UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.          )

 

 

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☒		Definitive Proxy Statement
☐		Definitive Additional Materials
☐		Soliciting Material under §240.14a-12

Talos Energy Inc.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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NOTICE OF 2019 ANNUAL MEETING OF STOCKHOLDERS

 

Meeting Date & Time:		Meeting Place:		Record Date:
May 6, 2019 10:30 a.m.		Three Allen Center 333 Clay Street, Suite 3300, Houston, Texas 77002		March 11, 2019

To the stockholders of Talos Energy Inc.:

Notice is hereby given that the 2019 Annual Meeting of Stockholders of Talos Energy Inc. (the “Company”) will be held at Three Allen Center, 333 Clay Street, Suite 3300, Houston, Texas 77002, on May 6, 2019, at 10:30 a.m., Central Time (the “Annual Meeting”). The Annual Meeting is being held for the following purposes:

 

1. To elect to the Company’s Board of Directors the three Class I directors set forth in the accompanying Proxy Statement, each of whom will hold office until the 2022 Annual Meeting of Stockholders and until his or her successor is elected and qualified or until his or her earlier death, resignation or removal.		P. 5
2. To ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2019.		P. 55
3. To approve, on a non-binding advisory basis, the Company’s Named Executive Officer compensation for the fiscal year ended December 31, 2018.		P. 57
4. To vote on the approval, on a non-binding advisory basis, of the frequency of future advisory votes on the Company’s Named Executive Officer compensation.		P. 59
5. To transact such other business as may properly come before the Annual Meeting or any adjournments or postponements thereof.

Each outstanding share of the Company’s common stock (NYSE: TALO) entitles the holder of record at the close of business on March 11, 2019, to receive notice of and to vote at the Annual Meeting or any adjournments or postponements of the Annual Meeting.

WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, WE URGE YOU TO VOTE YOUR SHARES BY INTERNET, BY TELEPHONE, OR BY SIGNING, DATING AND RETURNING THE PROXY CARD YOU WILL RECEIVE. IF YOU CHOOSE TO ATTEND THE ANNUAL MEETING, YOU MAY STILL VOTE YOUR SHARES IN PERSON, EVEN THOUGH YOU HAVE PREVIOUSLY VOTED OR RETURNED YOUR PROXY BY ANY OF THE METHODS DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT. IF YOUR SHARES ARE HELD IN A BANK OR BROKERAGE ACCOUNT, PLEASE REFER TO THE MATERIALS PROVIDED BY YOUR BANK OR BROKER FOR VOTING INSTRUCTIONS.

ALL STOCKHOLDERS ARE EXTENDED A CORDIAL INVITATION TO ATTEND THE ANNUAL MEETING.

 

Talos Energy Inc. Three Allen Center 333 Clay Street, Suite 3300 Houston, Texas 77002   Houston, Texas April 3, 2019		By Order of the Board of Directors,     Neal P. Goldman Chairman of the Board

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON MAY 6, 2019: THIS PROXY STATEMENT, THE PROXY CARD AND OUR ANNUAL REPORT ARE AVAILABLE AT WWW.INVESTORVOTE.COM/TALO.

TABLE OF CONTENTS

 

About the Annual Meeting			1
Proposal One: Election of Directors			5
Directors and Executive Officers			7
Meetings and Committees of Directors			14
Compensation Committee Report			17
Executive Compensation			18
Equity Compensation Plan Information			42
Compensation Committee Interlocks and Insider Participation			43
Corporate Governance			44
Security Ownership of Certain Beneficial Owners and Management			48
Section 16(a) Beneficial Ownership Reporting Compliance			50
Certain Relationships and Related Party Transactions			51
Proposal Two: Ratification of Appointment of Independent Registered Public Accounting Firm			55
Proposal Three: Non-Binding Advisory Vote on the Company’s Named Executive Officer Compensation			57
Proposal Four: Non-Binding Advisory Vote on the Frequency of Future Advisory Votes on the Company’s Named Executive Officer Compensation			59
Audit Committee Report			60
Stockholder Proposals; Identification of Director Candidates			61
Solicitation of Proxies			63
Availability of Certain Documents			63
Other Matters			63
Directions To Annual Meeting			64

TALOS ENERGY INC.

Three Allen Center

333 Clay Street, Suite 3300

Houston, Texas 77002

PROXY STATEMENT

2019 ANNUAL MEETING OF STOCKHOLDERS

The Board of Directors (the “Board of Directors” or the “Board”) of Talos Energy Inc. (the “Company,”) requests your proxy for the 2019 Annual Meeting of Stockholders that will be held on May 6, 2019, at 10:30 a.m. Central Time, at Three Allen Center, 333 Clay Street, Suite 3300, Houston, Texas 77002 (the “Annual Meeting”). By granting the proxy, you authorize the persons named on the proxy to represent you and vote your shares at the Annual Meeting. Those persons will also be authorized to vote your shares at any adjournments or postponements of the Annual Meeting, and with respect to any other matters that properly come before the Annual Meeting or any adjournments or postponements thereof. This Proxy Statement, the enclosed proxy card and our Annual Report are being mailed to stockholders beginning April 5, 2019.

ABOUT THE ANNUAL MEETING

Purpose of the Annual Meeting

The purpose of the Annual Meeting is for our stockholders to consider and act upon the proposals described in this Proxy Statement and any other matters that properly come before the Annual Meeting or any adjournments or postponements thereof.

Proposals to be Voted Upon at the Annual Meeting

At the Annual Meeting, our stockholders will be asked to consider and vote upon the following four proposals:

 

●

Proposal ONE: To elect to the Board the three Class I directors set forth in this Proxy Statement, each of whom will hold office until the 2022 Annual Meeting of Stockholders and until his or her successor is elected and qualified or until his or her earlier death, resignation or removal.

 

●

Proposal TWO: To ratify the appointment of Ernst & Young LLP (“EY”) as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2019.

 

●

Proposal THREE: To approve, on a non-binding advisory basis, the Company’s Named Executive Officer compensation, as disclosed in this Proxy Statement, for the fiscal year ended December 31, 2018.

 

●

Proposal FOUR: 4. To vote on the approval, on a non-binding advisory basis, of the frequency of future advisory votes on the Company’s Named Executive Officer compensation.

In addition, any other matters that properly come before the Annual Meeting or any adjournments or postponements thereof will be considered. Management is presently aware of no other business to come before the Annual Meeting.

Recommendation of the Board

The Board recommends that you vote FOR the election to the Board of each of the director nominees (Proposal ONE) named in this Proxy Statement; FOR the ratification of the appointment of EY as our independent registered public accounting firm for the fiscal year ending December 31, 2019 (Proposal TWO);

 

2019 Proxy Statement 1

FOR the approval, on a non-binding advisory basis, of the Company’s Named Executive Officer compensation for the fiscal year ended December 31, 2018 (Proposal THREE); and FOR the frequency, on a non-binding advisory basis, of every “one year” for future advisory votes on the Company’s Named Executive Officer compensation (Proposal FOUR).

Voting at the Annual Meeting

Our common stock, par value $0.01 per share (our “common stock”), is the only class of securities that entitle holders to vote generally at meetings of the Company’s stockholders. Holders of our common stock will vote as a single class on all matters presented at the Annual Meeting. Each share of our common stock outstanding on the Record Date entitles the holder to one vote at the Annual Meeting.

If on the Record Date you held shares of our common stock that are represented by stock certificates or registered directly in your name with our transfer agent, Computershare Trust Company, N.A. (“Computershare”), you are considered the stockholder of record with respect to those shares and Computershare is sending these proxy materials directly to you on our behalf. Proxies may also be solicited on behalf of the Board of Directors, without additional compensation, by our directors, officers and other regular employees. We have not retained a professional proxy solicitor or other firm to assist with the solicitation of proxies, although we may do so if deemed appropriate. As a stockholder of record as of the Record Date, you may vote in person at the Annual Meeting or by proxy. Whether or not you plan to attend the Annual Meeting in person, you may vote by Internet or by telephone by following the instructions on your proxy card. Whether or not you plan to attend the Annual Meeting, we urge you to vote by way of the Internet, by telephone or by filling out and returning the enclosed proxy card. If you submit a proxy but do not give voting instructions as to how your shares should be voted on a particular proposal at the Annual Meeting, your shares will be voted in accordance with the recommendations of the Board stated in this Proxy Statement. Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before its use by (1) delivering a written notice of revocation addressed to Talos Energy Inc., Attn: William S. Moss III, Three Allen Center, 333 Clay Street, Suite 3300, Houston, Texas 77002, (2) duly executing a proxy bearing a later date, (3) voting again by Internet or by telephone or (4) attending the Annual Meeting and voting in person. Your last vote or proxy will be the vote or proxy that is counted. Attendance at the Annual Meeting will not cause your previously granted proxy to be revoked unless you vote or specifically so request.

If on the Record Date you held shares of our common stock in an account with a brokerage firm, bank or other nominee, then you are a beneficial owner of the shares and hold such shares in “street name,” and these proxy materials will be forwarded to you by that organization. As a beneficial owner, you have the right to direct your broker, bank or other nominee on how to vote the shares held in their account, and the nominee has enclosed or provided voting instructions for you to use in directing it how to vote your shares. The nominee that holds your shares, however, is considered the stockholder of record for purposes of voting at the Annual Meeting. Because you are not the stockholder of record, you may not vote your shares in person at the Annual Meeting unless you bring to the Annual Meeting a letter from your broker, bank or other nominee confirming your beneficial ownership of the shares as of the Record Date. Whether or not you plan to attend the Annual Meeting, we urge you to vote by following the voting instructions provided to you to ensure that your vote is counted.

If you are a beneficial owner and do not vote, and your broker, bank or other nominee does not have discretionary power to vote your shares, your shares may constitute “broker non-votes.” Broker non-votes occur when shares held by a broker for a beneficial owner are not voted with respect to a particular proposal and generally occur because the broker (1) does not receive voting instructions from the beneficial owner and (2) lacks discretionary authority to vote the shares. Brokers and other nominees have discretionary authority to vote on the ratification of our independent public accounting firm for clients who have not provided voting instructions. However, without voting instructions from their clients, they cannot vote on “non-routine” proposals, including the election of directors. Shares that constitute broker non-votes will be counted for the

 

2019 Proxy Statement 2

purpose of establishing a quorum at the Annual Meeting. Voting results will be tabulated and certified by the inspector of elections appointed for the Annual Meeting.

A list of stockholders entitled to vote at the Annual Meeting will be available for inspection during ordinary business hours for a period of ten days before the Annual Meeting at our offices located at Three Allen Center, 333 Clay Street, Suite 3300, Houston, Texas 77002. The list will also be available for inspection at the Annual Meeting.

Quorum Requirement for the Annual Meeting

The presence, in person or by proxy, at the Annual Meeting of the persons holding shares of our outstanding common stock on the Record Date that represent a majority of the voting power of all outstanding shares of our common stock entitled to vote at the Annual Meeting will constitute a quorum, permitting us to conduct our business at the Annual Meeting. On the Record Date, there were 54,155,805 shares of our common stock held by 307 stockholders of record. Both abstentions (i.e., if you or your broker mark “ABSTAIN” on a proxy or voting instruction form, or if a stockholder of record attends the Annual Meeting, but does not vote (either before or during the Annual Meeting)) and broker non-votes will be considered to be shares present at the Annual Meeting for purposes of establishing a quorum.

Required Votes

Election of Directors. Each nominee for director will be elected by the affirmative vote of a majority of the votes cast with respect to such nominee’s election at the Annual Meeting. This means that the number of shares voted “for” a nominee must exceed the number of shares voted “against” that nominee. Abstentions and broker non-votes are not taken into account in determining the outcome of the election of directors.

Ratification of our Independent Public Accounting Firm. Approval of the proposal to ratify the Audit Committee’s appointment of EY as our independent registered public accounting firm for the fiscal year ending December 31, 2019 requires the affirmative vote of a majority of the votes cast affirmatively or negatively at the Annual Meeting by the holders entitled to vote on the proposal. Abstentions and broker non-votes are not taken into account in determining the outcome of this proposal.

Approval of Named Executive Officer Compensation. Approval, on a non-binding advisory basis, of the Company’s Named Executive Officer compensation for the fiscal year ended December 31, 2018 requires the affirmative vote of a majority of the votes cast affirmatively or negatively at the Annual Meeting by the holders entitled to vote on the proposal. Abstentions and broker non-votes are not taken into account in determining the outcome of this proposal. This advisory vote on executive compensation is not binding on the Company, the Compensation Committee or the Board. However, the Compensation Committee and the Board will take into account the result of the vote when determining future executive compensation programs. This agenda item is also known as the “say-on-pay” vote.

Frequency of Future Advisory Votes on Executive Compensation. The frequency of the say-on-pay vote—every one year, every two years or every three years—that receives the greatest number of votes will be the frequency that the stockholders approve on a non-binding advisory basis. Abstentions and broker non-votes are not taken into account in determining the outcome of this proposal. This advisory vote on the frequency of the say-on-pay vote is not binding on the Board. However, the Board will take into account the result of the vote when determining the frequency of future say-on-pay votes. This agenda item is also known as the “say-when-on-pay” vote.

Resignation Policy

In the event of an uncontested election of directors (i.e., an election at which the number of nominees does not exceed the number of directors to be elected) that results in an incumbent director nominee receiving a

 

2019 Proxy Statement 3

greater number of votes “against” his or her election than votes “for” election, the resignation policy included in our Corporate Governance Guidelines requires that such nominee promptly tender his or her resignation to our Board of Directors.

The resignation policy permits the Board of Directors to delegate to a committee the responsibility to make recommendations regarding any such resignation tendered. The Board is required to take action with respect such resignation, taking into account any such committee recommendation (if applicable), and thereafter disclose the Board’s determination, as well as the rationale if the Board decided to reject such resignation.

Solicitation of Proxies

We will bear the cost of solicitation of proxies. This includes the charges and expenses of brokerage firms and others for forwarding solicitation material to beneficial owners of our outstanding common stock. We may solicit proxies by mail, personal interview, telephone, or via the Internet through our directors, officers and other regular employees, who will receive no additional compensation for their services.

Default Voting

A proxy that is properly completed and submitted will be voted at the Annual Meeting in accordance with the instructions on the proxy. If you properly execute and submit a proxy, but do not provide any voting instructions, your shares will be voted FOR the election to the Board of each of the director nominees listed in Proposal ONE, FOR Proposal TWO, FOR Proposal THREE and FOR the frequency of “one year” for future advisory votes in Proposal FOUR.

If any other business properly comes before the stockholders for a vote at the Annual Meeting, your shares will be voted in accordance with the discretion of the holders of the proxy. The Board of Directors knows of no matters, other than those previously stated, to be presented for consideration at the Annual Meeting.

 

2019 Proxy Statement 4

PROPOSAL ONE: ELECTION OF DIRECTORS

Nominees for Election as Directors

At the recommendation of the Governance & Nominating Committee, the Board of Directors has nominated the following individuals for election as Class I directors of the Company, to serve for three-year terms beginning at the Annual Meeting and expiring at the 2022 Annual Meeting of Stockholders, and until either they are re-elected or their successors are elected and qualified or until their earlier death, resignation or removal:

Mr. Charles M. Sledge

Mr. Robert M. Tichio

Ms. Olivia C. Wassenaar

Mr. Sledge, Mr. Tichio and Ms. Wassenaar are currently serving as directors of the Company. If Mr. Sledge, Mr. Tichio and Ms. Wassenaar are elected to the Board of Directors, the size of the Board will remain at ten members. Biographical information for each director nominee is contained in the “Directors and Executive Officers” section below.

The Board of Directors has no reason to believe that its director nominees will be unable or unwilling to serve if elected. If a director nominee becomes unable or unwilling to accept nomination or election, the persons acting under your proxy will vote for the election of a substitute nominee, if any, that the Board of Directors recommends.

Stockholders’ Agreement

Pursuant to a Stockholders’ Agreement (the “Stockholders’ Agreement”) we entered into in connection with the business combination of Talos Energy LLC and Stone Energy Corporation (“Stone”) on May 10, 2018 (the “Stone Combination”), and our Amended & Restated Bylaws, the Board of Directors is to consist of ten members, and certain funds and other alternative investment vehicles managed by Apollo Management VII, L.P. and Apollo Commodities Management, L.P., with respect to Series I (the “Apollo Funds”) and certain entities controlled by or affiliated with Riverstone Energy Partners V, L.P. (the “Riverstone Funds,” and the Apollo Funds and the Riverstone Funds, each a “Stockholder Group”) will each independently have the right to designate, in connection with any annual or special meeting of our stockholders at which directors will be elected, (i) two persons for nomination by the Board of Directors for election to the Board (each, a “Nominee”) for so long as such Stockholder Group owns at least (A) 15% of our outstanding common stock or (B) 50% of the number of shares of our common stock issued to such Stockholder Group in connection with the Stone Combination, after appropriate adjustment for any stock split, subdivision, combination or reclassification of any shares (such shares with respect to each Stockholder Group, the “Initial Group Shares,” and collectively, the “Initial Shares”) and (ii) one Nominee for so long as such Stockholder Group owns (A) at least 5% but less than 15% of our outstanding common stock or (B) at least 50% of the number of Initial Group Shares.

Further, the Stockholders’ Agreement also provides that (i) for so long as the Apollo Funds and the Riverstone Funds collectively own at least (A) 50% of our outstanding common stock or (B) 80% of the number of Initial Shares, the Apollo Funds and the Riverstone Funds shall have the collective right to designate two Nominees, one of whom qualifies as an “independent” under the New York Stock Exchange (“NYSE”) listing standards (an “Independent Director”) and the other of whom must either be our Chief Executive Officer or also qualify as an Independent Director, and (ii) for so long as the Apollo Funds and the Riverstone Funds collectively own (A) less than 50% of our outstanding common stock but at least 60% of the Initial Shares or (B) less than 80% of the Initial Shares but at least 40% of our outstanding common stock, the Apollo Funds and the Riverstone Funds shall have the collective right to designate one Nominee, whom must either be our Chief Executive Officer or qualify as an Independent Director.

 

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The Apollo Funds and the Riverstone Funds have agreed to vote their shares of our common stock in favor of any Nominees designated by the other Stockholder Group, and in accordance with the terms of the Stockholders’ Agreement with respect to all other Nominees. For additional information regarding the Stockholders’ Agreement and the Apollo Funds’ and the Riverstone Funds’ obligations with respect to voting in the election of nominees not designated by a Stockholder Group, see “Certain Relationships and Related Party Transactions—Stockholders’ Agreement” and the copy of the Stockholders Agreement filed with our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

Vote Required

The election of each director in this Proposal ONE requires the affirmative vote of a majority of the votes cast by the holders entitled to vote in the election of directors. This means that the number of shares voted FOR a nominee must exceed the number of shares voted AGAINST that nominee. Neither abstentions nor broker non-votes will have any effect on the outcome of the election of directors.

Recommendation

 

The Board unanimously recommends that stockholders vote FOR the election to the Board of each of the director nominees.

 

2019 Proxy Statement 6

DIRECTORS AND EXECUTIVE OFFICERS

After the Annual Meeting, assuming the stockholders elect to the Board of Directors the director nominees set forth in “Proposal ONE: Election of Directors” above, the Board of Directors of the Company will be, and the Named Executive Officers of the Company are:

 

Name		Age		Title
Neal P. Goldman(3)		49		Chairman of the Board
Timothy S. Duncan		46		President and Chief Executive Officer, Director
Charles M. Sledge(1)(3)		53		Director
Robert M. Tichio(3)		41		Director
Olivia C. Wassenaar(2)		39		Director
John “Brad” Juneau(1)(4)		59		Director
Donald R. Kendall, Jr.(1)		66		Director
James M. Trimble(2)(4)		70		Director
Christine Hommes(4)		34		Director
Rajen Mahagaokar(2)		33		Director
Stephen E. Heitzman		69		Executive Vice President and Chief Operating Officer
John A. Parker		63		Executive Vice President of Exploration
Michael L. Harding II		51		Executive Vice President, Chief Financial Officer, Chief Accounting Officer and Treasurer
William S. Moss III		49		Executive Vice President, General Counsel and Secretary

 

(1)	Member of the Audit Committee.

(2)	Member of the Compensation Committee.

(3)	Member of the Governance & Nominating Committee.

(4)	Member of the Safety Committee.

The Board of Directors consists of ten members, divided into three classes serving staggered three-year terms. Each year, the directors of one class stand for re-election as their terms of office expire. Mr. Sledge, Mr. Tichio and Ms. Wassenaar are designated as Class I directors and, assuming the stockholders elect them to the Board as set forth in “Proposal ONE: Election of Directors” above, their terms of office will expire in 2022. Messrs. Duncan, Juneau and Kendall are designated as Class II directors, and their terms of office expire in 2020. Messrs. Goldman, Trimble and Mahagaokar and Ms. Hommes are designated as Class III directors and their terms of office expire in 2021.

Set forth below is biographical information about each of the Company’s directors, director nominees and Named Executive Officers.

Our Directors

 

 

		Neal P. Goldman   Mr. Goldman has served as the Chairman of the Board of Directors since May 2018. He previously served as the Chairman of the board of directors of Stone from March 2017 to May 2018. Mr. Goldman is currently the Managing Member of SAGE Capital Investments, LLC, a consulting firm specializing in independent board of director services, turnaround consulting, strategic planning and special situation investments. Mr. Goldman was a Managing Director at Och Ziff Capital Management, L.P. from 2014 to 2016 and a Founding Partner of Brigade Capital Management, LLC from 2007 to 2012, which he helped build to over $12 billion in assets under management. Prior to this, Mr. Goldman was a Portfolio Manager at MacKay Shields LLC and also

 

2019 Proxy Statement 7

		held various positions at Salomon Brothers Inc., both as a mergers and acquisitions banker and as an investor in the high yield trading group. Throughout his career, Mr. Goldman has held numerous board representations, including roles as an independent member of the boards of directors of Lightsquared, Inc., Pimco Income Strategy Fund I & II and Catalyst Paper Corporation, as well as a member of the boards of directors of Jacuzzi Brands and NII Holdings, Inc. Mr. Goldman has served on the boards of directors of Midstates Petroleum Company, Inc. since October 2016, Walter Investment Management Corp. since January 2017, Ultra Petroleum Corp. since April 2017 and PetroQuest Energy, Inc. (“PetroQuest”) since February 2019. Mr. Goldman received a BA from the University of Michigan and an MBA from the University of Illinois. Based upon Mr. Goldman’s involvement in strategic planning and his experience on multiple boards, we believe that Mr. Goldman is a valuable member of the Board of Directors.
		Timothy S. Duncan Mr. Duncan has served as our President and Chief Executive Officer and as a member of our Board of Directors since May 2018. Mr. Duncan is a founder of Talos Energy LLC and served as its President and Chief Executive Officer and a member of its board of directors from April 2012 to May 2018. Prior to Talos Energy LLC, Mr. Duncan was the Senior Vice President of Business Development and a founder of Phoenix Exploration in April 2006, where he was responsible for all of Phoenix’s business development evaluations and negotiations, including the sale of the company to a group of buyers led by Apache Corporation. Prior to Phoenix Exploration, Mr. Duncan served as Manager of Reservoir Engineering and Evaluations for Gryphon Exploration. Mr. Duncan also worked in various reservoir engineering and portfolio evaluation functions for Amerada Hess Corporation, Zilkha Energy Company and Pennzoil E&P Company. Mr. Duncan received his BS in Petroleum Engineering from Mississippi State University, where he was honored in 2012 as a Distinguished Fellow of the College of Engineering. Mr. Duncan also received his MBA from the Bauer Executive Program at the University of Houston. He is an active member of the SPE, IPAA, the National Ocean Industries Association (NOIA) and the Young Presidents’ Organization. Mr. Duncan also serves on various academically focused advisory boards, including the College of Engineering Dean’s Advisory Council and the Foundation Board at Mississippi State University. Mr. Duncan was named as Ernst & Young Entrepreneur of the Year for the Energy and Energy Services sector in the Gulf Coast in June 2016. Based on Mr. Duncan’s significant experience as an officer of oil and gas companies, together with his training as a reservoir engineer and broad industry knowledge, we believe that he possesses the requisite skills to serve as a member of our Board of Directors.
		Charles M. Sledge Mr. Sledge has served as a member of the Board of Directors since May 2018. He previously served as a member of Stone’s board of directors from March 2017 to May 2018. Mr. Sledge served as the Chief Financial Officer of Cameron International Corporation, an oilfield services company, from 2008 to 2016. Prior to that, Mr. Sledge served as the Corporate Controller of Cameron International Corporation from 2001 until 2008. Mr. Sledge has served on the boards of Templar Energy LLC since January 2017, Vine Resources, Inc. since April 2017 and Expro International since April 2018, where he serves as non-executive chairman. Mr. Sledge holds a BS in Accounting from Louisiana State University and is a graduate of the Harvard Business School Advanced Management Program. We believe that Mr. Sledge’s

 

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		strong financial background, including his 20 years of experience as a financial executive, makes him a valuable member of the Board of Directors.
		Robert M. Tichio Mr. Tichio has served as a member of the Board of Directors since May 2018 and previously served as a director of Talos Energy LLC from April 2012 to May 2018. Mr. Tichio is a Partner at Riverstone Holdings LLC (“Riverstone”) and joined Riverstone in 2006. Prior to joining Riverstone, Mr. Tichio was in the Principal Investment group of Goldman Sachs, which manages the firm’s private corporate equity investments. Mr. Tichio began his career at J.P. Morgan in the Mergers & Acquisitions group, where he concentrated on assignments that included public company combinations, asset sales, takeover defenses and leveraged buyouts. In addition to serving on the boards of a number of Riverstone portfolio companies and their affiliates, Mr. Tichio has been a director of EP Energy Corporation since September 2013 and a director of Centennial Resource Development, Inc. since October 2016. Mr. Tichio previously served as a member of the board of directors of Gibson Energy (TSE-GEI) from 2008 to 2013; Midstates Petroleum Company, Inc. from 2012 to 2015; and Northern Blizzard Inc. from 2010 to 2017. He holds an MBA from Harvard Business School and a bachelor’s degree from Dartmouth College. We believe Mr. Tichio’s extensive energy industry background, particularly his expertise in mergers and acquisitions, brings important experience and skill to the Board of Directors.
		Olivia C. Wassenaar Ms. Wassenaar has served as a member of the Board of Directors since November 2018, and previously served in such role for a short duration in May 2018. Ms. Wassenaar also served as a member of the board of directors of Talos Energy LLC from April 2012 to May 2018. Ms. Wassenaar joined Apollo Global Management, LLC (“Apollo”) in August 2018, where she is currently a Partner. From 2008 until she joined Apollo, Ms. Wassenaar held various positions with Riverstone, most recently as a Managing Director, where she was involved in investments throughout the energy sector. Prior to joining Riverstone, Ms. Wassenaar was with Goldman, Sachs & Co. in the Global Natural Resources investment banking group. In this capacity, she focused on mergers, initial public offerings, and leveraged buyouts for energy, power and renewable energy companies. Previously, Ms. Wassenaar was a Junior Professional Associate at The World Bank Group in Washington, D.C. Ms. Wassenaar currently serves on the board of LifePoint Health, Inc. She has also served on the board of directors of various private companies. Additionally, she previously served on the boards of Northern Blizzard Resources Inc., USA Compression Partners, LP, and Niska Gas Storage Partners LLC. She received her AB, magna cum laude, from Harvard College and an MBA from the Wharton School at the University of Pennsylvania. We believe that Ms. Wassenaar’s experience in evaluating financial and strategic options and the operations of companies in our industry and her experience on multiple boards make her a valuable member of the Board of Directors.

 

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		John “Brad” Juneau Mr. Juneau has served as a member of the Board of Directors since May 2018. He previously served as a member of Stone’s board of directors from March 2017 to May 2018. Mr. Juneau has served a member of the board of directors of PetroQuest since February 2019. He is the co-founder of Contango ORE, Inc. (“Contango”), a publicly traded gold exploration company, and he served as President, Chief Executive Officer and a director of Contango since August 2012 and as Chairman of its board of directors since 2013. Mr. Juneau is the sole manager of the general partner of Juneau Exploration, L.P., a company involved in the exploration and production of oil and natural gas. Prior to forming Juneau Exploration in 1998, Mr. Juneau served as Senior Vice President of exploration for Zilkha Energy Company from 1987 to 1998. Prior to joining Zilkha Energy Company, Mr. Juneau served as a Staff Petroleum Engineer with Texas International Company for three years, where his principal responsibilities included reservoir engineering, as well as acquisitions and evaluations. Prior to that, he was a Production Engineer with Enserch Corporation in Oklahoma City. Mr. Juneau holds a BS in Petroleum Engineering from Louisiana State University. We believe that Mr. Juneau’s extensive energy industry background, particularly his expertise in reservoir engineering and involvement with exploration and production companies, make him a valuable member of the Board of Directors.
		Donald R. Kendall, Jr. Mr. Kendall has served as a member of the Board of Directors since May 2018. Since October 1998, Mr. Kendall has served as Managing Director and Chief Executive Officer of Kenmont Capital Partners, a private investment and advisory firm. From July 1993 until he joined Kenmont Capital Partners, Mr. Kendall served as President of Cogen Technologies Capital Company, a power generation firm, and concurrently as Chairman and Chief Executive Officer of Palmetto Partners, an investment management firm. Mr. Kendall serves as a director of American Midstream Partners LP and a member of its audit and conflict committees, and he previously served as a member of the board of directors and compensation committee of Solar City Corporation and the chair of its special and audit committees. Additionally, Mr. Kendall served as chair of the audit, compensation and nominating and governance committees of privately held Stream Energy. Mr. Kendall received a B.A. in Economics from Hamilton College and an MBA from The Amos Tuck School of Business Administration at Dartmouth College. We believe that Mr. Kendall’s many years of executive management experience, including experience as a chief executive officer, and his experience on multiple boards, make him a valuable member of the Board of Directors.
		James M. Trimble Mr. Trimble has served as a member of the Board of Directors since May 2018. He previously served as the Interim Chief Executive Officer of Stone from April 2017 until May 2018 and as a member of Stone’s board of directors starting in February 2017 until May 2018. Mr. Trimble previously served as Chief Executive Officer and President of PDC Energy, Inc., a publicly traded independent natural gas and oil company, from 2011 until 2015. From 2005 until 2010, Mr. Trimble was Managing Director of Grand Gulf Energy, Limited, a public company traded on the Australian Securities Exchange, and President and Chief Executive Officer of Grand Gulf’s U.S. subsidiary Grand Gulf Energy Company LLC, an exploration and development company focused primarily on drilling in mature basins in Texas, Louisiana and Oklahoma. From 2000 through 2004, Mr. Trimble served as Chief Executive Officer

 

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		of Elysium Energy and then TexCal Energy LLC, both of which were privately held oil and gas companies that he managed through workouts. Prior to this, he was Senior Vice President of Exploration and Production for Cabot Oil and Gas, a publicly traded independent energy company. Mr. Trimble was hired in July 2002 as Chief Executive Officer of TexCal (formerly Tri-Union Development) to manage a distressed oil and gas company through bankruptcy. Mr. Trimble has served on the boards of directors of Callon Petroleum Company since 2014 and Crestone Peak Resources LLC (a private company operating in the DJ Basin of Colorado) since December 2016. Mr. Trimble previously served on the boards of directors of PDC Energy from 2009 until June 2016, C&J Energy Services LTD from March 2016 to January 2017 to assist with it Chapter 11 process, Seisgen Exploration LLC, a small private exploration and production company operating in southern Texas, from 2008 to 2015, Grand Gulf Energy LTD from 2009 to 2012 and Blue Dolphin Energy, an independent oil and gas company with operations in the Gulf of Mexico, from November 2002 until May 2006. Mr. Trimble was an officer of PDC Energy in September 2013, when each of the twelve partnerships for which the company was the managing general partner filed for bankruptcy in the federal bankruptcy court, Northern District of Texas, Dallas Division and was on the board of C&J Energy Services when it filed for bankruptcy in the court of the Southern District of Texas, Houston Division in July 2016. Mr. Trimble is Registered Professional Engineer and has a BS in Petroleum Engineering from Mississippi State University. Based upon Mr. Trimble’s many years of oil and gas industry executive management experience, including experience as a chief executive officer, and knowledge of current developments and best practices in the industry, we believe Mr. Trimble brings valuable skills and expertise to the Board of Directors.
		Christine Hommes Ms. Hommes has served as a member of the Board of Directors since May 2018 and previously served as a director of Talos Energy LLC from January 2016 to May 2018. Ms. Hommes joined Apollo in January 2011 and is a Principal in the Natural Resources group. Prior to that time, Ms. Hommes was an Associate at First Reserve, and prior to that, a member of the Power & Utilities Group at UBS. Ms. Hommes currently serves on the boards of directors of Chisholm Oil & Gas, Momentum Minerals and Northwoods Energy. She previously served on the boards of Tumbleweed Royalties and Roundtable Energy. Ms. Hommes graduated summa cum laude from the University of Pennsylvania with a BS in Economics and a BAS in Systems Engineering. We believe that Ms. Hommes’s experience in evaluating financial and strategic options and the operations of companies in our industry make her a valuable member of the Board of Directors.
		Rajen Mahagaokar Mr. Mahagaokar has served as a member of the Board of Directors since May 2018. Mr. Mahagaokar is a Principal of Riverstone and joined Riverstone as an Associate in 2015. Prior to joining Riverstone, Mr. Mahagaokar was a co-founder and partner of Marka, L.L.C. Previously, Mr. Mahagaokar was an investment professional at Silver Lake Kraftwerk from 2012 to 2013. Mr. Mahagaokar began his career in the Investment Banking Division at Goldman Sachs in the Natural Resources group and in the Urban Investment Group, a principal investing strategy. He currently serves on the board of directors of EP Energy Corporation and private portfolio companies sponsored by Riverstone. He received his B.A. in Mathematical Economic Analysis from Rice University. We believe Mr. Mahagaokar’s energy industry background and

 

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		experience in evaluating financial and strategic options and the operations of companies in our industry brings important experience and skill to the Board of Directors.

Our Other Executive Officers

 

		Stephen E. Heitzman Mr. Heitzman has served as our Executive Vice President and Chief Operating Officer since May 2018. Mr. Heitzman previously served as Executive Vice President and Chief Operating Officer of Talos Energy LLC from April 2012 to May 2018 and is a founder of Talos Energy LLC. Prior to Talos Energy LLC, Mr. Heitzman founded Phoenix Exploration Company LP in April 2006 and served as its President and Chief Executive Officer. Prior to Phoenix Exploration Company LP, he was a founder and Vice President – Operations of Gryphon Exploration and was responsible for the formation, staffing and supervision of Gryphon’s Operations Team from 2000 through January 2006. While at Gryphon, he managed aggregate capital expenditures of more than $250 million and led the team that was responsible for industry leading metrics. Prior to Gryphon Exploration, Mr. Heitzman was Senior Vice President of Planning and Development for Harken Energy and Vice President of Engineering for ATP Oil & Gas, and held various engineering and management positions both domestically and in Indonesia for Roy M. Huffington, Inc. Mr. Heitzman received his BS in Mechanical Engineering from Texas Tech University where he was honored with the Distinguished Engineer Award in 2015 and is a member of the Petroleum Engineering Academy, the Academy of Mechanical Engineers and the Engineering Key Society. He is a major donor to the Fuller Petroleum Engineering Research building with a named conference room and has funded three endowed scholarships for engineering students. He is a registered professional engineer in the state of Texas and has over 40 years of experience in upstream energy.
		John A. Parker Mr. Parker has served as our Executive Vice President of Exploration since May 2018. Mr. Parker is a founder of Talos Energy LLC and served as its Executive Vice President of Exploration from April 2012 to May 2018. Prior to Talos Energy LLC, Mr. Parker founded Phoenix Exploration Company LP in April 2006, where he served as Senior Vice President of Exploration and was responsible for Phoenix’s exploration program. Phoenix made several significant discoveries resulting in impactful reserve additions, which led to the sale of the company to a group of buyers led by Apache Corporation. Prior to Phoenix, he was Exploration Manager of the Texas Shelf at Gryphon Exploration, where he generated prospects and supervised the prospect generation of the Texas exploration team. His exploration team was responsible for 72% of the reserves discovered at Gryphon. Mr. Parker worked as an exploration geologist for EOG Resources in the Gulf of Mexico. Mr. Parker started his career at Shell Oil Company where he worked as an exploration geologist in the Gulf Coast onshore. He later worked exploring in international basins at Pecten, the international subsidiary of Shell Oil. Mr. Parker earned his BA from Louisiana State University and his MS in Earth Science from the University of New Orleans and has more than 34 years of industry experience.

 

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		Michael L. Harding II Mr. Harding is our Executive Vice President, Chief Financial Officer, Chief Accounting Officer and Treasurer, and has served as one of our executive officers since May 2018. From December 2015 to May 2018, Mr. Harding most recently served as Senior Vice President and Chief Financial Officer of Talos Energy LLC after holding offices as its Vice President and Chief Accounting Officer starting in October 2014 and its Chief Accounting Officer and Controller beginning in April 2012. Mr. Harding is responsible for financial reporting, planning, audit, tax and information technology. Prior to joining Talos Energy LLC in February 2012, Mr. Harding was Manager of Business Development for Consulting Services for Pannell Kerr Forster of Texas, P.C., beginning in December 2010. Mr. Harding served from December 2008 to December 2010 as Vice President and Controller for RigNet, Inc. At Apache Corporation, Mr. Harding served from June 2003 to December 2008 in various levels of accounting management including revenue, capital and regional accounting management in Calgary, Alberta. Previously, with El Paso Merchant Energy Group, Mr. Harding served seven years in various accounting management roles, including financial derivatives and power asset accounting and planning. Mr. Harding earned his BBA in Accounting from Texas A&M University and is a member of the American Institute of Certified Public Accountants (“AICPA”). Mr. Harding also serves on the Advisory Council for Texas A&M University’s McFerrin Center for Entrepreneurship.
		William S. Moss III Mr. Moss has served as our Executive Vice President, General Counsel and Secretary since May 2018. Mr. Moss previously served as Senior Vice President and General Counsel of Talos Energy LLC from May 2013 to May 2018. Prior to Talos Energy LLC, Mr. Moss was a partner at Mayer Brown LLP in Houston where he was the head of the Houston Corporate Practice. Mr. Moss joined Mayer Brown LLP in May 2005. At Mayer Brown LLP, Mr. Moss’s practice focused on mergers and acquisitions, securities offerings and general corporate and securities matters and he represented clients throughout the energy value chain. Mr. Moss joined Talos Energy LLC after having represented Talos Energy LLC as outside counsel in its initial formation and its subsequent acquisition of ERT from Helix in February of 2013. Mr. Moss also represented Phoenix Exploration in its initial formation in April 2006, acquisitions and ultimate sale to a group of buyers led by Apache Corporation. Prior to joining Mayer Brown LLP, Mr. Moss worked at Baker Botts, L.L.P. Mr. Moss has an AB from Dartmouth College, a M. Phil from Cambridge University and a J.D. from the University of Texas School of Law.

 

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MEETINGS AND COMMITTEES OF DIRECTORS

The Board of Directors held nine meetings during 2018. During 2018, each of our incumbent directors attended at least 75% of the meetings of the Board of Directors and the meetings of the committees of the Board of Directors on which that director served (in each case, which were held during the period for which such incumbent director was a director and a member of the respective committees).

Executive Sessions. The Board of Directors holds regular executive sessions in which the independent directors meet without any non-independent directors or members of management. The purpose of these executive sessions is to promote open and candid discussion among the independent directors. The lead director, Mr. Goldman, presides at these meetings and provides the Board of Directors’ guidance and feedback to our management team.

The Board of Directors has four standing committees: the Audit Committee, the Compensation Committee, the Governance & Nominating Committee and the Safety Committee.

Audit Committee. The primary responsibilities of the Audit Committee are to oversee our accounting and financial reporting processes as well as our affiliated and subsidiary companies, and to oversee the internal and external audit processes. The Audit Committee also assists our board of directors in fulfilling its oversight responsibilities by reviewing the financial information which is provided to stockholders and others and the system of internal controls which management and the Board have established. The Audit Committee oversees the independent auditors, including their independence and objectivity. However, the Audit Committee members do not act as professional accountants or auditors, and their functions are not intended to duplicate or substitute for the activities of management and the independent auditors. The Audit Committee is empowered to retain independent legal counsel and other advisors as it deems necessary or appropriate to assist the Audit Committee in fulfilling its responsibilities, and to approve the fees and other retention terms of the advisors. The Audit Committee is also tasked with periodically reviewing all related party transactions in accordance with our applicable policies and procedures and making a recommendation to the Board regarding the initial authorization or ratification of any such transaction.

The responsibilities of the Audit Committee are further detailed in the “Audit Committee Charter” that is posted on our website, www.talosenergy.com, and the “Audit Committee Report” included in this Proxy Statement.

Pursuant to the Stockholders’ Agreement, the Audit Committee must consist solely of “Company Independent Directors” until Section 3.1 of the Stockholders’ Agreement expires. For additional information regarding the terms of the Stockholders’ Agreement, see “Proposal One: Election of Directors—Stockholders’ Agreement” and “Certain Relationships and Related Party Transactions—Transactions Entered Into Prior to or in Connection with the Stone Combination—Stockholders’ Agreement.”

The members of the Audit Committee are Messrs. Sledge (Chair), Kendall and Juneau. The Audit Committee held eight meetings during 2018.

Compensation Committee. Responsibilities of the Compensation Committee, which are discussed in detail in the “Compensation Committee Charter” that is posted on the Company’s website at www.talosenergy.com, include, among other duties, the responsibility to:

 

•

periodically review and approve the compensation and other benefits for our employees, officers and independent directors;

 

•

review and approve corporate goals and objectives relevant to the compensation of our executive officers in light of those goals and objectives, and setting compensation for these officers based on those evaluations;

 

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•

administer the issuance of stock awards under any stock compensation plans;

 

•

review and discuss with the Company’s management the Compensation Discussion and Analysis included in this Proxy Statement;

 

•

produce the Compensation Committee Report as required by Item 407(e)(5) of Regulation S-K included in this Proxy Statement;

 

•

otherwise discharge the Board’s responsibilities relating to compensation of the Company’s executive officers and directors; and

 

•

perform such other functions as the Board may assign to the Compensation Committee from time to time.

The Compensation Committee is delegated all authority of the Board of Directors as may be required or advisable to fulfill its purposes. The Compensation Committee may delegate to its Chairman, any one of its members or any subcommittee it may form, the responsibility and authority for any particular matter, as it deems appropriate from time to time under the circumstances. The Compensation Committee is also generally able to delegate authority to review and approve the compensation of our employees to certain executive officers, including with respect to stock option or stock appreciation rights grants made under any stock option plans, stock compensation plans or stock appreciation rights plans. Pursuant to the Stockholders’ Agreement and subject to certain limitations and qualifications, the Compensation Committee, among other things, determines compensation for our Chief Executive Officer and all executive officers who report directly to the Chief Executive Officer.

Meetings of the Compensation Committee may, at the discretion of the Compensation Committee, include members of the Company’s management, other members of the Board of Directors, consultants or advisors and such other persons as the Compensation Committee believes to be necessary or appropriate.

The Compensation Committee may, in its sole discretion, retain and determine funding for legal counsel, compensation consultants, as well as other experts and advisors (collectively, “Committee Advisors”), including the authority to retain, approve the fees payable to, amend the engagement with and terminate any Committee Advisor, as it deems necessary or appropriate to fulfill its responsibilities. The Compensation Committee assesses the independence of any Committee Advisor prior to retaining such Committee Advisor.

The members of the Compensation Committee are Messrs. Trimble (Chair) and Mahagaokar and Ms. Wassenaar. The Compensation Committee held three meetings during 2018.

Governance & Nominating Committee. The Governance & Nominating Committee, subject to the terms of the Stockholders’ Agreement, assists the Board with respect to (i) the organization and membership and function of the Board, including the identification and recommendation of director nominees and the structure and membership of each committee of the Board, (ii) corporate governance principles applicable to us and (iii) our policies and programs that relate to matters of corporate responsibility. The Governance & Nominating Committee, subject to the terms of the Stockholders’ Agreement, reviews and makes recommendations to the Board regarding the composition of the Board of Directors structure, format and frequency of the meetings. The Governance & Nominating Committee also reviews and makes recommendations to the Board regarding the nature, composition and duties of the committees of the Board and will review and consider any stockholder-recommended candidates for nomination to the Board.

Additional information regarding the functions performed by the Governance & Nominating Committee is set forth in the “Corporate Governance” and “Stockholder Proposals; Identification of Director Candidates” sections included herein and also in the “Governance & Nominating Committee Charter” that is posted on the Company’s website at www.talosenergy.com.

 

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Pursuant to the Stockholders’ Agreement, the Governance & Nominating Committee is required to be composed of three directors, including at least two “Company Independent Directors,” until Section 3.1 of the Stockholders’ Agreement expires. For additional information regarding the terms of the Stockholders’ Agreement, see “Proposal One: Election of Directors—Stockholders’ Agreement” and “Certain Relationships and Related Party Transactions—Transactions Entered Into Prior to or in Connection with the Stone Combination—Stockholders’ Agreement.”

The members of the Governance & Nominating Committee are Messrs. Goldman (Chair), Tichio and Sledge. The Governance & Nominating Committee held three meetings during 2018.

Safety Committee. The Safety Committee reviews our safety programs and policies and recommends any proposed changes to the Board, monitors our compliance with our safety programs and policies and reviews our safety statistics and reviews significant public policy and legislative and regulatory issues or trends related to safety matters and provides us input with respect to such policies, issues and trends. The Safety Committee is also expected to meet with our management to review the implementation and effectiveness of our safety programs and policies. Additionally, the Safety Committee is tasked with the oversight and management of our environmental, social and governance initiatives.

The members of the Safety Committee are Ms. Hommes (Chair) and Messrs. Juneau and Trimble. The Safety Committee held three meetings during 2018.

 

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COMPENSATION COMMITTEE REPORT

The information contained in this Compensation Committee Report shall not be deemed to be “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Securities Exchange Act of 1934, as amended (the “Exchange Act”), except to the extent that the Company specifically incorporates such information by reference in such filing.

The Compensation Committee reviewed and discussed the Compensation Discussion and Analysis required by Item 402 of Regulation S-K promulgated by the SEC with management of the Company and, based on such review and discussions, the Compensation Committee recommended to the Board that such Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference into the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

 

 

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Overview

This Compensation Discussion and Analysis identifies the elements of compensation and explains the compensation objectives and practices for the individuals identified in the following table, who are referred to herein as our “Named Executive Officers,” for the fiscal year ended December 31, 2018 (the “2018 Fiscal Year”).

 

Name				Principal Position
Timothy S. Duncan				President and Chief Executive Officer
Michael L. Harding II				Executive Vice President and Chief Financial Officer (1)
Stephen E. Heitzman				Executive Vice President and Chief Operating Officer
John A. Parker				Executive Vice President of Exploration
William S. Moss III				Executive Vice President and General Counsel (1)

 

 

(1)	In connection with the Stone Combination, Mr. Harding and Mr. Moss were each promoted from Senior Vice President to Executive Vice President.

Compensation Objectives and Practices

Our executive compensation program is designed to attract, retain and motivate talented executives who possess the knowledge and expertise to create long-term value for our stockholders. We structure our executive compensation program with a view towards promoting accountability to ensure that the interests of our management and stockholders remain aligned. We believe that these goals are accomplished by tying components of our executive compensation program to measures of the Company’s short-term and long-term performance.

The chart below highlights several features of our executive compensation program.

 

What We Do				What We Don’t Do
✓   Pay for performance, including for sustained performance over multi-year performance periods				×  No excessive perquisites  ×  No tax gross-ups
✓   Significant portion of compensation is performance-based and at-risk				×  No current dividend payments on unvested equity awards
✓   Independent compensation consultant				×  No-single trigger change in control payments or vesting of equity awards under our Long Term Incentive Plan
✓   Utilize an appropriate peer group in determining compensation elements and levels of pay
✓   All acceleration of performance share unit awards is based on actual performance
✓   Maintain stock ownership guidelines

Process for Setting Executive Compensation

Our executive compensation program is ultimately determined by the Board, following recommendations from the Compensation Committee and input from our independent compensation consultant and the executive officers.

Role of the Compensation Committee

Although the ultimate responsibility for executive compensation decisions lies with the Board, our executive compensation program is generally overseen by the Compensation Committee, and the Board’s decisions are

 

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typically made following a recommendation by the Compensation Committee. The Compensation Committee is comprised of James M. Trimble (who acts as the chair), Rajen Mahagaokar and Olivia C. Wassenaar. Each member of the Compensation Committee meets the independence standards established by the New York Stock Exchange (“NYSE”). The Compensation Committee Charter generally provides the Compensation Committee with authority to (i) exercise oversight of our executive compensation policy, (ii) review, approve and recommend to the Board compensatory payments to our officers, (iii) review and modify decisions on individual non-officer employee compensation, (iv) review, modify and approve our peer companies, and (v) review and recommend to the Board the compensation for our non-employee directors. For more detailed information regarding the Compensation Committee, the current Compensation Committee Charter is posted under the “Corporate Governance & Board Committees” subsection of the “About Us” section of our website at www.talosenergy.com.

Role of the Compensation Consultant

Following the Stone Combination, the Compensation Committee engaged Lyons, Benenson & Company Inc. (“LB&Co”) as its independent compensation consultant. LB&Co provided advice to and worked alongside the Compensation Committee and the Board in structuring our executive compensation program. LB&Co provided the Compensation Committee with relevant market and peer group compensation data and information on current trends and developments regarding executive and director compensation. The information provided by LB&Co was utilized by the Board and the Compensation Committee in making decisions regarding executive and director compensation.

LB&Co reported directly and exclusively to the Compensation Committee and did not provide any other services to us, management or our affiliates. LB&Co did not make compensation-related decisions for the Compensation Committee, for the Board or otherwise with respect to us, and while the Compensation Committee and the Board generally reviewed and considered information and recommendations provided by LB&Co, the Compensation Committee and the Board always retain the authority to make all compensation-related decisions. The Compensation Committee has the discretion to allow compensation consultants, including LB&Co in 2018, to work directly with management in preparing or reviewing materials for the Compensation Committee’s consideration. During 2018, and after taking into consideration the factors listed in Section 303A.05(c)(iv) of the NYSE Listed Company Manual, the Compensation Committee concluded that neither it nor the Company has any conflicts of interest with LB&Co and that LB&Co is independent from management.

At the end of 2018, the Compensation Committee engaged Meridian Compensation Partners, LLC (“Meridian”) as its new independent compensation consultant. Meridian did not provide the Compensation Committee with advice used for making determinations regarding 2018 Fiscal Year compensation, rather it focused on providing information that will be used to make compensation decisions in 2019. Other than LB&Co and Meridian, no other compensation consultants provided services to the Compensation Committee during 2018.

Role of the Executive Officers

Our Chief Executive Officer reviews compensation for all of our Named Executive Officers other than himself and makes compensation recommendations to the Compensation Committee and the Board; however the Board makes the final determinations with respect to each Named Executive Officer’s compensation. Other members of management, particularly from our human resources and legal departments, provide relevant data and guidance to the Compensation Committee and board of directors, as requested, to assist them in making compensation determinations and implementing those decisions. Our Chief Executive Officer and General Counsel attend select meetings of the Compensation Committee and the Board to provide relevant information and input, as appropriate. During executive sessions of the Compensation Committee or the Board, our Chief Executive Officer and General Counsel are excused.

 

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Peer Group

In 2018, the Compensation Committee, with input from LB&Co, selected our peer group after reviewing market capitalization and total enterprise value of relevant public companies to determine which companies were representative of the marketplace for talent within which we compete. The Compensation Committee determined that the companies below reflect an appropriate peer group for 2018 (the “Peer Group”), which is the same peer group utilized in determining relative total stockholder return for purposes of the performance share unit awards granted to the Named Executive Officers, as described below under “Elements of Compensation for the 2018 Fiscal Year—Long Term Incentive Awards”:

 

		Callon Petroleum Company		Kosmos Energy Ltd.		SM Energy Company
		Carrizo Oil & Gas, Inc.		Laredo Petroleum, Inc.		SRC Energy Inc.
		Cimarex Energy Co.		Matador Resources Company		Ultra Petroleum Corp.
		Energy XXI Gulf Coast, Inc.		Newfield Exploration Company		W&T Offshore, Inc.
		EP Energy Corporation		Oasis Petroleum Inc.		Whiting Petroleum Corporation
		Extraction Oil & Gas, Inc.		PDC Energy, Inc.

The Compensation Committee and the Board reviewed compensation levels of executive officers of the companies in our Peer Group. When setting compensation for our Named Executive Officers, the Compensation Committee and the Board did not benchmark any element of compensation, or overall compensation, to a particular level of pay as compared to the compensation paid to similarly situated officers of the companies in our Peer Group. Rather, the Peer Group data is one of many factors taken into account by the Compensation Committee and the Board when setting and evaluating each element of our executive compensation program to ensure our program is in line with market practices and that we are able to attract and retain executive officers with the requisite talent and experience to help us achieve our short- and long-term goals. The Compensation Committee and the Board will periodically review and adjust the Peer Group to ensure that the companies within the Peer Group are appropriate for use in making compensation decisions.

Elements of Compensation for the 2018 Fiscal Year

In order to maintain an appropriate balance between fixed and variable compensation and to ensure that portions of each Named Executive Officer’s compensation are tied to the achievement of short-term and long-term goals, the Board, following the recommendation of the Compensation Committee, determined that the following compensatory elements were appropriate for our Named Executive Officers in the 2018 Fiscal Year:

 

•

Base salary;

 

•

Short-term cash incentive awards;

 

•

Transaction bonuses;

 

•

Long-term equity awards in the form of restricted stock units and performance share units;

 

•

Health and welfare and retirement benefits; and

 

•

Limited perquisites.

In addition to the elements of compensation listed above that were determined by us, Series B Units in certain of our stockholders were also granted to the Named Executive Officers in 2018.

Base Salary

The base salaries provided to our Named Executive Officers are a fixed portion of their total compensation that reflects their responsibilities, expertise, experience and tenure. After reviewing the base salaries of executive

 

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officers in the Peer Group and upon recommendation by the Compensation Committee, the Board approved adjustments to the annualized base salary on August 29, 2018, retroactive to the closing of the Stone Combination on May 10, 2018, for each Named Executive Officer to reflect the increased responsibilities of their positions following the Stone Combination and to begin to bring their compensation in line with the compensation paid to similarly situated executives of the companies in our Peer Group. The table below reflects these increases.

 

Name		Base Salary prior to   Stone Combination				Base Salary following   Stone Combination				Percent of   Increase
Timothy S. Duncan			$            440,000				$            650,000				47.7	%
Michael L. Harding II			$            322,500				$            380,000				17.8	%
Stephen E. Heitzman			$            375,950				$            400,000				6.4	%
John A. Parker			$            375,950				$            400,000				6.4	%
William S. Moss III			$            375,950				$            380,000				1.1	%

 

2019 Proxy Statement 21

Short-Term Cash Incentive Awards

For the 2018 Fiscal Year, we awarded short-term cash incentive awards based on our achievement of the following performance measures: (i) financial performance measures, including free cash flow generation, general and administrative (“G&A”) expenses, and earnings before interest, taxes, depreciation and amortization (“EBITDA”); (ii) operational performance measures, including total production measured in thousands of barrels of oil equivalent per day (“mboe/d”) and total direct lease operating expense (“LOE”); (iii) asset management measure of proved developed finding and development (“F&D”) measured in dollars per barrels of oil equivalent (“$/boe”); and (iv) health, safety and environment (“HSE”) measure of the number of major safety or compliance events. The Compensation Committee and the Board selected a combination of financial, operational, asset management and HSE metrics in order to provide a balanced evaluation of performance of the Company for the year. These measures are focused on incentivizing strong cash flow generation and accretive returns on cash outlays. As a result, the highest single measure is free cash flow generation. EBITDA, general and administrative expenses and total direct lease operating expense were included to emphasize the importance of direct cash flow and cost reduction. Increased total production was selected as a metric for the short-term cash incentive awards because it is key to our growth and success, while proved developed F&D was selected because it is return-focused and less influenced by fluctuating commodity prices than some other metrics. Safety is an important part of our culture, and as a result, HSE performance significantly influences the value of each Named Executive Officer’s short-term cash incentive award. While the focus on free cash flow and returns as opposed to growth differs from many peers, the Compensation Committee and the Board believe the overall short-term cash incentive structure best aligns our Named Executive Officers and our stockholders. The target levels for each of the financial performance and operational performance metrics were set by the Compensation Committee and the Board at levels that are expected to result in the achievement of the $25.00 MM in synergies announced in connection with the Stone Combination, adjusted for the impact of subsequent acquisitions and organic increases in production. The Compensation Committee and the Board retain the authority to adjust the performance measures or increase or decrease the payout percentage. The weighting of these performance measures, the 2018 Fiscal Year threshold, target and maximum levels of performance for the 2018 Fiscal Year, the actual results for the 2018 Fiscal Year and the payout percentage for the 2018 Fiscal Year are set forth in the table below.

 

Performance Measure

Individual   Weighting

2018 Fiscal Year   Threshold

2018 Fiscal   Year Target

2018 Fiscal Year   Maximum

Actual Results  for 2018 Fiscal  Year

2018 Fiscal  Year Payout    Percentage

Financial Performance

Free Cash Flow Generation (1)

20%

$29.3 MM

$48.9 MM

$70.0 MM

$41.5 MM

16%

G&A Expense (2)

15%

$62.0 MM

$54.6 MM

$50.0 MM

$61.7 MM

8%

EBITDA

15%

$555.0 MM

$574.0 MM

$595.0 MM

$586.8 MM

24%

Operational Performance

Direct LOE (2)

15%

$173.3 MM

$163.6 MM

$158.0 MM

$166.5 MM

13%

Production

10%

49.0 mboe/d

52.4 mboe/d

55.0 mboe/d

52.4 mboe/d

10%

Asset Management

Proved Developed F&D (3)

15%

$16.0/boe

$14.54/boe

$11.0/boe

$11.47/boe

28%

HSE Performance

No Major Events (Safety or Compliance)

10

%

1 or more

0

0

0

10%

PAYOUT PERCENTAGE

50%

100%

200%

109%

 

(1)	Free Cash Flow Generation adjusts our operating cash flows for working capital and capital lease principle payments.

(2)	Although each performance metric was originally intended to be measured using annualized December 2018 lease operating expense and general and administrative expense run rates, the Compensation Committee and

 

2019 Proxy Statement 22

the Board determined that such run rates were not reflective of the year, so the expenses for the entire 2018 year were used instead.

(3)	Proved Developed F&D is based on the net capex and net estimated adds to proved development for projects that are logged by the end of the 2018 Fiscal Year.

The target short-term cash incentive award for each of our Named Executive Officers was set by the Board following discussions between and with the Compensation Committee and LB&Co., and a review of the target short-term cash incentive awards granted to similarly situated executives at companies in our Peer Group. The individual targets, as a percentage of base salary for the 2018 Fiscal Year are set forth in the following table for each of our Named Executive Officers. The threshold amount and maximum amount that could become payable under the short-term incentive program for the 2018 Fiscal Year were 50% and 200% of each Named Executive Officer’s target, respectively. Short-term cash incentive awards for our Named Executive Officers are calculated by multiplying the payout percentage by each Named Executive Officer’s target award. Notwithstanding the foregoing, the Compensation Committee retains the discretion to increase (including above 200%) or reduce each Named Executive Officer’s short-term cash incentive award. The Compensation Committee utilized the prescribed formula and did not exercise this discretion with respect to the Named Executive Officers’ 2018 short-term cash incentive awards. The table below sets forth each Named Executive Officer’s target and actual short-term cash incentive award for the 2018 Fiscal Year.

 

Name		2018 Target Short- Term Cash Incentive (% of   Base Salary)		2018 Target Short-Term   Cash Incentive   ($)				Payout   Percentage		Actual Short- Term Cash   Incentive Award     Payment
Timothy S. Duncan		125%			$        812,500			109%			$        885,625
Michael L. Harding II		80%			$        304,000			109%			$        331,360
Stephen E. Heitzman		80%			$        320,000			109%			$        348,800
John A. Parker		80%			$        320,000			109%			$        348,800
William S. Moss III		80%			$        304,000			109%			$        331,360

Transaction Bonuses

In connection with the successful completion of the Stone Combination, the board of Talos Energy LLC determined it was appropriate to grant one-time transaction bonuses to each Named Executive Officer as set forth in the table below. These bonuses were determined based on the contribution of our Named Executive Officers in identifying, evaluating, negotiating and executing the Stone Combination, in recognition of the substantial additional time, energy and expertise required of our Named Executive Officers and on the substantial benefits provided to the Company by the Stone Combination.

 

Name		Stone Combination     Transaction Bonus
Timothy S. Duncan			$        400,000
Michael L. Harding II			$        225,000
Stephen E. Heitzman			$          75,000
John A. Parker			$          75,000
William S. Moss III			$        225,000

Long-Term Incentive Awards

In connection with the Stone Combination, we adopted the Talos Energy Inc. Long Term Incentive Plan (the “LTIP”) to provide a means through which we may attract, retain and motivate qualified individuals as employees, directors and consultants, thereby enhancing our profitable growth and that of our affiliates. Subject to adjustment as provided therein, the LTIP originally reserved 5,415,576 shares of common stock for potential grants of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, stock awards, dividend equivalents, other stock- or cash-based awards and substitute awards.

 

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Before granting awards under our LTIP, the Compensation Committee received advice from LB&Co regarding general market trends and best practices and reviewed the long-term incentive grant practices of our Peer Group. In order to balance retention of our executive team and alignment of our Named Executive Officers’ interests with those of our stockholders, the Compensation Committee and the Board designed a long-term incentive program comprised of both performance-based awards and time-based awards. For the 2018 Fiscal Year, the Board determined it was appropriate to grant one-third of each Named Executive Officer’s annual equity incentive awards in the form of time-based restricted stock units (“RSUs”) and the remaining two-thirds in the form of performance share units (“PSUs”). As such, on August 29, 2018, we granted RSU awards and PSU awards to our Named Executive Officers. Please see “Summary Compensation Table” and “Grants of Plan-Based Awards Table” below for more information on the RSU awards and PSU awards granted during the 2018 Fiscal Year.

When determining the total targeted long-term incentive value appropriate for each Named Executive Officer for 2018, the Compensation Committee considered each executive’s contribution to our success, level of responsibility and experience as well as the value of long-term incentive awards granted to executives in similar positions at companies in our Peer Group. Once target long-term incentive award values had been established, the Compensation Committee subtracted the value they assigned to the portion of the unvested Exchanged Units and the unvested New Series B Units (each as defined and described below) that only becomes vested on a Vesting Event (as defined and described below) from the total to identify the target value of each Named Executive Officer’s RSU and PSU awards for the 2018 Fiscal Year. The Compensation Committee considers the Exchanged Units and New Series B Units to be compensation for services performed prior to the Stone Combination. Because the Stone Combination did not close until May of 2018, they felt it was important to take into account a portion of the value the Exchanged Units and New Series B Units when setting each Named Executive Officer’s 2018 long-term incentive award value, even though we are not financially or otherwise responsible for distributions with respect to, or settlement of, these awards. Amounts paid to the holders of Exchanged Units and New Series B Units are paid out of each feeder entity’s (i.e., AP Talos Energy LLC, Riverstone Talos Energy Equityco LLC, AP Talos Energy Debtco LLC and Riverstone Talos Energy Debtco LLC) return on their investment in us and are not paid by us. The chart below illustrates the portion of each Named Executive Officer’s 2018 total target long-term incentive value comprised of RSUs and PSUs (referred to in the chart as “2018 Talos LTIP Target Value”) and the value attributed to the unvested Exchanged Units and New Series B Units that vest only upon a Vesting Event.

 

 

(1)

The 2018 Talos LTIP Target Value reflects the total target dollar value for the RSU and PSU awards granted during the 2018 Fiscal Year. This dollar amount was converted into a number of RSUs and PSUs by dividing the dollar amount by the average of the high and low trading prices of our common stock on the date of grant, rounded up to the nearest whole share. As such, this amount varies from the amounts disclosed

 

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below in the “Summary Compensation Table” and “Grants of Plan-Based Awards Table,” as those amounts reflect the grant date fair value for purposes of FASB ASC Topic 718 (as defined below).

(2)

The Value Attributed to Unvested Exchange Units and New Series B Units reflects the estimated value assigned by the Compensation Committee to the portion of the unvested Exchange Units and New Series B Units that vests only upon a Vesting Event. This amount varies from the amounts disclosed below in the “Summary Compensation Table” and “Grants of Plan-Based Awards Table,” as those amounts reflect the grant date fair value for purposes of FASB ASC Topic 718 of all of the New Series B Units (not just the unvested portion that vests only upon a Vesting Event) and do not include a value for the Exchange Units, which were not considered a new award for purposes of those tables. We are not financially responsible for distributions with respect to, or settlement of, these awards.

The RSU awards vest ratably over the three-year period beginning on May 14, 2018, subject to the Named Executive Officer’s continued employment. The PSU awards vest based on our relative total stockholder return (“Relative TSR”) over the three-year performance period commencing on May 14, 2018 and ending on May 13, 2021, subject to the Named Executive Officer’s continued employment through the settlement of the PSU award. Our Relative TSR is determined by ranking our total stockholder return and the total stockholder return of each of the companies in our Peer Group over the three-year performance period. After we are ranked with each member of our Peer Group, the percentage of the target PSUs that becomes earned is determined in accordance with the following payout schedule utilizing linear interpolation between threshold, target, stretch and maximum achievement levels; however, if our actual total stockholder return is negative, the payout is capped at 100% of target, regardless of our Relative TSR ranking.

 

Level		Relative TSR Performance     (Percentile Rank vs Peers)					Earned PSUs     (% of Target)
< Threshold		< 30th Percentile					0%
Threshold		30th Percentile					50%
Target		50th Percentile					100%
Stretch		70th Percentile					150%
Maximum		³ 90th Percentile					200%

If certain corporate events occur with respect to an entity in our Peer Group, the PSUs provide for adjustments to be made to the Peer Group depending on the nature of the event. As a result, the Compensation Committee will be replacing Energy XII Gulf Coast, Inc. and Newfield Exploration Company with replacement peer companies of its selection.

Series B Unit Awards

Series B Unit Exchange

In connection with the Stone Combination, the Series B Units in Talos Energy LLC, including those held by our Named Executive Officers, were exchanged for an equivalent number of Series B Units in each of AP Talos Energy LLC (“AP Equityco Units”) and Riverstone Talos Energy Equityco LLC (“RSH Equityco Units” and together with the AP Equityco Units, the “Exchanged Units”). The Exchanged Units received in the exchange remain subject to the same terms and conditions applicable to the Series B Units in Talos Energy LLC prior to such exchange, including with respect to vesting.

New Series B Units

In addition to the Exchanged Units, in connection with the Stone Combination, each of our Named Executive Officers received Series B Units in each of AP Talos Energy Debtco LLC (“AP Debtco Units”) and Riverstone Talos Energy Debtco LLC (“RSH Debtco Units,” and together with the AP Debtco Units, the “New Series B Units”), which are intended to constitute “profits interests” for federal tax purposes. Each of Apollo

 

2019 Proxy Statement 25

Talos Holdings, L.P., the manager of AP Talos Energy Debtco LLC, and Riverstone V Talos Holdings, L.P., the manager of Riverstone Talos Energy Debtco LLC, determined it was appropriate to grant the New Series B Units, and neither the Board nor the board of Talos Energy LLC were involved in approving the grants.

The New Series B Units are intended to mirror the number and vesting schedule of the Exchanged Units so that they will vest in tandem. As a result, a portion of the New Series B Units were fully vested on the date of grant and the unvested New Series B Units granted will vest at the same time and under the same circumstances as the unvested Exchanged Units. The Exchanged Units and thus, the New Series B Units, generally provide for vesting of 80% of the award in equal monthly installments beginning on the last day of the month of the original grant (not the exchange date) and continuing on the last day of each month for a total of 48 months, so long as the Named Executive Officer remains employed through each vesting date. The remaining 20% will only vest upon the occurrence of a Vesting Event (as defined below under “Potential Payments Upon Termination or Change in Control—Series B Unit Award Agreements”). Any portion of the New Series B Units that vest on the basis of time and remain unvested as of a Vesting Event will also become vested upon such Vesting Event. See the “Summary Compensation Table” and “Grants of Plan-Based Awards” below for information on the number of New Series B Units granted to each Named Executive Officer.

Other Benefits

Health and Welfare Benefits

We offer participation in health and welfare plans to all of our employees, including our Named Executive Officers.

Retirement Benefits

We have not maintained, and do not currently maintain, a defined benefit pension plan or nonqualified deferred compensation plan in which our Named Executive Officers participate. We currently maintain a retirement plan intended to provide benefits under section 401(k) of the Code where employees, including our Named Executive Officers, are allowed to contribute portions of their eligible compensation to a tax-qualified retirement account. Currently, we provide discretionary matching contributions equal to 50% of the first 12% of employees’ eligible compensation contributed to the plan. Employees generally become vested in 25% of the matching contributions made to their tax-qualified retirement account per year for four years. Employees become 100% vested in the matching contributions made to their tax-qualified retirement account upon death, disability or retirement on or after normal retirement age (i.e., age 65). Employees may receive a distribution of the vested portion of their tax-qualified retirement accounts upon (i) a termination of employment, (ii) normal retirement, (iii) disability or (iv) death.

Life Insurance

We provide group term life insurance to all of our employees, including the Named Executive Officers, equal to 2.5 times base salary up to a maximum of $500,0000.

Limited Perquisites

Minimal perquisites have historically been provided to our Named Executive Officers, including limited spousal travel and club and gym membership reimbursement. These very limited benefits are provided to ensure that our compensation program as a whole remains commensurate with compensation and benefits provided by companies with which we compete for executive talent.

Executive Severance Plan

On August 29, 2018, we adopted the Talos Energy Operating Company LLC Executive Severance Plan (the “Severance Plan”), pursuant to which each of our Named Executive Officers are entitled to receive severance

 

2019 Proxy Statement 26

benefits following certain terminations of employment. As a condition to participation in the Executive Severance Plan, each Named Executive Officer agreed to (i) terminate his employment agreement with us, including all rights to severance thereunder and (ii) abide by certain confidentiality, non-solicitation and non-disparagement covenants. The Board adopted the Severance Plan to extend our severance arrangements to other members of our senior management team and align the severance benefits with the severance benefits provided by companies with which we compete for executive talent. Please see “Potential Payments Upon Termination of Change in Control—Executive Severance Plan” for more information.

Other Matters

Accounting Treatment of Executive Compensation Decisions

We account for RSU awards, PSU awards and awards of Series B Units (including the exchanged Series B Units and the New Series B Units) in accordance with the Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“FASB ASC Topic 718”), which requires us to estimate the expense of an award over the vesting period applicable to such award.

Risk Assessment and Mitigation

The Compensation Committee has reviewed our executive and non-executive compensation programs and believes that they do not encourage excessive or unnecessary risk-taking. We believe that any risk inherent in our compensation programs is unlikely to have a material adverse effect on us. In designing and implementing our award structure, the Compensation Committee worked closely with LB&Co to mitigate risks and to minimize the creation of imprudent incentives for our executives. We do not believe that our performance-based compensation encourages unnecessary risks because the executive pay mix is sufficiently diversified over several performance metrics as well as short-term and long-term compensation and fixed and variable compensation.

Our compensation program structure and policy includes the following features to safeguard against excessive risk-taking:

 

✓

Payments under our short-term cash incentive program are based upon a variety of performance metrics, thereby diversifying the risk associated with any single performance indicator;

 

✓

Our PSUs have performance periods of three years, which encourages executives to focus on sustaining the performance of the Company and its stock price over a period of years;

 

✓

We pay compensation that is competitive with the market and our industry peers, while not being excessive;

 

✓

Our compensation mix is balanced among fixed and variable components, annual and long-term compensation, and cash and equity that reward performance in the Company’s and our executives’ long-term best interests;

 

✓

Our incentive compensation plans cap the maximum payout and implement design features that do not encourage excessive risk-taking; and

 

✓

Our insider trading policy contains a general anti-hedging policy for all insiders.

We believe that our executive compensation program provides our executive officers with appropriate rewards for sustained performance, without giving unnecessary weight to any one factor or type of compensation, and avoids excessive risk. Our compensation structure is designed to encourage sustained performance over a long-term period. Based on the foregoing, the Compensation Committee has concluded that the risks arising from our compensation policies and programs is not reasonably likely to have a material adverse effect on us.

 

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Stock Ownership Policy

On March 11, 2019, we adopted the Talos Energy Inc. Stock Ownership Policy (the “Ownership Policy”) applicable to senior executives identified by the Compensation Committee, including the Named Executive Officers, and non-employee directors with the goal of aligning the interests of such senior executives and non-employee directors with our stockholders. The ownership requirements were established at the following levels:

 

Title		Required Ownership
Chief Executive Officer		5x base salary
All Other Named Executive Officers		2x base salary
Other Senior Executives		1x base salary
Non-Employee Directors		5x annual cash retainer

The Chief Executive Officer and the Compensation Committee will review on an annual basis the ownership levels of senior executives and non-employee directors. In determining ownership levels, we include shares of our common stock owned outright by the officer or director, unvested time-based restricted shares and restricted stock units and shares of our common stock owned by the officer or director through our retirement and benefit plans. We do not include unexercised stock options or unearned performance shares or performance share units in determining ownership levels. Senior executives must achieve their requisite ownership levels within five years of the later of (i) the implementation of the Ownership Policy or (ii) the applicable date of hire, promotion or salary increase for the, and non-employee directors must achieve their requisite ownership levels within five years of the later of (i) the implementation of the Ownership Policy or (ii) the applicable date of the first election to the Board or increase in annual cash retainer.

 

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Summary Compensation Table

The table below sets forth the annual compensation earned by the Named Executive Officers during the fiscal years ended December 31, 2016, December 31, 2017 and December 31, 2018. Amounts reported below for periods prior to the Stone Combination, which was consummated on May 10, 2018, were awarded and paid by Talos Energy LLC.

 

Name and Principal Position		Year					Salary					Bonus (1)					Stock Awards (2)					Option Awards (3)					Non-Equity Incentive Plan Compensation (4)					All Other Compensation (5)					Total
Timothy S. Duncan				2018				$	579,885				$	400,000				$	1,689,640				$	714,204				$	885,625				$	9,250				$	4,278,604
President and Chief Executive				2017				$	432,308				$	33,000					—				$	86,059				$	473,000				$	9,000				$	1,033,367
Officer				2016				$	400,000					—					—				$	51,786				$	430,000				$	9,000				$	890,786
Michael L. Harding II				2018				$	362,356				$	225,000				$	675,933				$	315,180				$	331,360				$	12,250				$	1,922,079
Executive Vice President				2017				$	318,173				$	18,143					—					—				$	260,057				$	9,000				$	605,373
and Chief Financial Officer				2016				$	300,000					—					—				$	129,465				$	241,900				$	9,000				$	680,365
Stephen E. Heitzman				2018				$	394,475				$	75,000				$	675,933				$	612,000				$	348,800				$	12,250				$	2,118,458
Executive Vice President				2017				$	373,844				$	21,150					—					—				$	303,150				$	11,942				$	710,086
and Chief Operating Officer				2016				$	365,000					—					—					—				$	294,300				$	12,000				$	671,300
John A. Parker				2018				$	394,475				$	75,000				$	675,933				$	589,968				$	348,800				$	12,250				$	2,096,426
Executive Vice President				2017				$	373,844				$	21,150					—					—				$	303,150				$	12,000				$	710,144
of Exploration				2016				$	365,000					—					—					—				$	294,300				$	12,000				$	671,300
William S. Moss III				2018				$	381,475				$	225,000				$	675,933				$	489,600				$	331,360				$	9,250				$	2,112,618
Executive Vice President and General Counsel				2017				$	373,844				$	21,150					—					—				$	303,150				$	9,000				$	707,144

 

(1)	Amounts in this column represent transaction bonuses awarded to each Named Executive Officer upon successful completion of the Stone Combination.

(2)

Amounts in this column represent the aggregate grant date fair value of the RSUs and PSUs granted to the Named Executive Officers on August 29, 2018, calculated in accordance with FASB ASC Topic 718, disregarding estimated forfeitures. The FASB ASC Topic 718 value for the RSUs was calculated using the closing price per share of our common stock on the date of grant applied to the total number of RSUs granted. The FASB ASC Topic 718 grant date fair value of the PSUs was determined using a Monte Carlo simulation. Additional information regarding the assumptions underlying these calculations is available in Note 7 to our consolidated financial statements filed with our Form 10-K for the fiscal year ended December 31, 2018.

(3)

Amounts in this column represent the aggregate grant date fair value of the AP Debtco Units and RSH Debtco Units granted in connection with the Stone Combination to the Named Executive Officers, calculated in accordance with FASB ASC Topic 718, disregarding estimated forfeitures. The FASB ASC Topic 718 grant date fair value of the AP Debtco Units and RSH Debtco Units was determined using an option pricing method for valuing securities in which claims of each security are modeled as a portfolio of Black-Scholes-Merton call options written on the total equity of the applicable feeder entity. Additional information regarding the assumptions underlying these calculations is available in Note 7 to our consolidated financial statements filed with our Form 10-K for the fiscal year ended December 31, 2018. We believe that, despite the fact that the AP Debtco Units and RSH Debtco Units do not require the payment of an exercise price, they are most similar economically to stock options, and as such, they are properly classified as “options” under the definition provided in Item 402(a)(6)(i) of Regulation S-K as an instrument with an “option-like feature.” See “Elements of Compensation for the 2018 Fiscal Year—Series B Unit Awards—New Series B Units” above for additional information regarding these awards.

 

2019 Proxy Statement 29

(4)

Amounts in this column represent the short-term cash incentive awards for performance in the 2018 Fiscal Year determined based on achievement of the applicable performance metrics. See “Elements of Compensation for the 2018 Fiscal Year—Short-Term Cash Incentive Awards” above for additional information regarding these awards. Mr. Duncan elected to forgo a portion of his short-term cash incentive award for performance in the 2018 Fiscal Year and instead allocated such portion to his executive assistant. The amount in this column reflects the full amount of the short-term cash incentive award earned by Mr. Duncan, including the forgone amount.

(5)	Amounts in this column include our match of 401(k) plan contributions in the 2018 Fiscal Year for each Named Executive Officer as shown in the table below.

 

Name		401(k) Plan Company Matching Contributions
Timothy S. Duncan		$	9,250
Michael L. Harding II		$	12,250
Stephen E. Heitzman		$	12,250
John A. Parker		$	12,250
William S. Moss III		$	9,250

 

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Grants of Plan-Based Awards Table

The following table includes information regarding the short-term cash incentive awards, RSU awards, PSU awards and the New Series B Units granted to the Named Executive Officers during the 2018 Fiscal Year.

 

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 (#) (5)					All Other Option Awards: Number of Securities Underlying Options (#) (6)					Exercise or Base Price of Option Awards ($/Sh) (7)					Grant Date Fair Value of Stock and Option Awards ($)
							Threshold ($)					Target ($)					Maximum ($)					Threshold (#)					Target (#)					Maximum (#)
Timothy S. Duncan								$	406,250				$	812,500				$	1,625,000
				5/10/18																				—					23,340	(2)				—										93,360					n/a				$	401,448	(8)
				5/10/18																				—					23,340	(3)				—										93,360					n/a				$	312,756	(9)
				8/29/18																				13,151					26,302	(4)				52,604																			$	1,239,613	(10)
				8/29/18																																			13,151														$	450,027	(11)
Michael L. Harding II								$	152,000				$	304,000				$	608,000
				5/10/18																				—					10,300	(2)				—										41,200					n/a				$	177,160	(8)
				5/10/18																				—					10,300	(3)				—										41,200					n/a				$	138,020	(9)
				8/29/18																				5,261					10,522	(4)				21,044																			$	495,902	(10)
				8/29/18																																			5,261														$	180,031	(11)
Stephen E. Heitzman								$	160,000				$	320,000				$	640,000
				5/10/18																				—					20,000	(2)				—										80,000					n/a				$	344,000	(8)
				5/10/18																				—					20,000	(3)				—										80,000					n/a				$	268,000	(9)
				8/29/18																				5,261					10,522	(4)				21,044																			$	495,902	(10)
				8/29/18																																			5,261														$	180,031	(11)
John A. Parker								$	160,000				$	320,000				$	640,000
				5/10/18																				—					20,000	(2)				—										80,000					n/a				$	344,000	(8)
				5/10/18																				—					20,000	(3)				—										80,000					n/a				$	268,000	(9)
				8/29/18																				5,261					10,522	(4)				21,044																			$	495,902	(10)
				8/29/18																																			5,261														$	180,031	(11)
William S. Moss III								$	152,000				$	304,000				$	608,000
				5/10/18																				—					16,000	(2)				—										64,000					n/a				$	275,200	(8)
				5/10/18																				—					16,000	(3)				—										64,000					n/a				$	214,400	(9)
				8/29/18																				5,261					10,522	(4)				21,044																			$	495,902	(10)
				8/29/18																																			5,261														$	180,031	(11)

 

(1)

Amounts in these columns represent the estimated payouts for short-term cash incentive awards for the 2018 Fiscal Year assuming threshold, target and maximum achievement. The actual amounts paid to our Named Executive Officers for the 2018 Fiscal Year can be found in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table, above. See “Elements of Compensation for the 2018 Fiscal Year—Short-Term Cash Incentive Awards” above for additional information regarding these awards.

(2)	These amounts represent AP Debtco Units granted to the Named Executive Officers during the 2018 Fiscal Year that only become vested upon the occurrence of a Vesting Event.

(3)	These amounts represent RSH Debtco Units granted to the Named Executive Officers during the 2018 Fiscal Year that only become vested upon the occurrence of a Vesting Event.

(4)

These amounts and the amounts in the adjoining columns represent the threshold, target and maximum PSUs that may become earned pursuant to the PSUs granted to the Named Executive Officers during the 2018 Fiscal Year. The number of PSUs which ultimately become earned is based on our Relative TSR performance over the three-year performance period ending on May 14, 2021, subject to the Named Executive Officer’s continued employment.

 

(5)	Amounts in this column represent RSUs granted to the Named Executive Officers during the 2018 Fiscal Year which vest as to one-third on each of May 14, 2019, May 14, 2020 and May 14, 2021, subject to the Named Executive Officer’s continued employment.

 

(6)

Amounts in this column represent AP Debtco Units and RSH Debtco Units granted to the Named Executive Officers during the 2018 Fiscal Year which vest ratably on the last day of each month following the date of grant of the related Series B Units in Talos Energy LLC, subject to the Named Executive Officer’s continued employment.

 

2019 Proxy Statement 31

(7)	These equity awards are not traditional options, and therefore, there is no exercise price associated with them.

(8)

These amounts represent the aggregate grant date fair value of AP Debtco Units granted during the 2018 Fiscal Year to the Named Executive Officers, calculated in accordance with FASB ASC Topic 718, disregarding estimated forfeitures. We believe that, despite the fact that the AP Debtco Units do not require the payment of an exercise price, they are most similar economically to stock options, and as such, they are properly classified as “options” under the definition provided in Item 402(a)(6)(i) of Regulation S-K as an instrument with an “option-like feature.” See “Elements of Compensation for the 2018 Fiscal Year—Series B Unit Awards—New Series B Units” above for additional information regarding these awards.

(9)

These amounts represent the aggregate grant date fair value of RSH Debtco Units granted during the 2018 Fiscal Year to the Named Executive Officers, calculated in accordance with FASB ASC Topic 718, disregarding estimated forfeitures. We believe that, despite the fact that the RSH Debtco Units do not require the payment of an exercise price, they are most similar economically to stock options, and as such, they are properly classified as “options” under the definition provided in Item 402(a)(6)(i) of Regulation S-K as an instrument with an “option-like feature.” See “Elements of Compensation for the 2018 Fiscal Year—Series B Unit Awards—New Series B Units” above for additional information regarding these awards.

(10)	These amounts represent the aggregate grant date fair value of PSUs granted during the 2018 Fiscal Year to the Named Executive Officers, calculated in accordance with FASB ASC Topic 718, disregarding estimated forfeitures.

(11)	These amounts represent the aggregate grant date fair value of RSUs granted during the 2018 Fiscal Year to the Named Executive Officers, calculated in accordance with FASB ASC Topic 718, disregarding estimated forfeitures.

 

2019 Proxy Statement 32

Outstanding Equity Awards at 2018 Fiscal Year-End

The following table reflects information regarding outstanding unvested RSUs, PSUs, AP Equityco Units, RSH Equityco Units, AP Debtco Units and RSH Debtco Units held by our Named Executive Officers as of December 31, 2018.

 

Name		Option Awards																				Stock Awards
		Number of Securities Underlying Unexercised Options (#)   Exercisable				Number of Securities Underlying Unexercised Options (#)   Unexercisable				Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)				Option   Exercise   Price ($) (7)				Option Expir- ation Date (7)				Number of Shares or Units of Stock That Have Not Vested (#) (8)				Market Value of Shares or Units of Stock That Have Not Vested (#) (9)				Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) (10)				Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#) (9)
Timothy S. Duncan			—				—				22,520	(3)			n/a				n/a
			—				—				22,520	(4)			n/a				n/a
			—				—				22,520	(5)			n/a				n/a
			—				—				22,520	(6)			n/a				n/a
			—				1,986	(1)			820	(3)			n/a				n/a
			—				1,986	(1)			820	(4)			n/a				n/a
			—				1,986	(1)			820	(5)			n/a				n/a
			—				1,986	(1)			820	(6)			n/a				n/a
																							13,151			$	214,624
																															52,604			$	858,497
Michael L. Harding II			—				—				4,800	(3)			n/a				n/a
			—				—				4,800	(4)			n/a				n/a
			—				—				4,800	(5)			n/a				n/a
			—				—				4,800	(6)			n/a				n/a
			—				6,421	(2)			5,500	(3)			n/a				n/a
			—				6,421	(2)			5,500	(4)			n/a				n/a
			—				6,421	(2)			5,500	(5)			n/a				n/a
			—				6,421	(2)			5,500	(6)			n/a				n/a
																							5,261			$	85,860
																															21,044			$	343,438
Stephen E. Heitzman			—				—				20,000	(3)			n/a				n/a
			—				—				20,000	(4)			n/a				n/a
			—				—				20,000	(5)			n/a				n/a
			—				—				20,000	(6)			n/a				n/a
																							5,261			$	85,860
																															21,044			$	343,438
John A. Parker			—				—				20,000	(3)			n/a				n/a
			—				—				20,000	(4)			n/a				n/a
			—				—				19,280	(5)			n/a				n/a
			—				—				19,280	(6)			n/a				n/a
																							5,261			$	85,860
																															21,044			$	343,438
William S. Moss III			—				—				16,000	(3)			n/a				n/a
			—				—				16,000	(4)			n/a				n/a
			—				—				16,000	(5)			n/a				n/a
			—				—				16,000	(6)			n/a				n/a
																							5,261			$	85,860
																															21,044			$	343,438

 

2019 Proxy Statement 33

 

(1)

These units will vest in substantially equal installments on the last day of each month through May 31, 2021, subject to the Named Executive Officer’s continued employment.

 

(2)

These units will vest in substantially equal installments on the last day of each month through February 29, 2020, subject to the Named Executive Officer’s continued employment.

 

(3)

These amounts represent AP Equityco Units held by each Named Executive Officer which only become vested upon the occurrence of a Vesting Event.

 

(4)

These amounts represent RSH Equityco Units held by each Named Executive Officer which only become vested upon the occurrence of a Vesting Event.

 

(5)

These amounts represent AP Debtco Units held by each Named Executive Officer which only become vested upon the occurrence of a Vesting Event.

 

(6)

These amounts represent RSH Debtco Units held by each Named Executive Officer which only become vested upon the occurrence of a Vesting Event.

 

(7)

These equity awards are not traditional options, and therefore, there is no exercise price or expiration date associated with them.

 

(8)

The amounts in this column represent RSUs held by each Named Executive Officer which vest as to one-third on each of May 14, 2019, May 14, 2020 and May 14, 2021, subject to the Named Executive Officer’s continued employment.

 

(9)

The amounts in these columns were calculated by multiplying $16.32, the closing price of our common stock on December 31, 2018, by the number of awards reported.

 

(10)

The amounts in this column represent the maximum number of PSUs held by each Named Executive Officer which may become earned based on our Relative TSR performance over the three-year performance period ending May 13, 2021. As of December 31, 2018, our Relative TSR performance was above target, but due to a negative absolute total stockholder return would only provide for a target payout. However, pursuant to the applicable SEC rules, the amounts in this column reflect the maximum payout of the PSUs. The actual number of PSUs earned based on actual performance over the full performance period may be significantly less than this amount.

 

2019 Proxy Statement 34

Option Exercises and Stock Vested

 

		Option Awards
Name		Number of Units     Acquired on        Exercise (#) (1)								Value Realized on Exercise ($) (2)
Timothy S. Duncan
Series B Units in Talos Energy LLC							1,110			$	71,151
AP Equityco Units							1,263			$	30,835
RSH Equityco Units							1,263			$	30,835
AP Debtco Units							91,374			$	748
RSH Debtco Units							91,374			$	583
Michael L. Harding II
Series B Units in Talos Energy LLC							2,098			$	134,465
AP Equityco Units							3,873			$	73,249
RSH Equityco Units							3,873			$	73,249
AP Debtco Units							34,779			$	1,294
RSH Debtco Units							34,779			$	1,009
Stephen E. Heitzman
AP Debtco Units							80,000			$	0
RSH Debtco Units							80,000			$	0
John A. Parker
AP Debtco Units							77,120			$	0
RSH Debtco Units							77,120			$	0
William S. Moss III
AP Debtco Units							64,000			$	0
RSH Debtco Units							64,000			$	0

 

 

(1)

This column reflects the Series B Units in Talos Energy LLC, AP Equityco Units, RSH Equityco Units, AP Debtco Units and RSH Debtco Units held by each Named Executive Officer that vested during the 2018 Fiscal Year. We believe that, despite the fact that these units do not require the payment of an exercise price, they are most similar economically to stock options, and as such, they are properly classified as “options” under the definition provided in Item 402(a)(6)(i) of Regulation S-K as an instrument with an “option-like feature.”

 

(2)

The value of the Series B Units in Talos Energy LLC which vested prior to the Stone Combination reported in this column was estimated using the Stone stock price as of each vesting date and the number of diluted shares in the pro forma business. A probability percentage was then applied estimating the probability as of the measurement date that the Stone Combination would close. The value of the AP Equityco Units, RSH Equityco Units, AP Debtco Units and RSH Debtco Units was estimated using the closing price of our common stock as of each vesting date and the terms of the applicable distribution provisions governing such awards.

Pension Benefits

We have not maintained, and do not currently maintain, a defined benefit pension plan.

Nonqualified Deferred Compensation

We have not maintained, and do not currently maintain, a nonqualified deferred compensation plan.

Potential Payments Upon Termination or a Change in Control

Executive Severance Plan

Pursuant to the terms of the Severance Plan, upon a termination without “Cause” or a resignation for “Good Reason,” each Named Executive Officer will be eligible to receive: (i) a lump sum cash payment equal to 1.5 (or

 

2019 Proxy Statement 35

2.0 in the case of Mr. Duncan) times the Named Executive Officer’s annualized base salary then in effect; (ii) any earned but unpaid bonus for the year preceding the year of termination based on the our actual performance, paid at the time such bonuses are paid to executives; (iii) a pro-rated bonus for the year of termination based on our actual performance, paid at the time such bonuses are paid to executives; and (iv) partially subsidized continuation coverage for the Named Executive Officer and his spouse and eligible dependents under our group health plans pursuant to COBRA for 18 months (or 24 months in the case of Mr. Duncan), unless such coverage is earlier terminated in accordance with the terms of the Severance Plan.

If a Named Executive Officer’s employment with us terminates as a result of his death or “Disability,” then the Named Executive Officer will be eligible to receive the following benefits: (i) any earned but unpaid bonus for the year preceding the year of termination based on our actual performance, paid at the time such bonuses are paid to executives; and (ii) a pro-rated bonus for the year of termination based on our actual performance, paid at the time such bonuses are paid to executives.

In order to receive any of the foregoing severance benefits under the Severance Plan, a Named Executive Officer (or his estate or legal guardian, if applicable) must timely execute (and not revoke) a release of claims in favor of us and our affiliates. Further, the Severance Plan requires continued compliance with certain confidentiality, non-solicitation and non-disparagement covenants. If the severance benefits under the Severance Plan would trigger an excise tax for a participant under Section 4999 of the Code, the Severance Plan provides that the Named Executive Officer’s severance benefits will be reduced to a level at which the excise tax is not triggered, unless the Named Executive Officer would receive a greater amount without such reduction after taking into account the excise tax and other applicable taxes.

For purposes of the Severance Plan:

 

•

“Cause” generally means a Named Executive Officer’s (i) material breach of the Severance Plan or other written agreement with us, (ii) material breach of any law applicable to the workplace or employment relationship or any of our material policies or codes of conduct, (iii) gross negligence, willful misconduct, breach of fiduciary duty, fraud, theft or embezzlement, (iv) commission, conviction, indictment or plea of nolo contendre of or for any felony or crime involving moral turpitude, or (v) willful failure or refusal to perform his obligations pursuant to the Severance Plan or follow any lawful directive from us.

 

•

“Disability” generally means an inability by a Named Executive Officer to perform the essential functions of his position due to physical or mental impairment or other incapacity that continues, or can reasonably be expected to continue, for a period in excess of 120 consecutive days or 180 days, whether or not consecutive, in any 12-month period.

 

•

“Good Reason” generally means (i) a material diminution in a Named Executive Officer’s base salary, authority, duties or responsibilities, (ii) material breach by us of our obligations under the Severance Plan, or (ii) a geographic relocation of the Named Executive Officer’s principal place of employment by more than 50 miles.

Long Term Incentive Plan Awards

Restricted Stock Unit Awards

Pursuant to the terms of each Named Executive Officer’s RSU award agreement, if a Named Executive Officer’s employment with us is terminated (i) as a result of his death or “Disability” or (ii) within one year following a “Change in Control,” by us without “Cause” or by the Named Executive Officer for “Good Reason,” then, in each case, such Named Executive Officer’s unvested RSUs will become fully vested. If a Named Executive Officer’s employment with us is terminated by us without Cause or by the Named Executive Officer

 

2019 Proxy Statement 36

for Good Reason, in each case, prior to a Change in Control or more than one year following a Change in Control, then the portion of such Named Executive Officer’s unvested RSUs that would have vested within the 12-month period following such termination will become vested.

Performance Share Unit Awards

Pursuant to the terms of each Named Executive Officer’s PSU award agreement, if a Named Executive Officer’s employment with us is terminated as a result of his death or Disability, then a pro-rata portion of such Named Executive Officer’s PSUs will become earned based on actual performance calculated through the date of such termination. If a Named Executive Officer’s employment with us is terminated by us without Cause or by the Named Executive Officer for Good Reason, in each case, prior to a Change in Control or more than one year following a Change in Control, then the Named Executive Officer will be deemed to have met the service requirement with respect to a pro-rata portion of his PSUs, and such PSUs will remain outstanding subject to satisfaction of the performance metrics through the end of the performance period. If a Named Executive Officer’s employment with us is terminated within one year following a Change in Control by us without Cause or by the Named Executive Officer for Good Reason, then, in each case, such Named Executive Officer’s PSUs will become earned based on actual performance calculated through the date of such Change in Control.

For purposes of the RSU and PSU award agreements, “Cause,” “Disability,” and “Good Reason” have the meanings given to such terms in the Severance Plan. “Change in Control” generally means the occurrence of any of the following events: (i) acquisition by a person or group of beneficial ownership of 50% or more of our outstanding shares or the combined voting power of our outstanding voting securities; (ii) during any consecutive 12-month period, individuals who constitute the Board cease for any reason to constitute at least a majority of the Board, excluding any director whose election or nomination was approved by a vote of at least a majority of the then current directors unless such approval occurs as a result of an actual or threatened election contest; (iii) consummation of a business combination in which our outstanding voting securities immediately prior to such business combination do not, immediately following such business combination, continue to represent more than 50% of the then outstanding voting securities; (iv) sale of all or substantially all of our assets; or (v) approval by our stockholders of a complete liquidation or dissolution.

Series B Unit Award Agreements

If a Named Executive Officer’s employment is terminated for any reason other than by us for “Cause,” he will forfeit all unvested AP Equityco Units, RSH Equityco Units, AP Debtco Units and RSH Debtco Units, and each applicable entity will have a right to repurchase any vested units at Fair Market Value (as defined in the applicable company agreement). If the Named Executive Officer’s employment is terminated by us for Cause, then he will forfeit all AP Equityco Units, RSH Equityco Units, AP Debtco Units and RSH Debtco Units, whether vested or unvested. For the AP Equityco Units, RSH Equityco Units, AP Debtco Units and RSH Debtco Units granted to Messrs. Duncan, Parker, and Heitzman’s that vest based on the terms of the Series B Units in Talos Energy, LLC originally granted on February 3, 2012 (October 1, 2013 for Mr. Moss), “Cause” has the meaning given to such term in the Named Executive Officer’s prior employment agreement. For all other awards, “Cause” means (i) engaging in material mismanagement in providing services to us or our affiliates, (ii) engaging in conduct that could reasonably be expected to be materially injurious to us or our affiliates, (iii) materially breaching the Series B Unit award agreement or the LLC Agreement, (iv) being convicted of, or entering a plea bargain or settlement admitting guilt for, any felony, crime involving moral turpitude, or where, as a result of such crime, the continued employment of the Named Executive Officer would be expected to have a material adverse impact on us or our affiliates, or (v) being the subject of any order obtained or issued by the SEC for any securities violation involving fraud.

In general, any unvested AP Equityco Units, RSH Equityco Units, AP Debtco Units and RSH Debtco Units granted to our Named Executive Officers will fully vest upon the occurrence of either of the following events with respect to the applicable feeder entity (each, a “Vesting Event”): (i) “Liquidation Event” or “Approved

 

2019 Proxy Statement 37

Sale” which results in a “Series A Payout” with respect to each holder of Series A Units in the applicable feeder entity; or (ii) the occurrence of a “Public Offering” where the applicable sponsor (a) receives cash proceeds from the sale of securities received in a reorganization sufficient to result in a Series A Payout (after taking into consideration any prior cash distributions), or (b) as of the 5th anniversary of the Public Offering, holds securities with a fair market value sufficient to result in a Series A Payout (after taking into consideration any prior cash distributions). The Vesting Event with respect to each feeder entity may occur on different dates. Additionally, upon the “Trigger Date” with respect to the applicable feeder entity, such entity will distribute to its members all remaining shares of our common stock held by such entity as of such date.

For purposes of the AP Equityco Units, RSH Equityco Units, AP Debtco Units and RSH Debtco Units:

 

•

“Approved Sale” generally includes (i) mergers, business combinations, or consolidations following which the pre-transaction members do not hold a majority of the equity securities of the surviving or resulting entity, (ii) sale of all or substantially all of the assets of the applicable feeder entity to one or more third parties, and (iii) sale of all or substantially all of the equity interests in the applicable feeder entity to one or more third parties, in each case initiated by the sponsor.

 

•

“Liquidation Event” generally includes (i) mergers, business combinations, consolidations, sales of all or substantially all of the assets of the applicable feeder entity following which the pre-transaction members do not hold a majority of the equity securities of the surviving or resulting entity, (ii) sale of more than 75% of the Series A Units in the applicable feeder entity, (iii) a voluntary or involuntary reorganization or entry into bankruptcy or insolvency proceedings, and (iv) the winding up, dissolution or liquidation of the applicable feeder entity.

 

•

“Series A Payout” occurs when holders of the Series A Units receive cash distributions which cause the unreturned Series A Unit capital contributions and unpaid Series A Unit preference amount to equal $0.

 

•

“Public Offering” means the sale in a public offering registered under the Securities Act of the equity securities of the applicable feeder entity (or any successor thereto) or a director or indirect subsidiary of the applicable feeder entity (or any successor thereto).

 

•

“Trigger Date” means the first date following the first anniversary of the consummation of the Stone Combination on which the applicable feeder entity sells any shares of our common stock held by such feeder entity as of such date.

 

2019 Proxy Statement 38

The following table sets forth the payments and benefits that would be received by our Named Executive Officers pursuant to the terms of the Severance Plan, RSUs, PSUs, AP Equityco Units, RSH Equityco Units, AP Debtco Units and RSH Debtco Units in the event of certain terminations of employment with us or a Vesting Event, had such termination or Vesting Event occurred on December 31, 2018.

 

Name		Termination without Cause or resignation for Good Reason				Termination as a result of death or   Disability				Vesting Event				Termination without Cause or resignation for Good Reason on or within one year following a Change   in Control
Timothy S. Duncan
Cash Severance		$	1,300,000				—				—			$	1,300,000
Pro-Rata Annual Bonus (1)		$	885,625			$	885,625				—			$	885,625
COBRA Reimbursement (2)		$	39,840				—				—			$	39,840
RSU & PSU Acceleration (3)		$	162,084			$	305,178				—			$	643,873
Series B Unit Acceleration (4)			—				—			$	0				—
Total		$	2,387,549			$	1,190,803			$	0			$	2,869,338
Michael L. Harding II
Cash Severance		$	570,000				—				—			$	570,000
Pro-Rata Annual Bonus (1)		$	331,360			$	331,360				—			$	331,360
COBRA Reimbursement (2)		$	29,880				—				—			$	29,880
RSU & PSU Acceleration (3)		$	64,835			$	122,085				—			$	257,579
Series B Unit Acceleration (4)			—				—			$	0				—
Total		$	996,075			$	453,445			$	0			$	1,188,819
Stephen E. Heitzman
Cash Severance		$	600,000				—				—			$	600,000
Pro-Rata Annual Bonus (1)		$	348,800			$	348,800				—			$	348,800
COBRA Reimbursement (2)		$	18,036				—				—			$	18,036
RSU & PSU Acceleration (3)		$	64,835			$	122,085				—			$	257,579
Series B Unit Acceleration (4)			—				—			$	0				—
Total		$	1,031,671			$	470,885			$	0			$	1,224,415
John A. Parker
Cash Severance		$	600,000				—				—			$	600,000
Pro-Rata Annual Bonus (1)		$	348,800			$	348,800				—			$	348,800
COBRA Reimbursement (2)		$	10,350				—				—			$	10,350
RSU & PSU Acceleration (3)		$	64,835			$	122,085				—			$	257,579
Series B Unit Acceleration (4)			—				—			$	0				—
Total		$	1,023,985			$	470,885			$	0			$	1,216,729
William S. Moss III
Cash Severance		$	570,000				—				—			$	570,000
Pro-Rata Annual Bonus		$	331,360			$	331,360				—			$	331,360
COBRA Reimbursement (2)		$	27,090				—				—			$	27,090
RSU & PSU Acceleration (3)		$	64,835			$	122,085				—			$	257,579
Series B Unit Acceleration (4)			—				—			$	0				—
Total		$	993,285			$	453,445			$	0			$	1,186,029

 

(1)	These amounts reflect the pro-rata portion of each Named Executive Officer’s annual bonus, which would have been the full amount of such annual bonus had the termination of employment occurred on December 31, 2018.

(2)	The COBRA Reimbursement amount is based on the premiums in effect as of December 2018, which are assumed for purposes of this table to remain the same throughout the applicable COBRA reimbursement period.

(3)

These amounts are calculated by (i) multiplying the number of RSUs that would become vested upon the applicable event by $16.32, the closing price of our common stock on December 31, 2018; and (ii) multiplying the number of PSUs that would become earned upon the applicable event by $16.32, the closing price of our common stock on December 31, 2018.

(4)	These amounts are calculated by multiplying the number of AP Equityco Units, RSH Equityco Units, AP Debtco Units, and RSH Debtco Units that would become vested upon the applicable event by $0.00, the fair market value of each such

 

2019 Proxy Statement 39