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.                 )

Filed by the Registrant  ☒                             Filed by a Party other than the Registrant  ☐

Check the appropriate box:

 

☐		Preliminary Proxy Statement
☐		Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
☒		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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2019
Proxy Statement
COMMITTED TO OUR VALUES

NOTICE OF 2020 ANNUAL MEETING OF STOCKHOLDERS

 

Meeting Date & Time:		Meeting Place:		Record Date:
May 12, 2020 10:30 a.m.		Three Allen Center 333 Clay Street, Suite 3300 Houston, Texas 77002		March 16, 2020

To the stockholders of Talos Energy Inc.:

Notice is hereby given that the 2020 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 12, 2020, 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 II directors set forth in the accompanying Proxy Statement, each of whom will hold office until the 2023 Annual Meeting of Stockholders and until his successor is elected and qualified or until his 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, 2020.		P.60
		3.		To approve, on a non-binding advisory basis, the Company’s Named Executive Officer compensation for the fiscal year ended December 31, 2019.		P.62
		4.		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 16, 2020, to receive notice of and to vote at the Annual Meeting or any adjournments or postponements of the Annual Meeting.

We intend to hold the Annual Meeting in person. However, we are actively monitoring the coronavirus (COVID-19) outbreak and the increasingly severe protocols that federal, state and local governments have imposed, and we are sensitive to the public health and travel concerns our stockholders may have. In the event it is not possible or advisable to hold the Annual Meeting in person, we will announce alternative arrangements for the meeting as promptly as practicable, which may include holding the meeting partially or solely by means of remote communication. Please monitor our Annual Meeting website at WWW.ENVISIONREPORTS.COM/TALO for updated information. If you are planning to attend the Annual Meeting, please check the website ten days prior to the meeting date. If we do hold the Annual Meeting partially or solely by means of remote communication, we currently intend to resume holding in-person meetings for our 2021 Annual Meeting of Stockholders and thereafter, assuming normal circumstances. As always, we encourage you to vote your shares prior to 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		By Order of the Board of Directors,
Houston, Texas April 3, 2020		Neal P. Goldman Chairman of the Board

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE

STOCKHOLDER MEETING TO BE HELD ON MAY 12, 2020: THIS PROXY STATEMENT, THE PROXY CARD

AND OUR ANNUAL REPORT ARE AVAILABLE AT WWW.EDOCUMENTVIEW.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			15
Compensation Committee Report			18
Executive Compensation			19
CEO Pay Ratio			45
Equity Compensation Plan Information			46
Compensation Committee Interlocks and Insider Participation			47
Corporate Governance			48
Security Ownership of Certain Beneficial Owners and Management			52
Certain Relationships and Related Party Transactions			55
Proposal Two: Ratification of Appointment of Independent Registered Public Accounting Firm			60
Proposal Three: Non-Binding Advisory Vote on the Company’s Named Executive Officer Compensation			62
Audit Committee Report			64
Stockholder Proposals; Identification of Director Candidates			65
Solicitation of Proxies			67
Availability of Certain Documents			67
Other Matters			68
Directions to Annual Meeting			68

TALOS ENERGY INC.

Three Allen Center

333 Clay Street, Suite 3300

Houston, Texas 77002

PROXY STATEMENT

2020 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 2020 Annual Meeting of Stockholders that will be held on May 12, 2020, 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 on Form 10-K for the fiscal year ended December 31, 2019 (our “Annual Report”) are being mailed to stockholders beginning April 8, 2020.

We intend to hold the Annual Meeting in person. However, we are actively monitoring the coronavirus (COVID-19) outbreak and the increasingly severe protocols that federal, state and local governments have imposed, and we are sensitive to the public health and travel concerns our stockholders may have. In the event it is not possible or advisable to hold the Annual Meeting in person, we will announce alternative arrangements for the meeting as promptly as practicable, which may include holding the meeting partially or solely by means of remote communication. Please monitor our Annual Meeting website at WWW.EDOCUMENTVIEW.COM/TALO for updated information. If you are planning to attend the Annual Meeting, please check the website ten days prior to the meeting date. If we do hold the Annual Meeting partially or solely by means of remote communication, we currently intend to resume holding in-person meetings for our 2021 Annual Meeting of Stockholders and thereafter, assuming normal circumstances. As always, we encourage you to vote your shares prior to the Annual Meeting.

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:

 

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Proposal ONE: To elect to the Board the three Class II directors set forth in this Proxy Statement, each of whom will hold office until the 2023 Annual Meeting of Stockholders and until his or her successor is elected and qualified or until his or her earlier death, resignation or removal.

 

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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, 2020.

 

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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, 2019.

 

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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, 2020 (Proposal TWO); and FOR the approval, on a non-binding advisory basis, of the Company’s Named Executive Officer compensation for the fiscal year ended December 31, 2019 (Proposal THREE).

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 March 16, 2020 (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

 

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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 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 54,342,273 shares of our common stock held by 299 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, 2020 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, 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. 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.

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

 

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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, and FOR Proposal THREE.

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.

 

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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 II directors of the Company, to serve for three-year terms beginning at the Annual Meeting and expiring at the 2023 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. Timothy S. Duncan

Mr. John “Brad” Juneau

Mr. Donald R. Kendall, Jr.

Messrs. Duncan, Juneau and Kendall are currently serving as directors of the Company. If Mr. Duncan, Mr. Juneau and Mr. Kendall 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—Historical Transactions with Affiliates—Stockholders’ Agreement” and the copy of the Stockholders Agreement filed with our Annual Report.

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.

 

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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)			50			Chairman of the Board
Timothy S. Duncan			47			President and Chief Executive Officer, Director
Charles M. Sledge(1)(3)			54			Director
Robert M. Tichio(3)			42			Director
Olivia C. Wassenaar(2)			40			Director
John “Brad” Juneau(1)(4)			60			Director
Donald R. Kendall, Jr.(1)(2)			67			Director
James M. Trimble(4)			71			Director
Christine Hommes(4)			35			Director
Rajen Mahagaokar(2)			34			Director
Robert D. Abendschein			58			Executive Vice President and Head of Operations
John A. Parker			64			Executive Vice President of Exploration
Shannon E. Young III			49			Executive Vice President and Chief Financial Officer
William S. Moss III			50			Executive Vice President, General Counsel and Secretary
Gregory M. Babcock			36			Chief Accounting Officer

 

(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. Messrs. Sledge and Tichio and Ms. Wassenaar are designated as Class I directors and their terms of office expire in 2022. Messrs. Duncan, Juneau and Kendall are designated as Class II directors and, assuming the stockholders elect them to the Board as set forth in “Proposal ONE: Election of Directors” above, their terms of office expire in 2023. 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 Energy Corporation 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 and strategic planning. Mr. Goldman also serves on the board of Weatherford International (“Weatherford”) and Ultra Petroleum Corp. 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. Prior to this, Mr. Goldman was a Portfolio Manager at MacKay Shields LLC and also held various positions at Salomon Brothers Inc., both as a mergers and acquisitions banker and as an investor in the high yield

 

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		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 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, and serves on the Executive Committee of the National Ocean Industries Association (NOIA). 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 the board of directors of Stone Energy Corporation from March 2017 to May 2018. Mr. Sledge served as the Chief Financial Officer of Cameron International Corporation, an oilfield services company, from 2008 until its sale to Schlumberger Limited in 2016. Prior to that, Mr. Sledge served as the Corporate Controller of Cameron International Corporation from 2001 to 2008. Mr. Sledge has served on the boards of Templar Energy LLC since January 2017, Vine Resources, Inc. since April 2017, Expro International since April 2018 where he serves as non-executive chairman and Weatherford since December 2019. 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 strong financial background, including his 20 years of experience as a financial executive, makes him a valuable member of the Board of Directors.

 

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		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 Holdings”) and joined Riverstone Holdings in 2006. Prior to joining Riverstone Holdings, 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 Holdings 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, Inc. (“Apollo”) in August 2018, where she is currently a Senior Partner in the New York office. Prior to joining Apollo, Ms. Wassenaar was associated with Riverstone Holdings since 2008 and most recently served as a Managing Director, where she was involved in investments throughout the energy sector. Prior to joining Riverstone Holdings, 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 Talos Energy Inc., LifePoint Health, Inc and American Petroleum Partners, LLC. 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, Niska Gas Storage Partners LLC, Pegasus Optimization Partners, LLC and Apex Energy, 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 the board of directors of Stone Energy Corporation from March 2017 to May 2018. Mr. Juneau is the co-founder of Contango ORE, Inc. (“Contango”), a publicly traded gold exploration company for which he serves as the Chairman of the board of directors. He previously served as President, Chief Executive Officer and as a director of Contango from August 2012 to January 6, 2020. Mr. Juneau is the sole manager and the general partner of Juneau Oil and Gas, L.L.C., 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. Mr. Kendall previously 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, from July 1993 to October 1998. Mr. Kendall previously served as a director of American Midstream Partners LP on its Audit and Conflict Committees. Mr. Kendall also 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 BA 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 Energy Corporation 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 oil and natural gas company from 2011 until 2015, in 2013, the company filed Chapter 11 bankruptcy for twelve of its partnerships for which the company was the managing partner. 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

 

10

		drilling in mature basins in Texas, Louisiana and Oklahoma. From 2000 through 2004, Mr. Trimble served as Chief Executive Officer 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 currently serves 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 its 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 is a 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 Partner 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 board of directors of Talos Energy Inc., Chisholm Oil & Gas and Momentum Minerals. Ms. Hommes also serves on the board of directors of Youth, Inc. a non-profit focused on New York City youth. She previously served on the board of Tumbleweed Royalty, Roundtable Energy and Northwoods 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 Holdings and joined Riverstone Holdings as an Associate in 2015. Prior to joining Riverstone Holdings, Mr. Mahagaokar was a co-founder and partner of Marka, L.L.C. Previously, Mr. Mahagaokar was an investment professional at Silver Lake Kraftwerk. 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. He received his BA in Mathematical Economic Analysis from Rice University. We believe Mr. Mahagaokar’s energy industry background and 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.

 

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Director Qualifications and Experience

The members of our Board possess a broad variety of personal attributes, experience and skills giving our Board the depth and breadth necessary to effectively oversee management on behalf of our stockholders. Our Board is committed to diversity and the importance of different backgrounds, perspectives and views. We currently have two women serving on our Board. The matrix below represents some of the key skills that our Board has identified as particularly valuable to the effective oversight of the Company and the execution of our corporate strategy. The matrix does not include all knowledge, skills, experience or other attributes of our directors, which may be relevant and valuable to their service on our Board. The diversity of knowledge, skill, experience and attributes of our directors, collectively, lends itself to a highly collaborative and effective Board.

 

Other Board Experience

Industry Experience

CEO / Business Head

Human Capital Management / Compensation

Finance / Investment Banking

Financial Literacy / Accounting (Audit Committee Financial Expert)

Exploration

M&A Business Development

Oil & Gas Operations

Academic / Advisory

Neal Goldman

•

•

•

•

•

•

•

Tim Duncan

•

•

•

•

•

•

•

•

Christine Hommes

•

•

•

•

•

Brad Juneau

•

•

•

•

•

•

•

•

Donald Kendall

•

•

•

•

•

•

•

Rajen Mahagaokar

•

•

•

•

•

•

Chuck Sledge

•

•

•

•

•

•

•

•

Robert Tichio

•

•

•

•

Jim Trimble

•

•

•

•

•

•

•

Olivia Wassenaar

•

•

•

•

•

•

Total number of directors with particular qualifications and experience

 

 

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Our Other Executive Officers

 

		Robert D. Abendschein   Mr. Abendschein has served as our Executive Vice President and Head of Operations since February 2020. Prior to joining the Company, Mr. Abendschein served as the Chief Executive Officer of Venari Resources LLC (“Venari”) from April 2018 to November 2019, where he was appointed by a consortium of private equity investors to lead the advancement of multiple globally recognized development projects (Anchor and Shenandoah) and managed all stages of strategy, exploration and business development activities. Mr. Abendschein previously served as the Chief Operating Officer of Venari from August 2017 to April 2018. Prior to joining Venari, Mr. Abendschein served 33 years with Anadarko Petroleum Corporation, (“Anadarko”) and predecessor companies, including as the Vice President of Worldwide Deepwater from March 2015 to August 2017, in which he led Anadarko’s worldwide offshore portfolio. He also served in other key executive roles at Anadarko, including as the Vice President of Exploration and Production Services from June 2013 to March 2015 and Vice President of Corporate Development from February 2010 to June 2013. Mr. Abendschein serves on the board of directors and Compensation Committee of SEACOR Marine Inc., the board of directors and trustee committee of the Cynthia Woods Mitchell Pavilion, the board of directors of Offshore Energy Center and the National Ocean Industries Association. Mr. Abendschein earned a BS in Petroleum Engineering from Texas A&M University.
		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. Mr. Parker also 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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		Shannon E. Young III   Mr. Young has served as Executive Vice President and Chief Financial Officer of Talos Energy since May 2019. Previously Mr. Young served as Vice President and Chief Financial Officer of Sheridan Production with responsibility for Sheridan’s finance organization, including accounting, treasury, tax, planning, marketing and information technology. Prior to joining Sheridan in August 2016, Mr. Young served in similar positions with Cobalt International Energy, Inc. and Talos Energy LLC. Previously, Mr. Young served as a Managing Director for the Global Energy Group at Goldman, Sachs & Co. from 2010 to 2014 and before that was an investment banker at Morgan Stanley from 1998 to 2010. Mr. Young earned a BBA in Finance from the University of Texas at Austin and an MBA with distinction from the Amos Tuck School of Business at Dartmouth College.
		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.
		Gregory M. Babcock   Mr. Babcock has served as our Chief Accounting Officer (Principal Accounting Officer), since August 26, 2019. Previously, Mr. Babcock served as the Company’s Corporate Controller from May 2018 to August 2019. Prior to that, Mr. Babcock served as the Assistant Controller of Talos Energy LLC from September 2015 until the May 2018 business combination of Talos Energy LLC and Stone Energy Corporation pursuant to which Talos Energy LLC became a wholly owned subsidiary of the Company. Before his promotion to Assistant Controller, Mr. Babcock served as Financial Reporting Manager of Talos Energy LLC from May 2014 to September 2015. Prior to his tenure with Talos Energy LLC, Mr. Babcock worked for Deloitte & Touche, holding positions of increasing responsibility in audit and mergers and acquisitions transaction services. Mr. Babcock began his career with Deloitte & Touche in 2007. Mr. Babcock is a Certified Public Accountant and holds a MS in Finance and BBA in Accounting from Texas A&M University.

 

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MEETINGS AND COMMITTEES OF DIRECTORS

The Board of Directors held fifteen meetings during 2019. During 2019, 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 except for Messrs. Mahagaokar and Tichio and Ms Wassenaar, who were recused from five meetings of the Board of Directors due to potential conflicts of interest with respect to the Riverstone Acquisitions (as defined below in “Certain Relationships and Related Party Transactions”). Excluding the meetings from which they were recused, each of Messrs. Mahagaokar and Tichio and Ms Wassenaar 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 he or she served.

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 that is provided to stockholders and others and the system of internal controls that 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—Historical Transactions with Affiliates—Stockholders’ Agreement.”

The members of the Audit Committee are Messrs. Sledge (Chair), Kendall and Juneau. The Audit Committee held seven meetings during 2019.

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;

 

15

•

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;

 

•

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. Kendall (Chair) and Mahagaokar and Ms. Wassenaar. The Compensation Committee held four meetings during 2019.

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 and the 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.

 

16

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—Historical Transactions with Affiliates—Stockholders’ Agreement.”

The members of the Governance & Nominating Committee are Messrs. Goldman (Chair), Tichio and Sledge. The Governance & Nominating Committee held four meetings during 2019.

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 Messrs. Trimble (Chair) and Juneau and Ms. Hommes. The Safety Committee held four meetings during 2019.

 

17

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 U.S. Securities and Exchange Commission (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.

 

 

18

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, 2019 (the “2019 Fiscal Year”).

 

Name		Principal Position
Timothy S. Duncan		President and Chief Executive Officer
Shannon E. Young III		Executive Vice President and Chief Financial Officer (1)
Stephen E. Heitzman		Executive Vice President and Chief Operating Officer (2)
John A. Parker		Executive Vice President of Exploration
William S. Moss III		Executive Vice President and General Counsel
Michael L. Harding II		Former Executive Vice President, Chief Financial Officer and Chief Accounting Officer (1)

 

(1)

Mr. Young succeeded Mr. Harding as Executive Vice President and Chief Financial Officer, effective as of May 16, 2019. Subsequently, in connection with Mr. Harding’s resignation, Mr. Young succeeded Mr. Harding as Chief Accounting Officer, effective August 13, 2019. On August 26, 2019, Mr. Babcock was subsequently appointed as Chief Accounting Officer.

(2)	Mr. Heitzman ceased to serve as our Executive Vice President and Chief Operating Officer effective as of February 17, 2020.

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 align with those of our stockholders. 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   ✓  Make a significant portion of compensation performance-based and at-risk   ✓  Retain an independent compensation consultant   ✓  Utilize an appropriate peer group in determining compensation elements and levels of pay   ✓  Base acceleration of performance share unit awards on actual performance   ✓  Maintain stock ownership guidelines   ✓  Maintain a clawback policy		×   No excessive perquisites   ×   No tax gross-ups   ×   No current dividend payments on unvested equity awards   ×   No single-trigger change in control payments or vesting of equity awards under our Long Term Incentive Plan   ×   No hedging or pledging of Company securities   ×   No individualized employment or severance agreements

 

19

Process for Setting Executive Compensation

Our Board determines and approves our executive compensation program based, in part, on the recommendations of 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, the Compensation Committee generally oversees our executive compensation program, and the Board’s decisions are typically made following a recommendation by the Compensation Committee.

The Compensation Committee is comprised of Donald R. Kendall, Jr. (who acts as the chair), Rajen Mahagaokar and Olivia C. Wassenaar. Each member of the Compensation Committee meets the independence standards established by the 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

During 2019, the Compensation Committee engaged Meridian Compensation Partners, LLC (“Meridian”) as its independent compensation consultant. Meridian provided advice to and worked alongside the Compensation Committee and the Board in structuring our executive compensation program for the 2019 Fiscal Year. Meridian 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 Meridian was utilized by the Board and the Compensation Committee in making decisions regarding executive and director compensation.

Meridian reported directly and exclusively to the Compensation Committee and did not provide any other services to us, management or our affiliates. Meridian 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 Meridian, 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 Meridian in 2019, to work directly with management in preparing or reviewing materials for the Compensation Committee’s consideration. During 2019, 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 Meridian and that Meridian is independent from management.

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 our human resources and legal personnel, provide relevant data and guidance to the Compensation Committee and the Board, as requested, to assist them in making compensation determinations and implementing those decisions. Our Chief Executive Officer and our General Counsel attend

 

20

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 our General Counsel are excused.

Peer Group

The companies that comprise the peer group reflect direct competitors in the oil and gas exploration and production industry against which we compete for business opportunities, investor capital and executive talent. Selection criteria utilized to evaluate the companies that comprise the peer group include: scope of operations; financial and operational metrics; and the availability of market compensation data. The Compensation Committee reviews the composition of the peer group annually and may consider modifications resulting from changes in business strategy, mergers and acquisitions, bankruptcies or other factors that may cause peer companies to no longer exist or to no longer be comparable.

Based on the application of the foregoing criteria, in 2019, the Compensation Committee and the Board, with input from Meridian, determined that the companies below reflect an appropriate peer group to inform decisions regarding 2019 compensation levels (the “2019 Peer Group”), which is different than the 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 2019 Fiscal Year—Long Term Incentive Awards”:

 

Approach Resources, Inc.		Extraction Oil & Gas, Inc.		Matador Resources Company
Bonanza Creek Energy, Inc.		HighPoint Resources Corporation		Oasis Petroleum Inc.
Callon Petroleum Company		Jagged Peak Energy Inc.		SRC Energy Inc.
Carrizo Oil & Gas, Inc.		Kosmos Energy Ltd.		W&T Offshore, Inc.
EP Energy Corporation		Laredo Petroleum, Inc.		Whiting Petroleum Corporation

The 2019 Peer Group reflects the following changes from the peer group used for 2018, based on the factors noted above:

 

Removed		Added
Cimarex Energy Co.			Approach Resources, Inc.
Energy XXI Gulf Coast, Inc.			Bonanza Creek Energy, Inc.
Newfield Exploration Company			HighPoint Resources Corporation
PDC Energy, Inc.			Jagged Peak Energy Inc.
SM Energy Company
Ultra Petroleum Corp.

Peer Group Compensation Review

To inform decisions regarding the compensation of our Named Executive Officers for 2019, the Compensation Committee considered a competitive review of the 2019 Peer Group prepared by Meridian. The 2019 Peer Group review provided market data for each element of compensation, as well as information regarding the incentive plan designs and pay practices among the Peer Group. Compensation review data provided for each of our Named Executive Officers reflect the compensation paid to executives in similar positions at the companies in the 2019 Peer Group, based on Meridian’s proprietary oil and gas exploration and production industry survey database, supplemented by information in peer company public disclosures. The Compensation Committee used the compensation review as a reference point for assessing the overall competitiveness of our executive compensation program.

 

21

Setting Target Compensation

When setting 2019 target compensation levels for our Named Executive Officers, the Compensation Committee and the Board did not target any element of compensation, or overall compensation, to a particular benchmark level (e.g., median) of the 2019 Peer Group. Rather, the Compensation Committee used 2019 Peer Group data as one of several factors it takes into account when evaluating and setting each element of our executive compensation program. This helps to ensure that our compensation program is competitive with the market, which allows us 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.

2019 Say-on-Pay and Say-on-Frequency Results

Last year, our stockholders overwhelmingly approved, on a non-binding advisory basis, the compensation of our Named Executive Officers for the fiscal year ended December 31, 2018. Advisory votes in favor of such compensation were cast by over 98% of the votes cast affirmatively or negatively by the holders entitled to vote on such proposal. Additionally, our stockholders approved, on a non-binding advisory basis, every year as the frequency of future advisory votes on our Named Executive Officer compensation, with over 97% of the votes cast in favor of annual advisory votes. As a result, the Board determined that we will conduct future advisory votes on an annual basis. We believe that annual “Say-on-Pay” votes are the most appropriate for the Company because such votes allow our stockholders the opportunity to provide more frequent feedback on the compensation of our Named Executive Officers and to provide the Board and the Compensation Committee with more timely information regarding our stockholders’ response to our executive compensation programs and policies.

The Board and the Compensation Committee took the results of the “Say-on-Pay” vote into account when evaluating the compensation of our Named Executive Officers for the 2019 Fiscal Year. Based in part on the level of support from our stockholders, the Board and the Compensation Committee elected to generally maintain the overall structure of the compensation program for our Named Executive Officers during the 2019 Fiscal Year with only a few adjustments to the various components, which is described in this “Compensation Discussion and Analysis.” As discussed in more detail in Proposal THREE below, the Board has recommended that stockholders vote, on a non-binding advisory basis, to approve the compensation paid to our Named Executive Officers during the 2019 Fiscal Year, as described more fully below.

Elements of Compensation for the 2019 Fiscal Year

To maintain an appropriate balance between fixed and variable compensation and to ensure that a significant portion of each Named Executive Officer’s compensation is 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 2019 Fiscal Year:

 

•

Base salary;

 

•

Short-term cash incentive awards;

 

•

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

 

•

Health and welfare and retirement benefits; and

 

•

Limited perquisites.

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.

 

 

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After reviewing the base salaries of executive officers in the Peer Group and upon recommendation by the Compensation Committee, on March 5, 2019, the Board approved adjustments to the annualized base salary for each Named Executive Officer, other than Messrs. Young and Harding, to better align their compensation with Peer Group practices. Mr. Young’s annualized base salary was determined by the Compensation Committee and the Board in connection with his engagement as our Chief Financial Officer at a level in line with the compensation paid to similarly situated executives of the companies in our Peer Group. Mr. Harding’s annualized base salary was not adjusted during the 2019 Fiscal Year. The table below reflects these increases.

 

Name		Base Salary as of 12/31/2018				Base Salary as of 12/31/2019				Percent of Increase
Timothy S. Duncan		$	650,000			$	700,000				7.69	%
Shannon E. Young III			N/A			$	460,000				N/A
Stephen E. Heitzman		$	400,000			$	415,000				3.75	%
John A. Parker		$	400,000			$	420,000				5.00	%
William S. Moss III		$	380,000			$	400,000				5.26	%
Michael L. Harding II		$	380,000			$	380,000	(1)			N/A

 

(1)	For Mr. Harding, this amount reflects his base salary as of his separation date.

Short-Term Cash Incentive Awards

We provide short-term cash incentive awards to motivate our Named Executive Officers to achieve specific financial, operational and strategic goals over a one-year period by providing pre-established performance criteria. The short-term cash incentive awards were developed to emphasize pay-for-performance and promote achievement of key financial, operating and strategic goals that are aligned with creation of shareholder value.

Establishing 2019 Target Short-Term Cash Incentive Awards

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 Meridian, and a review of the target short-term cash incentive award opportunities for similarly-situated executives at companies in our 2019 Peer Group. The individual targets, as a percentage of base salary, for the 2019 Fiscal Year are set forth in the following table for each of our Named Executive Officers, which were unchanged from the individual targets established for the 2018 fiscal year (other than for Mr. Young, who was not appointed until 2019). The threshold amount and maximum amount that could become payable under the short-term incentive program for the 2019 Fiscal Year were 50% and 200% of each Named Executive Officer’s target, respectively.

 

Name		2019 Target Short-Term Cash Incentive (% of Base Salary)
Timothy S. Duncan			125	%
Shannon E. Young III			80	%
Stephen E. Heitzman			80	%
John A. Parker			80	%
William S. Moss III			80	%
Michael L. Harding II			80	%

 

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2019 Short-Term Incentive Measures and Goals

For the 2019 Fiscal Year, we awarded short-term cash incentive awards based on our achievement of the following performance measures:

 

Performance Measure:		Rationale for Selecting Performance Measure:
Financial Performance Measures (including free cash flow generation, general and administrative (“G&A”) expenses, earnings before interest, taxes, depreciation and amortization (“EBITDA”), and the discounted cash on cash multiple)		Provides an incentive for our Named Executive Officers to achieve strong cash flow generation and accretive returns on cash outlays, as well as emphasize the importance of direct cash flow and cost reduction
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”))		Intended to incentivize our Named Executive Officers to increase total production, which is critical to our growth and success, and to management LOE to help maintain profitable growth
Health, Safety and Environment (“HSE”) Measures (including the number of incidents of non-compliance compared to the number of safety devices tested during offshore inspections and facility visits where rig or wellwork is being performed by the Bureau of Safety and Environmental Enforcement (“INC/Comp Ratio”) and the total recordable incident rate (“TRIR”))		Safety is a critical aspect of our culture
Key Strategic Initiatives		Provides a connection between the value of each Named Executive Officer’s short-term cash incentive award with achievement of broader corporate goals.

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 Compensation Committee and the Board retain the authority to adjust the performance measures.

 

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2019 Achieved Performance and Payout

The weighting of these performance measures, the 2019 Fiscal Year threshold, target and maximum levels of performance for the 2019 Fiscal Year, the actual results for the 2019 Fiscal Year and the payout percentage for the 2019 Fiscal Year are set forth in the table below.

 

Performance Measure		Individual Weighting				2019 Fiscal Year Threshold				2019 Fiscal Year Target				2019 Fiscal Year Maximum				Actual Results for 2019 Fiscal Year				2019 Fiscal Year Weighted Payout Percentage
Financial Performance
Free Cash Flow Generation (1)			20%			$	15.0 MM			$	35.0 MM			$	70.0 MM			$	(10.3) MM				0%
G&A Expense (2)			10%			$	65.0 MM			$	62.3 MM			$	58.0 MM			$	62.4 MM				9.9%
EBITDA			15%			$	585 MM			$	620 MM			$	670 MM			$	614.5 MM				13.35%
Discounted Cash on Cash Multiple (3)			15%				1.80x				2.15x				2.75x				1.84x				8.4%
Operational Performance
Production			10%				53.0 mboe/d				55.8 mboe/d				58.0 mboe/d				51.9 mboe/d				0%
Direct LOE			10%				$210.0 MM				$202.2 MM				$190.0 MM				$179.9 MM				20%
HSE Performance
INC/Comp Ratio			5%				0.030				0.020				0.015				0.015				10%
Total TRIR			5%				0.750				0.700				0.550				0.450				10%
Strategic Initiatives (4)			10%																				20%
PAYOUT PERCENTAGE							50%				100%				200%								92%(5)

 

(1)	Free Cash Flow Generation represents EBITDA less capital spend and debt service.

(2)	G&A Expense excludes transaction related and one-time costs such as severance and retention, as well as non-cash expenses.

(3)	Discounted Cash on Cash Multiple represents booked and audited proved and probable cash flows discounted at 10% of future cash flow streams (without invested capital), divided by the expected full cycle investment. This calculation does not include corporate charges such as G&A Expense.

(4)

At the end of the year, the Board reviews key strategic initiatives that help advance the Company. Following the completion of 2019, the Board established the payout percentage for the Strategic Initiatives factor after considering (i) the success of the Zama Appraisal both operationally and geologically, (ii) one of the highest total shareholder return rates in the exploration and production space, and (iii) the signing of a definitive agreement on a material and strategic transaction.

(5)	For purposes of this calculation, the payout percentage has been rounded to the nearest whole percent.

 

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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 the payout percentage of 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’ 2019 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 2019 Fiscal Year.

 

Name		2019 Target Short-Term Cash Incentive ($)				Pro-Ration Percentage (if applicable)				Payout Percentage				Actual Short-Term Cash Incentive Award Payment
Timothy S. Duncan		$	875,000				—				92	%		$	805,000
Shannon E. Young III		$	368,000				62.74	%(1)			92	%		$	212,412
Stephen E. Heitzman		$	332,000				—				92	%		$	305,440
John A. Parker		$	336,000				—				92	%		$	309,120
William S. Moss III		$	320,000				—				92	%		$	294,400
Michael L. Harding II		$	304,000				61.37	%(2)			92	%		$	171,639

 

(1)	For Mr. Young, this percentage reflects the pro-ration of his short-term cash incentive award for the portion of the 2019 Fiscal Year following his appointment as Executive Vice President and Chief Financial Officer.

(2)

For Mr. Harding, in accordance with the terms of his Transition, Separation and Release Agreement, as described below under “Potential Payments Upon Termination or a Change in Control—Harding Separation Agreement,” this amount reflects the pro-ration of his short-term cash incentive award for the 2019 Fiscal Year for the portion of the 2019 Fiscal Year prior to his separation.

Long-Term Incentive Awards

We maintain 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. Long-term incentive awards under the LTIP seek to balance retention of our executive team and alignment of our Named Executive Officers’ interests with those of our stockholders.

Each year, the Compensation Committee sets the total targeted long-term incentive value appropriate for each Named Executive Officer taking into account Peer Group data and each Named Executive Officer’s contribution to our success, level of responsibility and experience. For the 2019 Fiscal Year, each Named Executive Officer’s total targeted long-term incentive value was allocated equally between grants of time-based restricted stock units (“RSUs”) and performance share units (“PSUs”). 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 2019 Fiscal Year.

2019 Restricted Stock Unit Awards

On March 5, 2019, the Board, upon recommendation by the Compensation Committee, approved the grant of RSUs to each Named Executive Officer, other than for Mr. Young. These RSU awards vest ratably over the three-year period beginning on March 5, 2019, subject to each Named Executive Officer’s continued employment through each vesting date. In connection with his appointment, Mr. Young received a grant of RSUs on May 16, 2019, which cliff vest on March 5, 2022, subject to his continued employment through such vesting date. Following vesting, each RSU that vests is settled in a share of our common stock.

 

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2019 Performance Share Unit Awards

On March 5, 2019, the Board, upon recommendation by the Compensation Committee, approved the grant of PSUs to each Named Executive Officer. In connection with his appointment, Mr. Young received a grant of PSUs on May 16, 2019. The PSU awards vest based on our relative total stockholder return (“Relative TSR”) over the three-year performance period commencing on January 1, 2019 and ending on December 31, 2021, subject to the Named Executive Officer’s continued employment through December 31, 2021. Our Relative TSR is determined by ranking our total stockholder return against the total stockholder return of each of the following companies, our “PSU Peer Group,” over the three-year performance period.

 

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		W&T Offshore, Inc.
HighPoint Resources Corporation		Oasis Petroleum Inc.		Whiting Petroleum Corporation
Jagged Peak Energy Inc.		PDC Energy, Inc.

At the conclusion of the performance period, the percentage of the target PSUs that becomes earned and vested 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. Following the end of the performance period, each PSU that becomes earned and vested is settled in a share of our common stock.

 

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		³90th 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. In accordance with such provisions, as a result of the acquisition of Carrizo Oil & Gas, Inc. by Callon Petroleum Company, the Compensation Committee replaced Carrizo Oil & Gas, Inc. with Murphy Oil Corporation for purposes of the PSU Peer Group.

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 Internal Revenue Code (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

 

27

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 $500,000.

Limited Perquisites

In 2019, we provided to our Named Executive Officers a limited number of low cost perquisites, including limited spousal travel and club and gym membership reimbursement. We provided these perquisites 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

We maintain 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 benefits following certain terminations of employment. As a condition to participation in the Severance Plan, each Named Executive Officer has agreed to (i) terminate any existing 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

Tax and Accounting Implications of Executive Compensation Decisions

The Compensation Committee and the Board review and consider the tax, accounting, and securities law implications of our executive compensation program when making determinations.

As a public corporation, we are subject to the deduction limitations under Section 162(m) of the Code (“Section 162(m)”). Section 162(m) prohibits deductions for compensation paid in excess of $1 million during a single fiscal year to certain executive officers. We take the economic effects of Section 162(m) into consideration when determining the structure, implementation, and value of compensation paid to our executive officers, including the deductibility of our executive compensation program. In doing so, we reserve the right to pay non-deductible compensation to our executive officers if the Compensation Committee determines that such compensation is in the best interests of the Company.

We account for RSU awards and PSU awards 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.

Anti-Hedging and Anti-Pledging Policies

We maintain an insider trading policy that applies to all employees of the Company and its subsidiaries, including the Named Executive Officers, all members of the Board, and all contractors, consultants and outside advisors who have access to material nonpublic information. Under our insider trading policy, hedging or monetization transactions and pledging of Company securities are prohibited.

 

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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 those of 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 executive, 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.

Clawback Policy

On February 4, 2020, we adopted the Talos Energy Inc. Executive Compensation Clawback Policy (the “Clawback Policy”). Under the terms of the Clawback Policy, in the event of a restatement of our financial statements due to material non-compliance with any financial reporting requirement under applicable securities laws, the Compensation Committee or the Board may cause the Company to recover the amount of any incentive compensation granted, awarded or paid to a covered employee within the preceding 36-month period to the extent the value of such compensation was in excess of the amount of incentive compensation that would have been granted, awarded or paid had the financial statements been in compliance with the financial reporting requirements. Each executive officer, including our Named Executive Officers and former executive officers, are considered “covered employees” for purposes of the Clawback Policy.

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 Meridian 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;

 

29

✓

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 include a cap on the maximum payout, subject to the Compensation Committee’s discretion, and implement design features that do not encourage excessive risk-taking; and

 

✓

Our insider trading policy contains a general anti-hedging and anti-pledging 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 are not reasonably likely to have a material adverse effect on us.

 

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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, 2017, December 31, 2018 and December 31, 2019. 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				Stock Awards (1)				Option Awards				Non-Equity Incentive Plan Compensation (2)				All Other Compensation (3)				Total
Timothy S. Duncan			2019			$	701,727				—			$	4,101,637				—			$	805,000			$	9,500			$	5,617,864
President and Chief			2018			$	579,885			$	400,000			$	1,689,640			$	714,204			$	885,625			$	9,250			$	4,278,604
Executive Officer			2017			$	432,308			$	33,000				—			$	86,059			$	473,000			$	9,000			$	1,033,367
Shannon E. Young III			2019			$	284,095				—			$	1,590,943				—			$	212,412				—			$	2,087,450
Executive Vice President, Chief Financial Officer and Chief Accounting Officer
Stephen E. Heitzman			2019			$	416,080				—			$	1,134,832				—			$	305,440			$	11,934			$	1,868,286
Former Executive Vice			2018			$	394,475			$	75,000			$	675,933			$	612,000			$	348,800			$	12,250			$	2,118,458
President and Chief			2017			$	373,844			$	21,150				—				—			$	303,150			$	11,942			$	710,086
Operating Officer
John A. Parker			2019			$	421,074				—			$	1,230,524				—			$	309,120				—			$	1,960,718
Executive Vice President			2018			$	394,475			$	75,000			$	675,933			$	589,968			$	348,800			$	12,250			$	2,096,426
of Exploration			2017			$	373,844			$	21,150				—				—			$	303,150			$	12,000			$	710,144
William S. Moss III			2019			$	401,019				—			$	1,162,181				—			$	294,400			$	12,500			$	1,870,100
Executive Vice President			2018			$	381,475			$	225,000			$	675,933			$	489,600			$	331,360			$	9,250			$	2,112,618
and General Counsel			2017			$	373,844			$	21,150				—				—			$	303,150			$	9,000			$	707,144
Michael L. Harding II			2019			$	239,893				—			$	738,303				—				—			$	760,852			$	1,739,048
Former Executive Vice			2018			$	362,356			$	225,000			$	675,933			$	315,180			$	331,360			$	12,250			$	1,922,079
President, Chief Financial Officer and Chief Accounting Officer			2017			$	318,173			$	18,143				—				—			$	260,057			$	9,000			$	605,373

 

(1)

Amounts in this column represent the aggregate grant date fair value of the RSUs and PSUs granted to each of the Named Executive Officers other than Mr. Young on March 5, 2019 and to Mr. Young on May 16, 2019, 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 8 to our consolidated financial statements filed with our Form 10-K for the fiscal year ended December 31, 2019.

(2)

Amounts in this column represent the short-term cash incentive awards for performance in the 2019 Fiscal Year determined based on achievement of the applicable performance metrics. See “Elements of Compensation for the 2019 Fiscal Year—Short-Term Cash Incentive Awards” above for additional information regarding these awards.

(3)	Amounts in this column include our match of 401(k) plan contributions in the 2019 Fiscal Year for each Named Executive Officer as shown in the table below:

 

Name		401(k) Plan Company Matching Contributions
Timothy S. Duncan		$	9,500
Shannon E. Young III			—
Stephen E. Heitzman		$	11.934
John A. Parker			—
William S. Moss III		$	12,500
Michael L. Harding II		$	12,500

For Mr. Harding, the amount in this column also includes (i) a $570,000 lump sum cash severance payment, (ii) a pro-rated short-term cash incentive award for the 2019 Fiscal Year equal to $171,639 and (iii) $6,713 for partially subsidized continuation coverage for Mr. Harding, his spouse and his eligible dependents in 2019, in each case, in accordance with the terms of his Transition, Separation and Release Agreement, as described below under “Potential Payments Upon Termination or a Change in Control—Harding Separation Agreement.”

 

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Grants of Plan-Based Awards Table

The following table includes information regarding the short-term cash incentive awards, RSU awards and PSU awards granted to the Named Executive Officers during the 2019 Fiscal Year.

 

		Grant Date				Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1)												Estimated Future Payouts Under Equity Incentive Plan Awards (2)												All Other Stock Awards: Number of Shares of Stock or Units (#) (3)				Grant Date Fair Value of Stock and Option Awards (4)
Name						Threshold ($)				Target ($)				Maximum ($)				Threshold (#)				Target (#)				Maximum (#)
Timothy S. Duncan						$	437,500			$	875,000			$	1,750,000
			3/5/19																36,819				73,638				147,276							$	2,388,817
			3/5/19																												73,638			$	1,712,820
Shannon E. Young III						$	115,442			$	230,883			$	461,766
			5/16/19																10,878				21,755				43,510							$	972,013
			5/16/19																												21,755			$	618,930
Stephen E. Heitzman						$	166,000			$	332,000			$	664,000
			3/5/19																10,187				20,374				40,748							$	660,933
			3/5/19																												20,374			$	473,899
John A. Parker						$	168,000			$	336,000			$	672,000
			3/5/19																11,046				22,092				44,184							$	716,664
			3/5/19																												22,092			$	513,860
William S. Moss III						$	160,000			$	320,000			$	640,000
			3/5/19																10,433				20,865				41,730							$	676,861
			3/5/19																												20,865			$	485,320
Michael L. Harding II						$	152,000			$	304,000			$	608,000
			3/5/19																6,628				13,255				26,510							$	429,992
			3/5/19																												13,255			$	308,311

 

(1)

Amounts in these columns represent the estimated payouts for short-term cash incentive awards for the 2019 Fiscal Year assuming threshold, target and maximum achievement. For Mr. Young, these columns represent the pro-rata portion of his short-term cash incentive award for the portion of the 2019 Fiscal Year following his appointment. The actual amounts paid to our Named Executive Officers for the 2019 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 2019 Fiscal Year—Short-Term Cash Incentive Awards” above for additional information regarding these awards.

(2)

These amounts represent the threshold, target and maximum PSUs that may become earned pursuant to the PSUs granted to the Named Executive Officers during the 2019 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 December 31, 2021, subject to the Named Executive Officer’s continued employment.

(3)

Amounts in this column represent RSUs granted to the Named Executive Officers during the 2019 Fiscal Year which, other than the RSUs granted to Mr. Young, vest as to one-third on each of March 5, 2020, March 5, 2021 and March 5, 2022, subject to the Named Executive Officer’s continued employment. The RSUs granted to Mr. Young during the 2019 Fiscal Year vest in full on March 5, 2022, subject to Mr. Young’s continued employment. 4,418 of the RSUs granted to Mr. Harding during the 2019 Fiscal Year vested in connection with his separation and the remainder were forfeited in accordance with the terms of his Transition, Separation and Release Agreement, as described below under “Potential Payments Upon Termination or a Change in Control—Harding Separation Agreement.”

(4)	These amounts represent the aggregate grant date fair value of PSUs and RSUs granted during the 2019 Fiscal Year to the Named Executive Officers, calculated in accordance with FASB ASC Topic 718, disregarding estimated forfeitures.

 

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Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table

Mr. Young Offer Letter

In connection with his appointment, we entered into an offer letter with Mr. Young. Pursuant to the terms of the offer letter, Mr. Young is eligible to receive an initial annualized base salary of $460,000 and to participate in the Company’s annual bonus program with a target bonus equal to 80% of his annualized base salary (which amount was prorated for 2019 based upon his date of hire), subject to the achievement of any applicable performance criteria and the terms and conditions of the program. The offer letter also provides that Mr. Young will be eligible to receive annual awards under the LTIP subject to approval by the Board and the terms and conditions of the LTIP.

Series B Unit Awards

In connection with the Stone Combination in May 2018, 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.

In addition to the Exchanged Units, in connection with the Stone Combination in May 2018, each of our Named Executive Officers other than Mr. Young 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 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 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.

 

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Outstanding Equity Awards at 2019 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, 2019.

 

		Option Awards																				Stock Awards
Name		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 Expiration 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
			—				1,170	(1)			820	(3)			n/a				n/a
			—				1,170	(1)			820	(4)			n/a				n/a
			—				1,170	(1)			820	(5)			n/a				n/a
			—				1,170	(1)			820	(6)			n/a				n/a
																							82,406			$	2,484,541
																															199,878			$	6,026,322
Shannon E. Young III																							21,755			$	655,913
																															43,510			$	1,311,827
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
																							23,882			$	720,042
																															61,790			$	1,862,969
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
																							25,600			$	771,840
																															65,226			$	1,966,564
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
																							24,373			$	734,846
																															62,774			$	1,892,636
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
			—				918	(2)			5,500	(3)			n/a				n/a
			—				918	(2)			5,500	(4)			n/a				n/a
			—				918	(2)			5,500	(5)			n/a				n/a
			—				918	(2)			5,500	(6)			n/a				n/a
																															14,186			$	427,708

 

(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 vested in substantially equal installments on the last day of each month through February 29, 2020.

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

 

34

(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 pro-rata over the applicable remaining vesting dates as follows, subject to the Named Executive Officer’s continued employment:

 

Name		Number of Unvested RSUs				Remaining Vesting Dates
Timothy S. Duncan			73,638			March 5, 2020, March 5, 2021, and March 5, 2022
			8,768			May 14, 2020 and May 14, 2021
Shannon E. Young III			21,755			March 5, 2022
Stephen E. Heitzman			20,374			March 5, 2020, March 5, 2021, and March 5, 2022
			3,508			May 14, 2020 and May 14, 2021
John A. Parker			22,092			March 5, 2020, March 5, 2021, and March 5, 2022
			3,508			May 14, 2020 and May 14, 2021
William S. Moss III			20,865			March 5, 2020, March 5, 2021, and March 5, 2022
			3,508			May 14, 2020 and May 14, 2021

Any unvested RSUs previously held by Mr. Harding which were not accelerated in connection with his separation in accordance with the terms of the RSU award agreements governing such awards were forfeited and cancelled in accordance with the terms of such award agreements and his Transition, Separation and Release Agreement, as described below under “Potential Payments Upon Termination or a Change in Control—Harding Separation Agreement.”

 

(9)	The amounts in these columns were calculated by multiplying $30.15, the closing price of our common stock on December 31, 2019, 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 applicable three-year performance period as shown in the below table. As of December 31, 2019, (i) our Relative TSR performance for the PSUs granted in 2018 was above target, but due to a negative absolute total stockholder return would only provide for a target payout, and (ii) our Relative TSR performance for the PSUs granted in 2019 was at maximum. Pursuant to the applicable SEC rules, the amounts in this column and in the below table 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.

 

Name		Maximum Number of Unvested PSUs				Applicable Performance Period End Date
Timothy S. Duncan			52,602			May 13, 2021
			147,276			December 31, 2021
Shannon E. Young III			43,510			December 31, 2021
Stephen E. Heitzman			21,042			May 13, 2021
			40,748			December 31, 2021
John A. Parker			21,042			May 13, 2021
			44,184			December 31, 2021
William S. Moss III			21,044			May 13, 2021
			41,730			December 31, 2021
Michael L. Harding II			8,762			May 13, 2021
			5,424			December 31, 2021

Any other unearned PSUs previously held by Mr. Harding which do not remain outstanding and, subject to the satisfaction of the applicable performance goals, eligible for settlement in accordance with the terms of the PSU award agreements governing such awards were forfeited and cancelled in accordance with the terms of such award agreements and his Transition, Separation and Release Agreement, as described below under “Potential Payments Upon Termination or a Change in Control—Harding Separation Agreement.”

 

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Option Exercises and Stock Vested

 

		Option Awards								Stock Awards
Name		Number of Units Acquired on Exercise (#) (1)				Value Realized on Exercise ($) (2)				Number of Shares Acquired on Vesting (#) (3)				Value Realized on Vesting ($) (4)
Timothy S. Duncan
AP Equityco Units			816			$	2,957
RSH Equityco Units			816			$	2,299
AP Debtco Units			816			$	0.00
RSH Debtco Units			816			$	0.00
RSUs											4,383			$	122,549
Shannon E. Young III			—				—				—				—
Stephen E. Heitzman
RSUs											1,753			$	49,014
John A. Parker
RSUs											1,753			$	49,014
William S. Moss III
RSUs											1,753			$	49,014
Michael L. Harding II
AP Equityco Units			5,503			$	19,930
RSH Equityco Units			5,503			$	15,497
AP Debtco Units			5,503			$	0.00
RSH Debtco Units			5,503			$	0.00
RSUs											7,925			$	173,195

 

(1)

This column reflects the AP Equityco Units, RSH Equityco Units, AP Debtco Units and RSH Debtco Units held by each Named Executive Officer that vested during the 2019 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 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.

(3)

This column reflects the RSUs held by each Named Executive Officer that vested during the 2019 Fiscal Year. For Mr. Harding, this amount includes the accelerated vesting of certain of his outstanding RSUs as provided for in his Transition, Separation and Release Agreement, as described below under “Potential Payments Upon Termination or a Change in Control—Harding Separation Agreement.”

(4)	This column reflects the aggregate market value realized by each Named Executive Officer upon vesting, calculated by multiplying the number of RSUs that vested (including shares withheld for tax withholding purposes) by the closing price of our common stock on the applicable vesting date.

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.

 

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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 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,”

 

37

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 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 applicable limited liability company 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.

 

38

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 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.

 

39

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, 2019. For the avoidance of doubt, the table below does not reflect the actual payments and benefits received by Mr. Heitzman following the termination of his employment that was effective on February 17, 2020. Such payments and benefits are described in the section below titled “—Heitzman Separation Agreement.”

 

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		$	1,400,000				—				—			$	1,400,000
Pro-Rata Annual Bonus (1)		$	805,000			$	805,000				—			$	805,000
COBRA Subsidy (2)		$	42,960				—				—			$	42,960
RSU & PSU Acceleration (3)		$	2,767,026			$	7,682,080				—			$	7,682,080
Series B Unit Acceleration (4)			—				—			$	687,015				—
Total		$	5,014,986			$	8,487,080			$	687,015			$	9,930,040
Shannon E. Young, III
Cash Severance		$	690,000				—				—			$	690,000
Pro-Rata Annual Bonus (1)		$	212,412			$	212,412				—			$	212,412
COBRA Subsidy (2)		$	29,592				—				—			$	29,592
RSU & PSU Acceleration (3)		$	434,053			$	1,958,603				—			$	1,958,603
Total		$	1,366,057			$	2,171,015				—			$	2,890,607
Stephen E. Heitzman
Cash Severance		$	622,500				—				—			$	622,500
Pro-Rata Annual Bonus (1)		$	305,440			$	305,440				—			$	305,440
COBRA Subsidy (2)		$	23,508				—				—			$	23,508
RSU & PSU Acceleration (3)		$	834,803			$	2,255,312				—			$	2,255,312
Series B Unit Acceleration (4)			—				—			$	560,600				—
Total		$	1,786,251			$	2,560,752			$	560,600			$	3,206,760
John A. Parker
Cash Severance		$	630,000				—				—			$	630,000
Pro-Rata Annual Bonus (1)		$	309,120			$	309,120				—			$	309,120
COBRA Subsidy (2)		$	23,472				—				—			$	23,472
RSU & PSU Acceleration (3)		$	886,276			$	2,409,983				—			$	2,409,983
Series B Unit Acceleration (4)			—				—			$	560,600				—
Total		$	1,848,868			$	2,719,103			$	560,600			$	3,372,575
William S. Moss III
Cash Severance		$	600,000				—				—			$	600,000
Pro-Rata Annual Bonus (1)		$	294,400			$	294,400				—			$	294,400
COBRA Subsidy (2)		$	29,556				—				—			$	29,556
RSU & PSU Acceleration (3)		$	849,521			$	2,299,516				—			$	2,299,516
Series B Unit Acceleration (4)			—				—			$	448,480				—
Total		$	1,773,477			$	2,593,916			$	448,480			$	3,223,472

 

(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, 2019.

 

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