory Vote on Executive Compensation.
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The Board of Directors recommends you vote 1 YEAR on the following proposal:
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1 YEAR
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2 YEARS
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3 YEARS
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ABSTAIN
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|||||
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PROPOSAL 6:
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Approval of Non-Binding Advisory Vote on the Frequency of Future Advisory Votes on Executive Compensation.
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¨
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¨
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¨
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¨
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The Board of Directors recommends you vote FOR the following proposal:
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FOR
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AGAINST
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ABSTAIN
|
||||||
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PROPOSAL 7:
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Ratification of the selection of the independent registered public accounting firm, Moss Adams LLP, as the Company’s auditors for the year ending December 31, 2019.
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Note:
Such other business as may properly come before the meeting or any adjournment thereof.
|
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Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer.
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Signature [PLEASE SIGN WITHIN BOX]
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Date
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Signature (Joint Owners)
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Date
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TABLE OF CONTENTS
PROXY STATEMENTVOTING SECURITIESPROPOSAL 1: ELECTION OF DIRECTORSBoard of DirectorsRecommendation; ProxiesNumber of DirectorsNomineesResignation and Completion of Board TermsBoard Approval of Reduction in MembersSECURITY OWNERSHIP OF EXECUTIVE OFFICERS AND DIRECTORS AND CERTAIN BENEFICIAL OWNERSEXECUTIVE OFFICERSAUDIT COMMITTEE REPORTCOMPENSATION DISCUSSION AND ANALYSISCOMPENSATION COMMITTEE REPORTEXECUTIVE COMPENSATIONBOARD OF DIRECTORS AND COMMITTEES OF THE BOARDMeeting AttendanceExecutive SessionsDirector IndependenceRisk ManagementBoard CommitteesAudit CommitteeCorporate Governance and Nominating CommitteeCompensation CommitteeSpecial Board CommitteesDirector Stock Ownership GuidelinesDirector CompensationOther Board and Committee ItemsPROPOSAL 2: APPROVAL OF THE FLOTEK INDUSTRIES, INC. 2019 NON-EMPLOYEE DIRECTOR INCENTIVE PLANPROPOSAL 3: APPROVAL OF AN AMENDMENT TO THE FLOTEK INDUSTRIES, INC. 2012 EMPLOYEE STOCK PURCHASE PLANPROPOSAL 4: APPROVAL OF AN AMENDMENT TO THE FLOTEK INDUSTRIES, INC. 2018 LONG-TERM INCENTIVE PLANPROPOSAL 5: ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION