Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive
Additional Materials
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Soliciting Material Pursuant to §240.14a-12
Forbes Energy Services Ltd.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment
of Filing Fee (Check the appropriate box):
x
No fee required.
¨
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1)
Title
of each class of securities to which transaction applies:
2)
Aggregate number of securities to which transaction applies:
3)
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
4)
Proposed
maximum aggregate value of transaction:
5)
Total fee paid:
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset
as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
The accompanying proxy is solicited by the board of directors (the “Board”) of Forbes Energy Services Ltd., a Texas corporation (the “Company”), for use at the 2016 Annual Meeting of Shareholders (the “Annual Meeting”) of the Company to be held on Friday, June 10, 2016 at 9:00 a.m., Central Daylight Savings Time, at the Hyatt Regency Houston, 1200 Louisiana Street, Houston, Texas77002. For those of you who cannot be present at the Annual Meeting, we urge that you participate by indicating
your choices on the proxy form provided to you and completing and returning it at your earliest convenience. If you sign and return your proxy form without specifying your choices, it will be understood that you wish to have your shares voted in accordance with our Board’ recommendations.
This booklet includes the Notice of Annual Meeting of Shareholders and the Proxy Statement, which contains details of the business to be conducted at the Annual Meeting. At the Annual Meeting, you will have an opportunity to discuss each item of business described in the Notice of Annual Meeting of Shareholders and Proxy Statement and to ask questions about our operations and the Company.
Our 2015 Annual Report to Shareholders, which is not part of the Proxy Statement, provides additional information regarding
our financial results for the fiscal year ended December 31, 2015. A copy of our 2015 Annual Report to Shareholders is available at www.forbesenergyservices.com or may be requested from our Assistant Secretary as described elsewhere in the Proxy Statement.
The shares represented by each valid proxy received by the Company on the form solicited by the Board will be voted in accordance with instructions specified on the proxy. A shareholder giving a duly executed proxy may revoke it before it is exercised by filing with or transmitting to the Assistant Secretary of the Company an instrument or transmission
revoking it, or a duly executed proxy bearing a later date.
In addition to the solicitation of proxies by use of this Proxy Statement, directors, officers and employees of the Company may solicit the return of proxies by mail, personal interview, or the Internet. Officers and employees of the Company will not receive additional compensation for their solicitation efforts, but they will be reimbursed for any out-of-pocket expenses incurred. Brokerage houses and other custodians, nominees and fiduciaries will be requested, in connection with the stock registered in their names, to forward solicitation materials to the beneficial owners of such stock.
All costs of preparing, printing, assembling and mailing the
Notice of Annual Meeting of Shareholders, this Proxy Statement, the enclosed form of proxy and any additional materials, as well as the cost of forwarding solicitation materials to the beneficial owners of stock and all other costs of solicitation, will be borne by the Company.
It is important that your shares are represented at the Annual Meeting, whether or not you are able to attend personally. Accordingly, please complete, sign, date and return the proxy form as promptly as possible in the envelope provided, or submit your proxy by Internet, as described in the proxy form. If you do attend the Annual Meeting, you may withdraw your proxy and vote your shares in person.
On behalf of our Board, thank you for your cooperation and continued support.
Notice is hereby given that the 2016 Annual Meeting of Shareholders (the “Annual Meeting”) of Forbes Energy Services Ltd., a Texas corporation (the “Company”), will be held on Friday, June 10, 2016 at 9:00 a.m., Central Daylight Savings Time, in the Hyatt Regency Houston, 1200 Louisiana Street, Houston, Texas77002, for the following purposes, as more fully described in the accompanying Proxy Statement:
1.
to
elect a board of six directors, each to serve until our next annual meeting of shareholders or until their respective successors have been duly elected and qualified;
2.
to approve amendments to the Company’s Certificate of Formation to effect a reverse stock split of our issued and outstanding shares of common stock, par value $0.04 per share, at a ratio between 1-to-5 and 1-to-10 and effective upon a date and in such ratio as is to be determined by the Board and to effect a change in the par value of the Company’s common stock to $0.01 per share;
3.
to
ratify the reappointment of BDO USA, LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2016; and
4.
to transact such other business as may properly come before the Annual Meeting and any postponement(s) or adjournment(s) thereof.
All shareholders are cordially invited to attend the Annual Meeting in person. However, to ensure that each shareholder’s vote is counted at the Annual Meeting, shareholders are requested to complete, sign, date and return the proxy form provided to you as promptly
as possible in the envelope provided, or to submit their proxy by Internet, as described in the proxy form previously mailed to you. Shareholders attending the Annual Meeting may vote in person even if they have previously submitted their proxy authorization.
Only shareholders of record as of the close of business on April 11, 2016 are entitled to receive notice of and to vote at the Annual Meeting and any postponement(s) or adjournment(s) thereof. A list of such shareholders shall be open to the examination of any shareholder of record at the Company’s offices during normal business hours for a period of ten days prior to the Annual Meeting, and shall also be open for examination at the Annual Meeting and any postponement(s) or adjournment(s) thereof.
IT IS IMPORTANT THAT YOUR SHARES OF COMMON STOCK BE REPRESENTED AT THE ANNUAL MEETING REGARDLESS OF THE NUMBER OF SHARES YOU HOLD. PLEASE COMPLETE, SIGN AND MAIL THE PROXY FORM IN THE ENVELOPE PROVIDED
OR SUBMIT YOUR PROXY AUTHORIZATION THROUGH THE INTERNET EVEN IF YOU INTEND TO BE PRESENT AT THE ANNUAL MEETING. SUBMITTING YOUR PROXY AUTHORIZATION WILL NOT LIMIT YOUR RIGHT TO VOTE IN PERSON OR TO ATTEND THE ANNUAL MEETING, BUT WILL ENSURE YOUR REPRESENTATION IF YOU CANNOT ATTEND. IF YOU HAVE SHARES OF COMMON STOCK IN MORE THAN ONE NAME, OR IF YOUR SHARES ARE REGISTERED IN MORE THAN ONE WAY, YOU MAY RECEIVE MORE THAN ONE COPY OF THE PROXY MATERIALS. IF SO, SIGN AND RETURN EACH OF THE PROXY FORMS YOU RECEIVE OR SUBMIT YOUR PROXY AUTHORIZATION THROUGH THE INTERNET SO THAT ALL OF YOUR SHARES MAY BE VOTED. YOU MAY REVOKE YOUR PROXY AUTHORIZATION AT ANY TIME BEFORE ITS USE.
This Proxy Statement is furnished in connection with the solicitation of proxies by the
board of directors (the “Board”) of Forbes Energy Services Ltd. (“FES Ltd.” or the “Company”) for the 2016 Annual Meeting of Shareholders to be held on June 10, 2016, and any postponement(s) or adjournment(s) thereof (the “Annual Meeting”). This Proxy Statement and the accompanying Notice of Annual Meeting and proxy form are first being sent or made available to shareholders on or about April 29, 2016.
Record Date and Voting Securities
Shareholders of record as of the close of business on April 11, 2016 (the “Record Date”) are entitled to receive notice of and to vote at the Annual Meeting. As of April 11, 2016, there were 22,214,855 shares of our
common stock, par value $0.04 per share, issued and outstanding. Each outstanding share of common stock is entitled to one vote upon each matter properly submitted to a vote at the Annual Meeting.
Shareholders that are entitled to vote at the Annual Meeting may do so in person at the Annual Meeting, or by proxy submitted by mail or Internet as described on the notice and access form.
Abstentions and broker non-votes are counted for purposes of determining the presence or absence of a quorum for the transaction of business. Broker non-votes occur when a broker or other nominee does not have discretionary authority to vote the shares with respect to a particular matter and has not received voting instructions from the beneficial owner with respect to that matter.
The vote of a plurality of the shares entitled to vote and represented at a
meeting at which a quorum is present is required for the election of directors. Thus, broker non-votes and abstentions will have no effect on the election of directors.
The affirmative vote of a majority of the shares of common stock entitled to vote and represented in person or by proxy at a meeting at which a quorum is present is required to approve the proposals relating to (i) the reverse stock split of our issued and outstanding shares of common stock and the changing of the par value of our common stock to $0.01 per share and (ii) the ratification of the reappointment of the Company’s independent registered public accounting firm. Shares represented at the Annual Meeting that abstain with respect to such proposals will be considered in determining whether the requisite number of affirmative votes are cast on such matters. Accordingly,
such abstentions will have the same effect as a vote against (i) the reverse stock split of our issued and outstanding shares of common stock and the changing of the par value of our common stock to $0.01 per share and (ii) the ratification of the reappointment of independent registered public accounting firm. Except for the purposes of determining whether a quorum is present, as discussed below, broker non-votes will not be treated as shares represented at the Annual Meeting and are not entitled to vote for purposes of such proposals and, therefore, will have no effect.
Quorum
Except as may be otherwise required by law or the Company’s Certificate of Formation (the “Certificate of Formation”), or the Company’s
Amended and Restated Bylaws (the “Bylaws”), the holders of a majority of the Company’s shares of common stock entitled to vote and present in person or represented by proxy shall constitute a quorum at a meeting of the shareholders. The persons whom we appoint to act as inspectors of election will determine whether a quorum exists. Shares of the Company’s common stock represented by properly executed and returned proxies will be treated as present. Shares of the Company’s common stock present or represented at the Annual Meeting
that abstain from voting or that are the subject of broker non-votes will be counted as present for purposes of determining a quorum.
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How Your Proxy Will be Voted on Actions to be Taken
The Board is soliciting a proxy in the enclosed form to provide you with an opportunity to vote on all matters scheduled to come before the Annual Meeting, whether or not you attend in person.
Granting Your Proxy. If you properly execute and return a proxy in the enclosed form, your shares of common stock will be voted as you specify. If you make no specifications,
your proxy representing our common stock will be voted:
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“FOR” each of the proposed director nominees;
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“FOR” amendments to the Certificate of Formation to effect a reverse stock split of our issued and outstanding shares of common stock and to effect a change in the par value per share of the Company’s common stock to $0.01 per share; and
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“FOR”
the ratification of the reappointment of independent registered public accounting firm.
We expect no matters to be presented for action at the Annual Meeting other than the items described in this Proxy Statement. By signing and returning the proxy, however, you will give to the persons named as proxies therein discretionary voting authority with respect to any other matter that may properly come before the Annual Meeting, and they intend to vote on any such other matter in accordance with their best judgment.
Revoking Your Proxy. If you submit a proxy, you may subsequently revoke it or submit a revised proxy at any time before it is voted. You may also attend the Annual Meeting in person and vote by ballot, which would cancel any proxy that you previously submitted. If you wish to vote in person at the Annual Meeting but hold your stock
in street name (that is, in the name of a broker, bank or other institution), then you must have a proxy from the broker, bank or institution in order to vote at the Annual Meeting.
Proxy Solicitation
We will pay all expenses of soliciting proxies for the Annual Meeting. In addition to solicitations by mail, arrangements have been made for brokers and nominees to send proxy materials to their principals, and we will reimburse them for their reasonable expenses. We may have our employees or other representatives (who will receive no additional compensation for their services) solicit proxies by telephone, telecopy, personal interview or other means. We may choose to engage a paid proxy solicitor to solicit proxies for the Annual Meeting, but have not yet done so.
Shareholder Proposals
If you
want us to consider including a proposal in next year’s proxy statement, you must deliver it in writing to the Assistant Secretary, Forbes Energy Services Ltd., 3000 South Business Highway 281, Alice, Texas78332, by no later than December 30, 2016.
If you want to present a proposal at the 2017 Annual Meeting of Shareholders in person but do not wish to have it included in our proxy statement, you must submit it in writing to our Assistant Secretary, at the above address, by March 11, 2017 to be considered timely, in accordance with the specific procedural requirements
set forth in our Bylaws. If you would like a copy of these procedures, please contact our Assistant Secretary for a copy of our Bylaws.
Pursuant to the rules of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the designated proxies may use discretionary authority to vote with respect to shareholder proposals presented in person at the 2016 Annual Meeting if the shareholder making the proposal has not given the Company timely notice of such proposal.
Delivery of One Proxy Statement and Annual Report to a Single Household to Reduce Duplicate Mailings
Each
year in connection with the annual meeting of shareholders, we are required to arrange for a proxy statement and annual report to be provided to each beneficial shareholder whose shares are held by or in the name of a broker, bank, trust or other nominee. Because some shareholders hold shares of the Company’s common stock in multiple accounts, this process results in duplicate mailings to shareholders who share the same address. Shareholders may avoid receiving duplicate mailings and save us the cost of producing and mailing duplicate documents as follows:
Shareholders of Record. If your shares are registered in your own name and you are interested in consenting to the delivery of a single proxy statement or annual report, you may contact the
Company by mail at 3000 South Business Highway 281, Alice, Texas78332, by telephone at (361) 664-0549 or by e-mail at mledesma@ForbesEnergyServices.com.
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Beneficial Shareholders. If
your shares are not registered in your own name, your broker, bank, trust or other nominee that holds your shares may have asked you to consent to the delivery of a single proxy statement or annual report if there are other Company shareholders who share an address with you. If you currently receive more than one proxy statement or annual report at your household, and would like to receive only one copy of each in the future, you should contact your nominee.
Right to Request Separate Copies. If you consent to the delivery of a single proxy statement and annual report but later decide that you would prefer to receive a separate copy of the proxy statement or annual report, as applicable, for each shareholder sharing your address, then please notify us or your nominee, as applicable, and we or they will promptly deliver such additional proxy statements or annual reports. If you wish to receive a separate
copy of the proxy statement or annual report for each shareholder sharing your address in the future, you may contact the Company by mail at 3000 South Business Highway 281, Alice, Texas78332, by telephone at (361) 664-0549 or by e-mail at mledesma@ForbesEnergyServices.com.
Proposal No. 1 – Election of Directors
We currently have
six members of the Board. The Board has nominated as directors the six persons named below, all of whom are presently serving and have been nominated to serve as directors until the next annual meeting of shareholders or until their successors are duly elected and qualified. If any nominee should be unavailable for election as a result of an unexpected occurrence, the Board’s proxies shall vote such shares for the election of such substitute nominee as the Board may propose. It is not anticipated that any nominee will be unable or unwilling to serve as a director if elected.
The name, age as of April 1, 2016, principal occupation, and other information highlighting the particular experience, qualifications, attributes and skills that support the conclusion of the nominating and corporate governance committee that such nominee for director should serve as a director of the
Company are set forth below.
Dale W. Bossert, 71, was elected as a director upon the Company’s formation effective April 11, 2008, and has served as a director of Forbes Energy Services LLC (“Forbes LLC”), a Delaware subsidiary of the Company since March 20, 2008. Mr. Bossert served as a director of GasFrac Energy Services from its inception in May 2006 until May 2014. In August 2010, GasFrac Energy Services conducted a Canadian initial public offering and was listed on the Toronto Stock Exchange (the “TSX”). Mr. Bossert served as the Chairman of the Board and a director of Turnkey E&P Inc. (“Turnkey”),
a company listed on the TSX, from July 2007 to February 2010, and served as a director of Keeper Resources Inc., a company that was listed on the TSX, from September 2004 until its sale in May 2008. Prior to his service as Chairman of the Board and director of Turnkey, he was Turnkey's President and Chief Executive Officer from December 2004 to July 2007. On November 17, 2008, the principal operating subsidiary of Turnkey filed for protection under Chapter 11 of the U.S. Bankruptcy Code. Turnkey was subject to a cease trade order by the Alberta Securities Commission on December 14, 2009 and received cease trade orders from other Canadian securities commissions subsequently. Mr. Bossert resigned as a director of Turnkey on February 14, 2010. Mr. Bossert has served as the President of DWB Oil and Gas Consulting Ltd. from
July 2002 to present. Mr. Bossert has approximately 50 years of experience in the upstream oil and natural gas industry and has held various positions with Amoco Corporation in Calgary, Alberta, and Chicago, Illinois, and with Union Pacific Resources Company in Calgary, Alberta, Denver, Colorado, and Fort Worth, Texas. Mr. Bossert has worked for or acted as a consultant to a number of U.S. based energy companies, including Celsius Energy Company, Chesapeake Energy Corp. and Bass Enterprises.
Mr. Bossert’s significant experience, as both a director and an executive officer, with companies in the oil and gas industry, gives him critical insights to the issues presently facing the Company.
Travis H. Burris, 54, was elected as a director upon the
Company’s formation effective April 11, 2008, and since the reorganization of the Company’s predecessor limited liability companies under a Delaware holding company, Forbes LLC, effective January 1, 2008 (the “Delaware Reorganization”), has served as a director of Forbes LLC. Since February 2012, Mr. Burris has served as a director of ZaZa Energy, LLC, a NASDAQ listed company, and chairman of its compensation committee. Mr. Burris also serves as the Chairman of the board of directors for several private companies, including: Agrow Credit Corporation, Inc., where he has been a director since 1995; Cash Box Pawn, Inc., where he has been a director since 2000; and Producers Ag Finance, where he has been a director since 2001. Mr. Burris’ past service on boards of directors includes
service as the Chairman of the Board of Falfurrias State Bank from 2001 to 2010, as a director of Mesquite Helicopter Service, Inc. from 1994 to 2008, as a director of Mesquite Aviation from 1998 to 2008, as a director of Resonant Technology from 2006 to 2012, and, from 1990 to 2007, as the founder and Chairman of the Board of Alice Loan Company, a real estate development company. Mr. Burris has been President, Chief Executive Officer and a director of Texas Champion Bank since 1987, Founder, and President of G. and G. Loan Company since 1991, and has significant ownership stakes in various ranching and real estate investment businesses.
Mr. Burris’ experience in finance and banking gives him a broad understanding of the financial structure of the Company and a familiarity with the financial markets available to the
Company. Further, Mr. Burris’ work as a director of numerous businesses has given him valuable experience in corporate oversight that he applies to his work on the Board.
John E. Crisp, 54, is the President and Chief Executive Officer of the Company and was appointed to such offices and elected as a director and Chairman of the Board upon the Company’s formation effective April 11, 2008, and since the completion of the Delaware
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Reorganization
on January 1, 2008, has been the Chairman of the Board, President and Chief Executive Officer of Forbes LLC. Since their reorganization as Delaware limited liability companies in June 2007, Mr. Crisp has served as an executive officer of each of TX Energy Services, LLC and C.C. Forbes, LLC, the entities that now serve as the principal operating subsidiaries of the Company (the “Operating Subsidiaries”). Prior to that time, Mr. Crisp helped found the predecessor entities of the Operating Subsidiaries in 2003 and was Director of Operations of one such predecessor
entity, TX Energy Services, L.P., from its founding until the reorganization of the Operating Subsidiaries as Delaware limited liability companies in June 2007. Prior to assisting in the founding of the predecessor entities to the Operating Subsidiaries in 2003, Mr. Crisp was a Division Manager at Key Energy from 1998 to 2003. Key Energy acquired Dawson Production Services (“Dawson”) shortly after Dawson acquired Hellums Services, Inc. in 1998. Mr. Crisp became a partner of Hellums in 1995, after serving as their Equipment and Safety Manager from 1990, and served in the same capacity until it was sold to Dawson in 1998, at which time Mr. Crisp was serving as a district manager. Mr. Crisp started in the energy industry in 1978, working as an equipment operator. Mr. Crisp has over
31 years of oilfield services industry experience and has on three separate occasions built and later sold oilfield service businesses. Mr. Crisp currently serves as a director of both Texas Champion Bank and Brush Country Bank. He also serves in various management capacities with regard to certain business ventures described under “Certain Relationships and Related Transactions” beginning on page 35 of this proxy statement.
Mr. Crisp is one of the founders of the Company and its Chief Executive Officer. As such, Mr. Crisp has a thorough understanding of the Company, its operations and the industry in which it operates. Under his leadership, the Company has grown
from a small South Texas company to a major North American provider of production and well services. Mr. Crisp’s knowledge of the Company, combined with his long experience working in the oilfield services industry make him an indispensable member of the Board.
Charles C. Forbes, Jr., 62, is the Company’s Executive Vice President and Chief Operating Officer and was appointed to such offices and elected as a director upon the Company’s formation effective April 11, 2008, and since the Delaware Reorganization, has been a director and the Executive Vice President and Chief Operating Officer of Forbes
LLC. Since their reorganization as Delaware limited liability companies in June 2007, Mr. Forbes has served as an executive officer of each of our Operating Subsidiaries. Prior to that time, Mr. Forbes helped found the predecessor entities of the Operating Subsidiaries in 2003 and was Director of Operations of one such predecessor entity, C.C. Forbes, L.P. from its founding until the reorganization of the Operating Subsidiaries as Delaware limited liability companies in June 2007. Prior to assisting in the founding of the predecessor entities to the Operating Subsidiaries in 2003, Mr. Forbes founded Forbes
Oil & Gas Company, an independent exploration and production company, in the mid-1980s which he continues to operate. From 1998 to 2003, Mr. Forbes served as a consultant to various independent oilfield services companies in South Texas. Mr. Forbes started in the oilfield services industry with Otis Engineering doing workover and wireline work. Mr. Forbes was a part of a group that purchased Hellums Services, Inc. in 1995, which was acquired by Dawson Production Services in 1998. Mr. Forbes started O.K. Well Service in 1978 with three rigs and sold it to Pride Petroleum Services in 1990, when the company had 22 workover rigs, 12 swabbing rigs and 6 winch trucks with approximately 145 employees. Mr. Forbes managed the operations of oil and natural gas leases from 1980 through 2006 and various salt water disposal wells from 1980 through 2006. Mr. Forbes has over 36 years of oilfield
services industry experience and has founded, built and later sold oilfield services businesses for the past 20 plus years. Mr. Forbes also serves in various management capacities with regard to certain business ventures described under “Certain Relationships and Related Transactions” beginning on page 35 of this proxy statement
Mr. Forbes is one of the founders of the Company and its Chief Operating Officer. He has detailed knowledge of the operations of the Company. This combined with Mr. Forbes’ over 36 years of experience in the oilfield industry allow him to make significant contributions to the work done by the Board.
Ted A. Izatt, 60, joined the Board in August 2012. He
has more than 30 years of financial experience. From September 2010 until November 2014, he served as Chief Investment Officer for Quantum Reservoir Impact, LLC, or QRI, focusing on acquisitions and capital plays in the oil sector. Since January 2014, he has served as director of Investment Relations and Regulatory Compliance for QRI. Currently, he is an Associate in QRI's Scholars and Associates Program. In addition to these positions, Mr. Izatt served as QRI’s Chief Financial Officer and Principal Financial Analyst from October 2008 through August 2010. Prior to joining QRI, Mr. Izatt served as Senior Managing Director of Bear Stearns’ fixed income research department from March 2004 to August 2008. From July 1997 to February 2004, Mr. Izatt worked as Senior Vice President with Lehman Brothers covering the global oil and gas sector as an analyst. Prior to that, Mr. Izatt worked as a managing director of Moody’s Investors Service, where he ran its Global Oil and Gas
Group, from February 1992 to June 1997. During that period, he covered the global high grade and crossover energy and basic materials industries and, for many years, was ranked by Institutional Investor as the top high-grade fixed income energy analyst. Mr. Izatt also currently serves as a member of the board of directors of Quantum Reservoir Impact, LLC, a privately-held company.
Mr. Izatt’s significant experience as a director, chief investment officer and chief financial officer with a company in the oil and gas industry and his years of experience in the financial industry give him a deep understanding of the issues presently facing the Company and brings added financial expertise to the Board.
William W. Sherrill, 89, was
elected as a director upon the Company’s formation effective April 11, 2008, and since the Delaware Reorganization, has served as a director of Forbes LLC. Mr. Sherrill has extensive experience in both operations and finance. In addition to his active business interests, Mr. Sherrill has taught Entrepreneurship as an Executive Professor at the University of Houston’s Bauer
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College of Business Administration since September 1990. He has served as Chairman of the Center for Entrepreneurship and Innovation and is
now the Chairman Emeritus of what is now known as the Wolff Center for Entrepreneurship at such university since September 1993. This program has been ranked in the top three in the nation for the last eight years among similar programs at other universities. Mr. Sherrill has been an Adjunct Professor at the Cullen College of Engineering. From March 1972 to April 1974, Mr. Sherrill was President of Associates Corporation of North America. Mr. Sherrill has served as a director of Gulf and Western and Dasa Corporation. In addition, Mr. Sherrill was a director of the The Federal Deposit Insurance Corporation, a Commissioner to the United Nations Commission for UNESCO (the United Nations Educational, Scientific and Cultural Organization), a Governor of the Federal Reserve System in Washington D.C., Treasurer of the City of Houston, President of a commercial bank, Executive Vice President of a savings and loan association, and President of a federal credit union. Mr. Sherrill
holds an MBA from Harvard Graduate School of Business Administration, with Distinction in Finance and Manufacturing.
Mr. Sherrill brings to the Board expertise in areas of business and finance. His long experience, both in industry and academia, allows him to provide critical advice to the Board with regard to key issues facing the Company. His leadership skills allow him to serve effectively as our Lead Independent Director and Chairman of the Audit Committee.
The vote of a plurality of the shares entitled to vote and represented at a meeting at which a quorum is present is required for the election of directors.
The Board unanimously recommends that the shareholders vote “FOR” the election of each of the nominees.
Board
Structure, Risk Oversight, Committee Composition and Meetings
The size of the Board is determined by the Board within a size range of no less than five nor more than seven directors, as required by the Company’s Bylaws. The size of the Board is currently set at six members. During 2015, our Board held four meetings and took action by unanimous written consent seven times. All of the directors attended at least 75% of the aggregate number of meetings of the Board and of each committee of the Board on which they served in 2015. The Board intends to meet at least quarterly every year. The
Company has established Amended and Restated Corporate Governance Guidelines, which may be found on the Investor Relations page of the Company’s website, www.forbesenergyservices.com. The role and responsibilities of the Chairman of the Board are set forth in the Company’s Bylaws and the Amended and Restated Corporate Governance Guidelines.
Since the founding of the
Company in April 2008, Mr. Crisp has served as both the Chief Executive Officer and the Chairman of the Board and Mr. Forbes has served as both the Chief Operating Officer and a director. Mr. Crisp and Mr. Forbes both played a key role in the founding of the Company and are critically involved in the day-to-day operations of the Company. We believe that the optimal leadership structure for the Company is to have these founders and executive officers assume roles on the Board, including Chairman, in the case of Mr. Crisp. We believe that this structure will avoid duplication of efforts and provide clear leadership for the Company.
As
a result of the Company’s common stock being listed on The NASDAQ Capital Market, the Board applies NASDAQ rules when determining director independence. The Board has determined that Dale W. Bossert, Travis H. Burris, Ted A. Izatt and William W. Sherrill are independent directors as defined by NASDAQ. John E. Crisp and Charles C. Forbes, Jr. are not independent directors as each of such directors are executive officers of the Company and have interests in certain related party transactions that are described in the section titled “Certain Relationship and Related Transactions” below. Although John E. Crisp, the Chairman of the Board, is
not an independent director, William W. Sherrill, the Lead Independent Director, is independent. The primary responsibility of the Lead Independent Director is to provide independent leadership. At present, as noted above, a majority of our directors are independent as defined by NASDAQ and as required by NASDAQ rules.
Committees of the Board
The Board has established three Board committees: the audit committee, the compensation committee, and the nominating and corporate governance committee. The role and responsibilities of each such committee are set forth in their respective charters that have been approved by the Board. The information below summarizes the functions of each of the committees in accordance with its charter.
Audit Committee
The audit committee has been structured to comply
with the requirements of Section 3(a)(58)(A) of the Exchange Act. The Board has determined that the audit committee members have the appropriate level of financial understanding and industry specific knowledge to be able to perform their duties on the committee, are financially literate and have the requisite financial sophistication as required by the applicable listing standards of NASDAQ, and qualify as audit committee financial experts as defined in Item 407(d)(s)(ii) of Regulation S-K under the Exchange Act. The charter of the audit committee of the Company, which was amended and restated by the Board on March 17, 2014, may be found on the Investor Relations page of the Company’s website,
www.forbesenergyservices.com.
In addition to certain duties prescribed by applicable law, the audit committee is charged, under its written charter, to select and engage the independent public accountants to audit our annual financial statements, subject to stockholder ratification. The audit committee
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also establishes the scope of, and oversees the annual audit and approves any other services provided
by public accounting firms. Furthermore, the audit committee provides assistance to the Board in fulfilling its oversight responsibility to the shareholders, potential shareholders, the investment community and others relating to the integrity of our financial statements, our compliance with legal and regulatory requirements, the independent auditor’s qualifications and independence, the performance of our internal audit function and our independent auditor, and overseeing our system of disclosure controls and procedures and system of internal controls regarding finance, accounting, legal compliance and ethics that management and the Board have established. The Board is informed of the audit committee’s activities by reports delivered to the Board.
In addition, the audit committee is responsible to ensure satisfactory procedures for receipt, retention, and treatment of complaints
and for the confidential, anonymous submission by employees regarding any accounting, internal accounting controls or auditing matters. Pursuant to these responsibilities, the audit committee monitors the Company’s employee hotline for the submission of such issues.
The Board has determined that the audit committee is best suited to review and approve related party transactions. Pursuant to the Related Persons Transaction Policy, the audit committee reviews related party transactions and determines whether to approve or ratify related party transactions. A summary of the Related Persons Transaction Policy is provided under "Review, Approval or Ratification of Transactions with Related Persons" beginning on page 37 of this Proxy Statement.
In performing its duties, it is the responsibility
of the audit committee to maintain free and open communication among the audit committee, our independent registered public accounting firm, the internal audit function and management of the Company.
The audit committee meets at least once per fiscal quarter to fulfill its responsibilities under its charter and in connection with the review of the Company’s quarterly and annual financial statements. In 2015, the audit committee met four times. The audit committee is comprised of Dale W. Bossert, Travis H. Burris, Ted A. Izatt and William W. Sherrill, each of whom is independent under the rules of NASDAQ, satisfies the financial literacy requirements of NASDAQ and qualifies as an audit committee financial expert under the Exchange Act. Mr. Sherrill is
the chair of the audit committee.
Compensation Committee
The compensation committee’s role is to assist the Board in fulfilling its responsibilities relating to matters of compensation, including equity compensation, and to establish a plan of continuity and development for the Company’s senior management. The compensation committee operates under a written charter adopted by the Board, which was amended and restated by the Board on March 17, 2014. The compensation committee periodically assesses compensation of the Company’s executive officers in relation to companies of comparable size, industry and complexity, taking the performance of the
Company and such other companies into consideration. The compensation committee makes recommendations to the Board regarding the compensation of the Company’s executive officers other than the Chief Executive Officer. The compensation committee, or together with the other independent director (as directed by the Board), determines and approves the Chief Executive Officer's compensation based on its evaluation of the Chief Executive Officer's performance in relation to the corporate goals and objectives approved by the compensation committee. In addition, the compensation committee will, as appropriate, review and approve public or regulatory disclosure respecting compensation, including the Compensation Disclosure and Analysis, and the basis on which performance is measured. The compensation committee has the sole authority to retain and compensate any outside adviser as it
determines necessary to permit it to carry out its duties. The compensation committee may not form or delegate authority to subcommittees without the prior approval of the Board.
The compensation committee may use the findings and recommendations of compensation consultants to help ensure that management's compensation recommendations properly provide incentives for actions that improve Company performance, and are reasonable when compared to the market for executive talent. In 2013, BDO USA, LLP was engaged to provide a study of compensation programs for directors and executive officers of a broad peer group. In December 2014, the compensation committee selected and directly retained the services of Towers Watson & Co. ("Towers Watson") as a compensation consultant. As part of its services, Towers Watson reviews market data and advises the compensation committee on selecting an appropriate peer group, determining
the compensation levels of our chief executive officer, our other named executive officers and our directors, and our incentive plan design. Towers Watson did not provide any other services to the Company and worked with the Company's management, as directed by the compensation committee, only on matters for which the compensation committee is responsible.
The compensation committee is comprised of Dale W. Bossert, Travis H. Burris, and William W. Sherrill, all of whom are independent under the rules of NASDAQ. In 2015, the compensation committee met three times. The compensation committee meets as necessary. Mr. Burris is the chair of the compensation committee.
Nominating and Corporate Governance Committee
Under
the nominating and corporate governance committee’s charter, which was amended and restated by the Board on March 17, 2014, the nominating and corporate governance committee is charged to, among other things, develop, review and recommend to the Board a set of corporate governance policies and procedures for the Company, and to identify, review and recommend to the Board possible candidates for Board membership. The identification of potential Board members is undertaken with a view to ensuring overall
6
diversity
of experience, backgrounds, skills, and geographic representation of Board members. The nominating and corporate governance committee receives advice from the Board and will consider written recommendations from the shareholders of the Company respecting individuals best suited to serve as directors, and, when necessary, develops its own list of appropriate candidates for directorships.
The nominating and corporate governance committee is comprised of Dale W. Bossert, Travis H. Burris, Ted A. Izatt and William W. Sherrill, all of whom are independent under the rules of NASDAQ. The nominating and corporate governance committee met one time in 2015. The nominating and corporate governance committee meets at least annually, and otherwise as necessary. Mr. Bossert is the chair of the nominating and corporate governance committee.
Availability
of Committee Charters and Other Information
The charters for our audit, compensation, and nominating and corporate governance committees, as well as our Amended and Restated Corporate Governance Guidelines, Second Amended and Restated Employee Code of Business Conduct and Ethics (which applies to all employees including executive officers and includes a portion of the policy applicable specifically to executive officers), and Amended and Restated Code of Business Conduct and Ethics for Members of the Board, can all be found, free of charge, on the Investor Relations page of the Company’s website, www.forbesenergyservices.com. We
intend to disclose any changes to or waivers from the Second Amended and Restated Employee Code of Business Conduct and Ethics applicable to the executive officers and the Amended and Restated Code of Business Conduct and Ethics for Members of the Board that would otherwise be required to be disclosed under Item 5.05 of Form 8-K on our website. We will also provide printed copies of these materials to any shareholder or other interested person upon request to Forbes Energy Services Ltd., Attn: L. Melvin Cooper, 3000 South Business Highway 281, Alice, Texas78332. The
information on our website is not, and shall not be deemed to be, a part of this report or incorporated into any other filings we make with the Securities and Exchange Commission, or the Commission.
We also make available on our website, free of charge, access to our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements and any amendments to those reports and statements, as well as other documents that we file with or furnish to the Commission pursuant to Sections 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after such documents are filed with, or furnished to, the Commission.
Nomination Process
It
is our Board’s responsibility to nominate members for election to the Board and for filling vacancies on the Board that may occur between annual meetings of shareholders. The nominating and corporate governance committee assists the Board by identifying and reviewing potential candidates for Board membership consistent with criteria approved by the Board. The nominating and corporate governance committee also annually recommends qualified candidates (which may include existing directors) for approval by the Board of a slate of nominees to be proposed for election to the Board at the annual meeting of shareholders. Having considered the qualifications of these individuals, in March 2016, the nominating and corporate governance committee recommended to the Board the reelection of the six candidates nominated above.
As provided in the Bylaws,
the Board is authorized to nominate and elect a new director when a vacancy occurs between annual meetings of shareholders. In the event of a vacancy on the Board between annual meetings of the Company’s shareholders, the Board may request that the nominating and corporate governance committee identify, review and recommend qualified candidates for Board membership for Board consideration to fill such vacancies, if the Board determines that such vacancies will be filled. The Bylaws allow for up to seven directors. The Board is permitted by the Bylaws to create a new directorship upon the affirmative vote of 66 2/3%
of the directors then in office and to fill existing or newly created directorship slots by a majority vote of the directors then in office.
When formulating its recommendations for potential Board nominees, the nominating and corporate governance committee seeks and considers advice and recommendations from management, other members of the Board and may seek or consider advice and recommendations from consultants, outside counsel, accountants, or other advisors as the nominating and corporate governance committee or the Board may deem appropriate.
Board membership criteria, which are disclosed in the Company’s Amended and Restated Corporate Governance Guidelines on the Investor Relations page of the Company’s
website, www.forbesenergyservices.com, are determined by the Board, with input from the nominating and corporate governance committee. The Board is responsible for periodically determining the appropriate skills, perspectives, experiences, and characteristics required of Board candidates, taking into account the Company’s needs and current make-up of the Board. This assessment should include appropriate knowledge, experience, and skills in areas deemed critical to understanding the Company and its business; personal characteristics, such as integrity
and judgment; and the candidate’s commitments to the boards of other companies. While the Board does not have a formal policy with respect to diversity of potential Board nominees, the nominating and corporate governance committee considers the impact a potential Board nominee would have in terms of increasing the diversity of the Board with respect to professional experience, background, viewpoints, skills and areas of expertise. The resulting diversity of the Board allows each member of the Board an opportunity to provide specific input to Board decisions in his or her respective area of expertise. Each Board member is expected to ensure that other existing and planned future commitments do not materially interfere with the member’s service as a director and that he or she devotes the time necessary to discharge his or her duties as a director. The Board
7
believes
the qualification guidelines included as Exhibit A to the Company’s Amended and Restated Corporate Governance Guidelines are currently appropriate, but it may change these guidelines as the Company’s and Board’s needs warrant.
Nominations for Directors
The nominating and corporate governance committee will consider candidates for director nominees that are recommended by shareholders of the Company in the same manner as Board recommended nominees, in accordance with the procedures set forth in the Bylaws. Any such nominations should be
submitted to the Board care of the Assistant Secretary, Forbes Energy Services Ltd., 3000 South Business Highway 281, Alice, Texas78332 and accompany it with the following information:
•
appropriate biographical information, a statement as to the qualifications of the nominee and any other information relating to such nominee that is required to be disclosed pursuant to Regulation 14A under the Exchange Act (including such person’s written consent to being named in the proxy statement as a nominee and
to serving as a director if elected); and
•
the name(s) and address(es) of the shareholder(s) making the nomination and the number of shares of the Company’s common stock that are owned beneficially and of record by such shareholder(s).
The written recommendation should be submitted within the time frame described under the caption “Shareholder Proposals” above.
Communications with the Board
The Board has approved a process for shareholders and other interested person to communicate with the Board or certain
committees thereof. A description of this process entitled “Procedures for Communication with the Board” is located on the Company’s website, www.forbesenergyservices.com.
In addition, employees wishing to report concerns regarding possible unethical or unlawful behavior may call the Company’s toll-free governance hotline at 1-866-887-5494. Our audit committee monitors these calls. All calls are documented, and those reports that are deemed to be substantive
will be investigated.
Proposal No. 2 – Approval of Amendments to the Certificate of Formation to Effect a Reverse Stock Split of Our Outstanding Common Stock at the Discretion of the Board and to Effect a Change in the Par Value of Our Common Stock to $0.01 Per Share
The Board has unanimously recommended a proposal to our shareholders authorizing the Board to effect a reverse split of our common stock if necessary, in the sole discretion of the Board, to maintain eligibility to be listed on The NASDAQ Capital Market (“NASDAQ”). This authorization is to be effective for one year from the Annual Meeting. The effective date and the precise number of shares to be converted is to be determined by the Board at a later time, but under no circumstances would the reverse stock split be greater than 1 for 10. The Board believes this proposal
to be prudent for the reasons explained below. In addition, the Board has unanimously determined that, in connection with such reverse stock split, it is in the best interests of the Company and our shareholders to effect a change in the par value of our shares of common stock to $0.01 per share. The form of the Certificate of Amendment to effect the reverse stock split and the change in the par value of our common stock is attached hereto as Appendix A. The following discussion is qualified in its entirety by the full text of the Certificate of Amendment, which is hereby incorporated by reference.
The Board is requesting shareholder authorization to reverse split our outstanding common stock on the basis of one share of common stock for up
to 10 shares outstanding, only if necessary, in order to keep the common stock eligible to be quoted on NASDAQ. With an objective to meet NASDAQ’s $1.00 minimum bid price requirement, the Board will take into consideration the immediate impact of a reverse stock split on the stock price as well as price fluctuations caused by current market conditions when determining the final reverse stock split ratio. Approval of this proposal would authorize the Board to reverse split our common stock at any time from the time of approval until June 10, 2017. The Board desires not to effect a reverse stock split but believes that retaining our listing on NASDAQ is crucial to shareholder value and liquidity and our long-term business prospects. This proposed reverse stock split is not the first part of a Rule 13e-3 Going Private Transaction as defined in paragraph (a)(3)(i) of that regulation, as the reverse stock split proposal is
solely for the purpose of maintaining our listing on NASDAQ.
In September 2015, we received notice from The NASDAQ Stock Market advising that we had not maintained a minimum bid price of $1.00 per share as required under NASDAQ Listing Rule 5450(a)(1) for continued listing on The NASDAQ Global Market. On March 31, 2016, our shares were transferred from The NASDAQ Global Market to the NASDAQ Capital Market. We have been provided until September 26, 2016 to regain compliance with the $1.00 minimum bid price requirement under NASDAQ Listing Rule 5450(a)(1). If compliance is not demonstrated by us by such date, our securities will be subject to delisting from NASDAQ.
It is recommended that the shareholders
give authorization to the Board to approve and cause our management effect up to a 1 for 10 reverse stock split of our common stock at any time until June 10, 2017. Assuming that a reverse stock split would cause the trading price of our common stock to increase in the same proportion as the amount of the split, a reverse stock split would result in a proportionate increase in the quoted bid price of the common stock, thereby exceeding NASDAQ’s $1.00 minimum bid price requirement. On March
8
31, 2016, our common stock closed at a price of $0.47 with a trading volume of 31,578 shares. The average
daily trading volume for our common stock for the three months ending March 31, 2016 was 103,309 shares. Assuming a direct correlation between the number of shares before and after the reverse stock split, we expect that the new average daily trading volume for our common stock will be approximately 10,331 shares if the Board elects to effect a 1 for 10 reverse stock split.
For example, if the Board elects to effect a 1 for 10 reverse stock split, each 10 issued shares of our common stock held on the effective date will automatically be converted into one share of common stock. The reverse stock split conversion ratio would also have a proportionate effect on any outstanding options, the shares reserved under our 2012 Equity Incentive Plan (the “Plan”) and the shares of common stock into which our Series B Senior Convertible
Preferred Stock could be converted. The reverse stock split would not alter the rights associated with our common stock nor would it change the number of authorized shares of common stock. As explained below, no fractional shares will be issued.
Although the reverse stock split will not, by itself, impact our assets or prospects, if the fair market value per share of the common stock does not increase proportionately to the decrease in the number of shares of common stock outstanding, the Company’s aggregate market value will decrease. The Board believes that this risk is outweighed by the benefits of the continued listing of the common stock on NASDAQ.
Effect
of Reverse Split on Holders of Odd Lots of Shares
If the maximum 1 for 10 reverse split is authorized and declared, the reverse split would result in holders of fewer than 1,000 shares holding an “odd lot” or less than 100 shares. A securities transaction of 100 or more shares is a “round lot” transaction of shares for securities trading purposes and a transaction of less than 100 shares is an “odd lot” transaction. Round lot transactions are the standard size requirements for securities transactions and odd lot transactions may result in higher transaction costs to the odd lot seller.
Effect of Reverse Split Resulting in Fractions of A Share
No fractional shares of common stock will
be issued in connection with the reverse stock split. If as a result of the reverse stock split, a shareholder of record would otherwise hold a fractional share, the shareholder will receive a cash payment in lieu of the issuance of any such fractional share in an amount per share equal to the closing price per share on NASDAQ on the trading day immediately preceding the effective date of the reverse stock split (as adjusted to give effect to the reverse stock split), without interest. The ownership of a fractional interest will not give the holder thereof any voting, dividend or other right except to receive the cash payment therefore. These payments will be made through our exchange agent after consummation of the reverse stock split.
Shareholders should be aware that, under the escheat laws of the various jurisdictions where shareholders reside, where we are domiciled and
where the funds will be deposited, sums due for fractional interests that are not timely claimed after the effective time may be required to be paid to the designated agent for each such jurisdiction. Thereafter, shareholders otherwise entitled to receive such funds may have to seek to obtain them directly from the state to which they were paid.
Effect on Certificated Shares
As soon as practicable after the effective time of the reverse stock split, shareholders will be notified that the reverse stock split has been effected. We expect our transfer agent, American Stock Transfer & Trust Company, LLC, to serve as our exchange agent to facilitate the exchange of stock certificates. Shareholders holding shares in certificated form will be sent a transmittal letter
by our transfer agent. The letter of transmittal will contain instructions on how a shareholder should surrender his or her certificate(s) representing shares of the common stock (“Old Certificates”) to the transfer agent in exchange for certificates representing the appropriate number of whole shares of post-reverse stock split common stock (“New Certificates”). No New Certificates will be issued to a shareholder until that shareholder has surrendered all Old Certificates, together with a properly completed and executed letter of transmittal, to the transfer agent. No shareholder will be required to pay a transfer or other fee to exchange the shareholder’s Old Certificates. Shareholders will then receive the New Certificate(s)
representing the number of whole shares of common stock to which they are entitled as a result of the reverse stock split. Until surrendered, we will deem outstanding Old Certificates held by shareholders to be canceled and only to represent the number of whole shares of post-reverse stock split common stock to which these shareholders are entitled. Any Old Certificates submitted for exchange, whether because of a sale, transfer or other disposition of stock, will automatically be exchanged for New Certificates.
If any Old Certificates have a restrictive legend on the back of the Old Certificates, the New Certificate(s) will be issued with the same restrictive legends that are on the back of the
Old Certificates. If a shareholder is entitled to a payment in lieu of any fractional shares, such payment will be made as described above under “Effect of Reverse Split Resulting in Fractions of a Share.”
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Effect on Registered “Book-Entry” Holders of Common Stock (i.e., Shareholders that are Registered on the Transfer Agent’s Books and Records but Do Not Hold Certificates)
Some of our registered holders of common stock may hold some or all of their
shares electronically in book-entry form with our transfer agent. These shareholders do not have stock certificates evidencing their ownership of the common stock. They are, however, provided with a statement reflecting the number of shares registered in their accounts. If a shareholder holds registered shares in book-entry form with the transfer agent, no action needs to be taken to receive post-reverse stock split shares or cash payment in lieu of any fractional share interest, if applicable. If a shareholder is entitled to post-reverse stock split shares, a transaction statement will automatically be sent to the shareholder’s address of record indicating the number of shares of common stock held following the reverse stock split. If a shareholder is entitled to a cash payment in lieu of any fractional share interest, a check will be mailed to the shareholder’s registered address as soon as practicable after the effective date of the reverse stock split. By signing
and cashing the check, shareholders will warrant that they owned the shares of common stock for which they received a cash payment. The cash payment is subject to applicable federal and state income tax and state abandoned property laws.
Effect on Beneficial Holders of Common Stock (i.e., Shareholders Who Hold in “Street Name”)
Upon the effectiveness of a reverse stock split, we intend to treat shares of common stock held by shareholders in “street name,” through a bank, broker or other nominee, in the same manner as registered shareholders whose shares of common stock are registered in their names. Banks, brokers or other nominees will be instructed to effect the reverse stock split for their beneficial holders holding the common stock in “street name.” However,
these banks, brokers or other nominees may have different procedures than registered shareholders for processing the reverse stock split and making payment for fractional shares. If a shareholder holds shares of common stock with a bank, broker or other nominee and has any questions in this regard, shareholders are encouraged to contact their bank, broker or other nominee.
Effect of Reverse Split on Number of Shares Outstanding
The following table sets forth the number of shares of our common stock outstanding after each potential reverse stock split ranging from a 1 for 5 split to a 1 for 10 split, based on 22,214,855 shares of common stock outstanding as of April 11, 2016. The numbers shown below assume that no fractional shares are created
from a potential reverse stock split.
Potential Reverse
Stock Split
Post-Split Common
Stock Shares Outstanding
1 for 5
4,442,971
1
for 6
3,702,475
1 for 7
3,173,550
1 for 8
2,776,856
1
for 9
2,468,317
1 for 10
2,221,485
Effect of Reverse Split on Number of Authorized Shares Available for Issuance
As
of April 11, 2016, we had a total of 28,899,197 of our 112,500,000 authorized shares of common stock either issued or reserved for (i) exercise of options granted or future grants available under the approved Plan or (ii) conversion of our Series B Senior Convertible Preferred Stock. The table below illustrates the effect on the number of authorized shares of the common stock available for issuance as a result of each potential reverse split. While the number of authorized shares remains constant, the effect of a reverse split would result in an increased number of available authorized unissued shares.
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Potential
Reverse
Stock
Split
Post-Split
Common Stock
Issued or
Reserved
Authorized
Common Stock
Unissued Post-
Split Common
Stock Available
1
for 5
5,779,839
112,500,000
106,720,161
1
for 6
4,816,532
112,500,000
107,683,468
1
for 7
4,128,456
112,500,000
108,371,544
1
for 8
3,612,399
112,500,000
108,887,601
1
for 9
3,211,021
112,500,000
109,288,979
1
for 10
2,889,919
112,500,000
109,610,081
As
stated previously, our intent for requesting shareholder approval to reverse split the common stock is to keep the common stock eligible to be quoted on NASDAQ. We do not have any plans, proposals, or arrangements at this time to issue any of the additional authorized shares of common stock realized as a result of a reverse stock split for any future acquisitions or financings or any other purpose.
The actual reverse stock split ratio shall be determined by the Board based upon our estimation of the post-split trading bid price and the probability of the bid price meeting the $1.00 minimum bid price requirement under various market conditions.
We do not believe that a reverse stock split at any of the proposed ratios would reduce, to any significant extent, the number of shareholders of record
(which does not include shareholders holding shares in "street name").
Anti-takeover Implications of Reverse Stock Split
As a result of a reverse stock split, the number of authorized, but unissued shares of our common stock will increase as shown in the table above. Currently, we have 83,600,803 shares of authorized, unissued and non-reserved shares of our common stock available for issuance. If the maximum reverse split ratio of 1 share for each 10 existing outstanding shares is adopted by the Board following adoption of Proposal No. 2 by the shareholders, then the number of authorized, unissued and non-reserved shares of our common stock available for issuance would increase to 109,610,081 shares. Release No. 34-15230 of the staff of the Securities and Exchange Commission requires
disclosure and discussion of the effects of any shareholder proposal that may be used as an anti-takeover device. However, as indicated above, the purpose of the reverse split is to maintain our listing on NASDAQ, and not to construct or enable any anti-takeover defense or mechanism on our behalf. While it is possible that management could use the additional shares to resist or frustrate a third-party transaction providing an above-market premium that is favored by a majority of the independent shareholders, we have no intent or plan to employ the additional unissued authorized shares as an anti-takeover device.
Par Value Change
The Board believes that the decrease in par value of our common stock from $0.04 to $0.01 is in the
Company’s best interests and the best interests of our shareholders because it will bring the par value in line with the par value of other similar companies and will provide the Board and our management with more flexibility in setting the consideration that may be received for shares of common stock in purchases and sales and other corporate transactions, although no such transactions are currently contemplated. Par value is used to designate the lowest value for which a company can legally sell its shares. Historically, the concept of par value was to protect creditors and senior security holders by ensuring that when issuing its own shares a company received at least par value as consideration for its shares. As markets have become more liquid, with stock prices responding more rapidly to market developments, par value has become a generally outdated concept. Instead, for public companies like us, the market sets the price at which stock may be issued or otherwise
sold. The reduction in par value will have no impact on the value of our stock or the rights of our shareholders.
Accounting Matters
The par value of the shares of our common stock will be changing as a result of the implementation of the reverse stock split as contemplated in this proxy statement. Our stated capital, which consists of the par value per share of our common stock multiplied by the aggregate number of shares of our common stock issued and outstanding, will be reduced proportionately on the effective date of the reverse stock split. Correspondingly, our additional paid-in capital, which consists of the difference between our stated capital and the
11
aggregate
amount paid to us upon the issuance of all currently outstanding shares of our common stock, will be increased by a number equal to the decrease in stated capital. Further, net loss per share, book value per share and other per share amounts will be increased as a result of the reverse stock split because there will be fewer shares of common stock outstanding.
Certain United States Federal Income Tax Consequences
The reverse stock split of our common stock should constitute a “recapitalization” for U.S. federal income tax purposes. Accordingly, shareholders should not recognize gain or loss upon the reverse stock split, except with respect to cash received in lieu of a fractional share of common stock. A shareholder’s aggregate tax basis in the shares of the common stock received
pursuant to the reverse stock split should equal the aggregate tax basis of the shares of common stock surrendered (excluding any portion of such basis that is allocated to any fractional share of common stock), and such shareholder’s holding period for the shares of the common stock received should include the holding period for the shares of the common stock surrendered. Shareholders should consult their tax advisors as to application of the foregoing rules where shares of common stock were acquired at different times or at different prices. A shareholder who receives cash in lieu of a fractional share of common stock pursuant to the reverse stock split should generally recognize capital gain or loss in an amount equal to the difference, if any, between the amount of cash received and the portion of the shareholder’s tax basis in the shares of the common stock surrendered that is allocated to such fractional share of common stock. Such capital gain or loss should be
long-term capital gain or loss if the shareholder’s holding period for the common stock surrendered in the reverse stock split exceeds one year at the time of the reverse stock split.
The Board recommends a vote “FOR” the approval of an amendment to the Certificate of Formation to effect a reverse stock split of our outstanding common stock at the discretion of the Board and to effect a change in the par value of our common stock to $0.01 per share.
Proposal No. 3 – Selection and Ratification of the Independent Registered Public Accounting Firm
Our audit committee and Board seek shareholder ratification of the reappointment of BDO USA, LLP to act as the independent registered public accounting firm of the
Company for the 2016 fiscal year. If the shareholders do not ratify the appointment of BDO USA, LLP, the audit committee will reconsider this appointment. A representative of BDO USA, LLP will attend our annual meeting. The representative will have the opportunity to make a statement if he or she desires to do so and to respond to appropriate questions.
The affirmative vote of a majority of the shares of common stock entitled to vote and represented in person or by proxy at a meeting at which a quorum is present is required to ratify the selection of the independent auditors.
The Board unanimously recommends that the shareholders vote “FOR” the ratification of the reappointment of BDO USA, LLP as the Company’s independent registered public accounting firm for fiscal year 2016.
Independent
Auditors and Fees
BDO USA, LLP, began serving as the Company’s independent registered public accounting firm on June 23, 2009. The audit committee approved the reappointment of BDO USA, LLP as the Company’s independent registered public accounting firm for the 2016 fiscal year, subject to ratification by the shareholders.
The following table presents fees for professional audit services rendered by BDO USA, LLP for the audit of the Company’s annual financial statements for the years ended December 31, 2015 and December 31,
2014, and fees billed for other services rendered by BDO USA, LLP during those periods.
Audit
fees: Consists of fees billed for professional services rendered for the audit of the Company’s consolidated financial statements, for the review of the interim condensed consolidated financial statements included in quarterly reports, services that are normally provided by BDO USA, LLP in connection with statutory and regulatory filings or engagements and attest services, except those not required by statute or regulation.
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(2)
Tax
fees: Consists of tax compliance and preparation and other tax services. Tax compliance and preparation consists of fees billed for professional services related to federal, state and international tax compliance, assistance with tax audits and appeals, and tax return preparation. Other tax services consist of fees billed for other miscellaneous tax consulting and planning.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors
The audit committee is responsible for the appointment, retention, termination, compensation and oversight of the independent auditors. The audit committee’s policy is to pre-approve all audit and permissible non-audit services provided by the independent auditors. Requests for approval are generally submitted at a meeting of the audit committee. The audit committee may delegate pre-approval
authority to a committee member, provided that any decisions made by such member shall be presented to the full committee at its next scheduled meeting.
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EXECUTIVE OFFICERS
The names, ages as of April 11, 2016, position and other information concerning our executive officers are set forth below.
Senior Vice President, Chief Financial Officer and Assistant Secretary
John
E. Crisp is our President and Chief Executive Officer and was appointed to such offices and elected as a director and Chairman of the Board upon the Company’s formation effective April 11, 2008. Please refer to the section entitled “Proposal No. 1 – Election of Directors” for additional information with respect to Mr. Crisp’s background and experience.
Charles C. Forbes, Jr. is our Executive Vice President and Chief Operating Officer and was appointed to such offices and elected a director upon the Company’s formation effective April 11, 2008. Please refer to the section entitled “Proposal No. 1 – Election
of Directors” below for additional information with respect to Mr. Forbes’ background and experience.
L. Melvin Cooper is our Senior Vice President, Chief Financial Officer and Secretary and was appointed to such offices upon the Company’s formation effective April 11, 2008. Mr. Cooper also serves as the Senior Vice President and Chief Financial Officer of each of our Operating Subsidiaries. Prior to joining Forbes in 2007, Mr. Cooper served as the Chief Financial Officer or President of companies involved in site preparation for oil and gas exploration companies, supplying products and services
to new home builders, and supply chain management. Mr. Cooper has been a Director of Flotek Industries, Inc. (NYSE: FTK) since 2010 where he serves on the Audit Committee, Corporate Governance and Nominating Committee, and Compensation Committee. He is also a member of the Board of Directors for Par Pacific Holdings, Inc. (NYSE: PARR), where he has served since August 2012. Mr. Cooper is a member of the Audit Committee and Compensation and Corporate Governance Committees. In 2011, Mr. Cooper received the Board Leadership Fellow designation from the National Association of Corporate Directors ("NACD") where he is also a member of the Board of Directors of the NACD Houston area Tri-City Chapter. Mr. Cooper earned a degree in accounting from Texas A&M University - Kingsville (formerly Texas A&I) in 1975. Mr. Cooper has been a Certified Public Accountant since May 1977.
EXECUTIVE COMPENSATION
Compensation
Discussion and Analysis
Our philosophy on the compensation of our executive officers is to provide competitive salary levels and compensation incentives that attract and retain individuals of high quality, recognize performance and align executive goals with the short-term and long-term objectives of the Company and shareholders. Our compensation program is designed to reward performance, leadership and loyalty. The elements of our executive compensation program for our executive officers consist of base salary and benefits, cash bonuses and cash incentive awards and equity incentive awards. We provide base salary and benefits in order to compensate executive officers for their day-to-day services rendered to the Company, cash bonuses and cash incentive
awards in order to encourage achievement of operating results over the short-term and equity incentive awards in order to better align the interests of our executive officers with the long-term interests of our shareholders. We believe that each of these three principal elements play a role in achieving our overall compensation objective of attracting and maintain high quality individuals, recognizing performance and aligning executive goals with the objectives of the Company.
We do not have a formal policy for allocating between cash and non-cash compensation, generally or with respect to our named executive officers. Each year, the compensation committee evaluates each element of compensation separately and as a whole. In making this evaluation, the compensation committee generally considers information regarding such executive officer's
performance; the performance of the Company, past compensation practices and general industry information. In 2015, the compensation committee considered compensation information from a selected group of peer companies. These peer companies were reviewed and approved by the compensation committee for assessing the competitiveness of 2015 compensation levels. A discussion of how this comparison was conducted and a list of the peer companies considered in 2015 is provided in the section entitled “How and why we benchmark compensation against our peers,” below.
Base Salary
As stated above, we provide base salary to our executive officers in order to compensate such officers for the services they provide to the
Company, on a day-to-day basis. The base salaries for the executive officers were initially set in May 2008, when we entered into employment agreements with such officers. The compensation committee from time to time evaluates those salaries based on the
14
contributions made, responsibilities assumed and skills possessed by each such executive, as well as the condition of the Company and the overall energy services industry.
The compensation committee determined that the base salary of Messrs. Crisp, Forbes and
Cooper of $650,000, $650,000 and $425,000, respectively should remain unchanged for 2015 and 2016. These salaries are based on the factors described above and a review of compensation practices of our peer group, which is described in greater detail in the section entitled “How and why we benchmark compensation against our peers” beginning on page 18. With respect to setting the salary of Mr. Cooper, specifically, the compensation committee felt, and continues to feel, that Mr. Cooper’s talents and achievements, including the completion of debt offerings, bank financings and our NASDAQ listing, make him well qualified to take a position in a company whose size exceeds our peer group. Further, the compensation committee was particularly mindful of the broad scope of responsibilities assumed by Mr. Cooper, including those that would often be associated with a treasurer, controller, corporate secretary or investor relations specialist, which may not be performed
by chief financial officers in other similarly situated companies.
Benefits and Perquisites.
The Company provides the executive officers and other employees with perquisites and other personal benefits as part of providing a competitive executive compensation program. The Company provides its executive officers with health, medical, dental and life insurance coverage, as it does for all of its employees, provided that with regard to these benefit plans the Company pays certain premiums for such executive officers that are not covered for all employees. Further, the
Company also pays the premiums for a supplemental life insurance policy with a face amount equal to $260,000 for Mr. Forbes and certain family members and the premiums for a supplemental life insurance policy with a face amount equal to $200,000 for Mr. Crisp.
Messrs. Crisp and Forbes have also been provided a company vehicle. Further, Messrs. Crisp, Forbes and Cooper receive a monthly vehicle and fuel allowance of $1,000 per month. This vehicle allowance is also available to certain managers and full-time employees.
Annual Bonuses and Cash Incentive Compensation and Related Stock Grants
The Company uses cash compensation in excess of base salary to encourage achievement of operating results and to create a competitive compensation package for our
executive officers. For fiscal 2015, the compensation committee adopted a formal plan, which we often refer to as our annual bonus plan. The compensation committee believes that the adoption of this performance incentive compensation approach, which operates under our Plan, brings greater certainty and executive accountability to the Company’s compensation package.
For 2015, the target awards under the annual bonus plan were based on a percentage of each named executive officer's base salary. In the case of Messrs. Crisp and Forbes, their target award was 100% of base salary with the threshold potential award of 50% of base salary and the maximum potential award of 200% of base salary. In the case of Mr. Cooper, his target award was 60% of his base salary with the threshold potential award
of 30% of base salary and the maximum potential award of 120% of base salary.
In previous years, the Company used adjusted EBITDA as the primary financial metric for assessing short-term corporate performance and as a measurement to reward its executive officers. In March 2015, the compensation committee, in consultation with Towers Watson, made adjustments to the performance metrics underlying the Company's 2015 annual bonus plan. The Company continued to use adjusted EBITDA as the primary financial metric for assessing short-term corporate performance and 50% of the potential short-term award will be based on an adjusted
EBITDA target. Additionally, in line with the practices of the majority of the Company's peer group, the Company moved the safety metric from long-term equity incentive compensation to the annual bonus plan. For fiscal 2015, 25% of the award under the annual bonus plan was based on the Company's safety record as compared to the Total Recordable Incident Rate for the North American Industry Classification System code for oil and gas operations (NAICS 213112) as published by the Bureau of Labor Statistics. The final 25% of the award under the annual bonus plan was based on the leadership demonstrated by each named executive officer. These percentages are referred to as the "Component Percentage." Each
performance component contributed to the value of the total annual bonus for each executive as discussed below.
The compensation committee established in advance an adjusted EBITDA target of $26.6 million for 2015. Achievement of 60% of the adjusted EBITDA target will earn target incentive compensation of 50% of the target incentive compensation multiplied by the Component Percentage, achievement of 100% of the adjusted EBITDA target earns incentive compensation of 100% of the target incentive compensation multiplied by the Component Percentage, achievement of 140% of the adjusted EBITDA target earns incentive compensation of 150% of the target incentive compensation multiplied by the Component Percentage, and achievement of 160% of the adjusted EBITDA target will earn incentive compensation of 200% of the target incentive compensation multiplied by the Component Percentage. The
value of this target incentive compensation based on the adjusted EBITDA target is interpolated on a straight-line basis for target results between 60% and 100%, 100% and 140%, or 140% and 160%, as applicable. The Company reported EBITDA for 2015 of $20.3 million, or approximately 70.1% of the target, which was above the threshold vesting metric of $16 million, but less than the target vesting metric of $26.6 million for this component. This performance entitled Messrs. Crisp and Forbes to receive short-term incentive compensation attributable to the EBITDA component of the annual bonus plan of $227,770 each and
15
entitled
Mr. Cooper to receive short-term incentive compensation attributable to the EBITDA component of the annual bonus plan of $89,356.
The safety component of the 2015 target cash incentive compensation was based on the Company achieving a target total recordable incident rate ("TRIR") that is equal or better than 50% of the industry average TRIR for the North American Industry Classification System code for oil and gas operations (NAICS 213112) as published by the Bureau of Labor Statistics. Achievement of TRIR that is 75% (i.e., better than the industry average) of the industry average TRIR will earn target cash incentive compensation of 50% of the target cash incentive compensation multiplied by the Component Percentage, achievement of TRIR that is 50% (i.e., better than the industry
average) of the industry average TRIR earns incentive compensation of 100% of the target cash incentive compensation multiplied by the Component Percentage, and achievement of TRIR that is 25% (i.e., better than the industry average) of the industry average TRIR earns incentive compensation of 200% of the target cash incentive compensation multiplied by the Component Percentage. The value of this target cash incentive compensation based on the Company's TRIR is interpolated on a straight-line basis for target results between 75% and 50% or 50% and 25%, as applicable. For 2015, the TRIR for the North American Industry Classification System code for oil and gas operations (NAICS 213112) as published by the Bureau of Labor Statistics was 1.6, while the Company reported a TRIR of 0.7, meaning the
Company achieved a safety record for 2015 that was 44.4% of the industry average TRIR for the North American Industry Classification System code for oil and gas operations. This performance exceeded the target vesting metric of 50% of the industry average TRIR, but did not meet the maximum vesting metric of 25% of the industry average TRIR for the safety component of the annual bonus plan, and entitled Messrs. Crisp and Forbes to receive short-term incentive compensation attributable to the safety component of the annual bonus plan of $199,062 each and entitled Mr. Cooper to receive short-term incentive compensation attributable to the safety component of the annual bonus plan of $78,093.
The leadership component of the 2015 target cash incentive compensation was to be paid only to the extent that the threshold adjusted EBITDA target for 2015 (i.e., reporting over $16 million
in adjusted EBIDTA) was satisfied to reward the executives' leadership. Achievement of the leadership component would earn target cash incentive compensation of 200% of the target cash incentive compensation multiplied by the Component Percentage; however, the compensation committee may, in its sole discretion, reduce the leadership portion of the 2015 target cash incentive compensation based on the level of attainment of individual performance goals set for the named executive officer. For 2015, the Company achievement of the threshold vesting metric for the leadership component of the 2015 annual bonus plan (i.e., reporting over $16 million in adjusted EBIDTA) resulted in target cash incentive compensation of $325,000, $325,000 and $127,500 for Messrs. Crisp, Forbes and Cooper, respectively; however, in recognition of the significant industry downturn and its effect on the
Company, the compensation committee applied its discretion to such component's value, and awarded Messrs. Crisp and Forbes short-term incentive compensation attributable to the leadership component of the annual bonus plan of $113,885 each and awarded Mr. Cooper short-term incentive compensation attributable to the leadership component of the annual bonus plan of $44,678. In accordance with the above formula, the compensation committee awarded aggregate short-term incentive compensation for all components of the annual bonus plan in 2015 of $540,717, $540,717 and $212,127 to Messrs. Crisp, Forbes and Cooper, respectively.
The compensation committee determined that the threshold, target and maximum levels of incentive compensation under the annual bonus plan will remain the same for 2016 as for 2015. In addition, the threshold, target and maximum levels of performance for
each component performance metric under the annual bonus plan will also remain the same for 2016 as for 2015.
Equity Incentive Awards
The Company uses equity incentive awards in order to better align the interests of our executive officers with the long-term interests of our shareholders and to create a competitive compensation package for such officers. Pursuant to the Company’s Plan, the compensation committee is permitted to grant incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based incentive compensation, collectively referred to as the "Awards," to employees, directors and consultants of the
Company or an affiliate.
For fiscal 2015, the compensation committee established long-term incentive target award levels for our named executive officers of $500,000, $500,000, and $250,000, for each of Messrs. Crisp, Forbes, and Cooper, respectively. Of the target 2015 award, $250,000, $250,000, and $125,000, for each of Messrs. Crisp, Forbes, and Cooper, respectively, was awarded on March 26, 2015 as a grant of restricted stock units determined by dividing such amounts by the closing price of the Company's common stock on the last business day before the day such awards were approved by the compensation committee. Such awards vest in three equal tranches on the first, second and third anniversaries of the date of the grant.
The remainder
of the 2015 long term equity incentive compensation award, $250,000, $250,000, and $125,000 for Messrs. Crisp, Forbes, and Cooper, respectively (the "target performance long-term incentive compensation"), is based on the Company's three-year adjusted EBITDA growth rate. The target performance long-term incentive compensation will be awarded as a grant of restricted stock units that will be settled in cash, and vest, subject to achievement of the performance criteria, on the third anniversary of the date of grant as set forth in the award agreement. The actual payout of the target performance long-term incentive compensation will be between 0%
16
and
200% of the value of the target number of shares based on the Company's three-year adjusted EBITDA growth rate relative to the EBITDA growth rate of twenty-six publicly traded companies in the same industry as the Company selected by the compensation committee (the "EBITDA Peer Group"). Achievement of EBITDA growth equal to the 25th percentile of the EBITDA Peer Group will earn incentive compensation of 50% of the target performance long-term incentive compensation, achievement of EBITDA growth equal to the 50th percentile of the EBITDA Peer Group will earn incentive compensation of 100% of the target performance long-term incentive compensation, achievement
of EBITDA growth equal to the 75th percentile of the EBITDA Peer Group will earn incentive compensation of 150% of the target performance long-term incentive compensation, and achievement of EBITDA growth equal to the 90th percentile of the EBITDA Peer Group will earn incentive compensation of 200% of the target performance long-term incentive compensation. The value of this target performance long-term incentive compensation will be interpolated on a straight-line basis for target results between 25% and 50%, 50% and 75%, or 75% and 90%, as applicable.
The compensation committee determined that the long-term incentive target award levels will remain the same for 2016 as for 2015. In addition, the threshold, target and maximum levels of performance
for the portion of the long-term incentive target award relating to the Company's three-year adjusted EBITDA growth rate will also remain the same for 2016 as for 2015.
2015 Realized Compensation Table
For the purposes of the "Summary Compensation Table" on page 20, the calculation of "total compensation" includes several items that are driven by accounting assumptions and required to be disclosed by Commission rules. As a result, there can be a significant difference between what is reported as total compensation for a given year in such table and the value actually realized as total compensation for each of our executive officers and what each of them actually receives as take-home compensation (i.e., each executive officers "realized compensation").
In order to accurately reflect each of our executive officer's realized compensation, we have included the following table, which compares the total compensation per the "Summary Compensation Table" on page 20 to the realized compensation of each executive officer for 2015. This table should not be viewed as a substitute for the "Summary Compensation Table."
As
reported in the Total column of the 2015 Summary Compensation Table on page 20.
(2)
Amounts reported in the total realized compensation column include: (a) base salary, (b) actual performance-based cash award payments made during 2015 to each of our executive officers under the Company's annual bonus plan, (c) the value realized upon vesting of restricted stock units during 2015, and (d) amounts reported in the All Other Compensation column of the Summary Compensation Table for 2015 on page 20. As background, realized compensation excludes the following that are specifically included in the 2015 Summary Compensation
Table: (1) the grant date fair value of unvested stock awards (as reflected in the Stock Awards column) because it is likely that different amounts will be realized or paid at a future date depending on actual performance of the Company and (2) bonus amounts that were earned in a particular year and actually paid in a subsequent year (as reflected in the Non-Equity Incentive Plan Compensation column).
Clawback Policy
In March 2012, the compensation committee adopted a policy to recover incentive-based compensation paid to any executive officer as required by the provisions of the Dodd-Frank Act, any regulations or rules promulgated thereunder, or any other “clawback” provision required by applicable law or the listing standards of the NASDAQ Global Market. On May
13, 2014, the Company entered into agreements with each of its named executive officers to implement this policy.
Stock Ownership Policy
In March 2015, the compensation committee adopted a stock ownership policy, which applies to the Company's named executive officers and directors. The policy provides a number of shares that the Company's named executive officers must accumulate and hold within five years of the date such individual became subject to the policy. The specific ownership requirements is 1,000,000 shares for the Company's
chief executive officer and 100,000 shares for each of the other named executive officers. Each of the named executive
17
officers has satisfied the stock ownership guidelines. The stock ownership guidelines for directors are detailed in the section entitled "2015 Director Compensation."
Elimination of Gross-Ups in Future Employment Agreements
In March 2015, the compensation committee resolved to no longer include "gross-ups" in any new executive employment agreement for any excise taxes.
Tax and Accounting
Treatment Issues
Under Section 162(m) of the Code, the Company may not deduct, for federal income tax purposes, compensation paid in excess of $1,000,000 to a named executive officer employed by the Company at year-end unless it qualifies as “performance-based compensation.” While we believe that our Plan makes it possible to take advantage of the deduction of performance-based compensation, in order to ensure competitive levels of total compensation for our executive officers, there may be circumstances in which the Company’s interests are best served by approving compensation for its executive officers that will not meet the requirements of Section 162(m) of
the Code and, therefore, will not be deductible by the Company for federal income tax purposes. Accordingly, the compensation committee may approve compensation for one or more of its executive officers that is not deductible for federal income tax purposes.
How and why we benchmark compensation against our peers
We operate in a competitive industry and compete with other companies in that industry for executive officers. In order to ensure that our compensation is effective at attracting and retaining executive talent, we feel it is appropriate to compare our compensation with other companies in our industry.
In 2015, Towers Watson was engaged to provide a study of compensation programs of executive officers and directors offered by a broad peer group
in order to assist the compensation committee in establishing and maintaining an appropriate compensation program to better enable the Company to attract and retain highly qualified officers and directors. Based on analysis and survey data provided by Towers Watson, in March, 2015, the compensation committee approved the following peer group for 2015 (and again for 2016) compensation decisions:
•
Atwood Oceanics, Inc.
•
Basic
Energy Services, Inc.
•
C & J Energy Services, Inc.
•
CARBO Ceramics Inc.
•
Dawson Geophysical Company
•
Dril-Quip,
Inc.
•
Energy XXI Ltd.
•
Gulf Island Fabrication Inc.
•
Gulfmark Offshore, Inc.
•
Helix
Energy Solutions Group, Inc.
•
Hercules Offshore, Inc.
•
Hombeck Offshore Services, Inc.
•
ION Geophysical Corporation
•
Key
Energy Services Inc.
•
Matrix Service Company
•
Nabors Industries Ltd.
•
Newpark Resources Inc.
•
Nuverra
Environmental Solutions, Inc.
•
Parker Drilling Co.
•
PHI Inc.
•
Pioneer Energy Services Corp.
•
RigNet,
Inc.
•
SEACOR Holdings Inc.
•
Superior Energy Services, Inc.
•
Tesco Corporation
•
TETRA
Technologies, Inc.
•
Vantage Drilling Company
18
How and why we plan to use adjusted EBITDA to determine whether incentive cash compensation has been earned
“Adjusted EBITDA” is defined as income (loss) from continuing operations before interest, taxes, depreciation, amortization, gain or loss on early extinguishment of debt and non-cash stock based compensation,
excluding non-recurring items. Management does not include gain (loss) on extinguishment of debt, non-cash stock based compensation or other nonrecurring items in its calculations of Adjusted EBITDA, because it believes that such amounts are not representative of our core operations. Further, management believes that most investors exclude gain (loss) on extinguishment of debt, stock based compensation recorded under FASB ASC Topic 718 and other nonrecurring items from customary EBITDA calculations as those items are often viewed as either non-recurring and not reflective of ongoing financial performance or have no cash impact on operations.
Adjusted EBITDA is a non-GAAP financial measure that is used as a supplemental financial measure by our management and directors and by our investors to assess the financial performance of our assets without regard to financing methods, capital structure or historical cost basis; the
ability of our assets to generate cash sufficient to pay interest on our indebtedness; and our operating performance and return on invested capital as compared to those of other companies in the well services industry, without regard to financing methods and capital structure. We use adjusted EBITDA in our quarterly earnings releases, investor conference calls and other filings with the Commission.
Due to the significance of adjusted EBITDA as a measure of the performance of the Company, the compensation committee felt that it was appropriate to tie elements of executive compensation with the achievement of a target level of adjusted EBITDA. The adjusted EBITDA target is set by the compensation committee, after receiving the recommendation of management. Our use of adjusted EBITDA for 2016 will be the same as in 2015.
Adjusted
EBITDA has limitations as an analytical tool and should not be considered an alternative to net income, operating income, cash flow from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjusted EBITDA excludes some, but not all, items that affect net income and operating income and these measures may vary among other companies. Limitations to using Adjusted EBITDA as an analytical tool include:
•
Adjusted EBITDA does not reflect our current or future requirements for capital expenditures or capital commitments;
•
Adjusted
EBITDA does not reflect changes in, or cash requirements necessary to service interest or principal payments on our debt;
•
Adjusted EBITDA does not reflect income taxes;
•
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; and
•
Other
companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
Forbes Energy Services Ltd.
Reconciliation of Adjusted EBITDA to Net Loss from Continuing Operations
The following table sets forth all compensation paid, payable, awarded, granted, given, or otherwise provided, directly or indirectly, by the Company or a subsidiary thereof, in U.S. dollars, to the individuals who were, at December 31, 2015, the Chief Executive Officer, the Chief Financial Officer and the only other executive officer whose total annual compensation was more than $100,000.
The
amounts noted reflect the cash incentive payments to the executive officers under the Company’s annual bonus plan for the years ended December 31, 2015, 2014 and 2013.
(2)
For disclosure of total realized compensation and a comparison to the 2015 Summary Compensation Table, please see the section entitled "2015 Realized Compensation Table" on page 17.
(3)
The
amounts noted reflect the grant date fair value of (i) the award of 196,078 restricted stock units granted to each of Messrs. Crisp and Forbes on March 26, 2015 for the long-term incentive portion of the Company's annual executive bonus plan for services performed for the year ended December 31, 2014, (ii) the award of 176,056 restricted stock units granted to each of Messrs. Crisp and Forbes on March 26, 2015 for the long-term incentive portion of the Company's annual executive bonus plan for services performed for the year ended December 31, 2015 and (iii) the award of 42,336 restricted stock units
granted on March 26, 2015 and 21,168 restricted stock units granted on June 29, 2015 to each of Messrs. Crisp and Forbes in their capacities as directors for 2014. This amount also includes the target award of $250,000 granted to each of Messrs. Crisp and Forbes on March 26, 2015 that will vest between 0% and 200% based on the achievement of financial performance conditions and be settled in common stock of the Company. This amount also includes the target award of $50,000 granted to each of Messrs. Crisp and Forbes on March 26, 2015 that will vest over three years based on safety achievements. In addition, this amount includes the target award of $68,765 granted to each of Messrs. Crisp
and Forbes on March 26, 2015 that will vest over three years. The grant date fair values of the restricted stock units are calculated in accordance with FASB ASC Topic 718.
20
(4)
The amounts noted reflect the grant date fair value of (i) the award of 103,359 restricted stock units granted to each of Messrs. Crisp and Forbes on March 28, 2014 for the long-term incentive
portion of the Company's annual executive bonus plan for services performed for the year ended December 31, 2013 and (ii) the award of 20,370 restricted stock units granted on January 3, 2014 and the award of 3,938 restricted stock units granted on March 28, 2014 to each of Messrs. Crisp and Forbes in their capacities as directors for 2013. This amount also includes the target award of $100,000 granted to each of Messrs. Crisp and Forbes on March 28, 2014 that will vest between 0% and 150% based on the achievement of performance conditions and be settled in common stock of the Company. The grant date
fair values of the restricted stock units are calculated in accordance with FASB ASC Topic 718.
(5)
The amounts noted reflect the grant date fair value of (i) the award of 133,333 restricted stock units granted to each of Messrs. Crisp and Forbes on January 6, 2013 for the long-term incentive portion of the Company's annual executive bonus plan for services performed for the year ended December 31, 2013 and (ii) the target award of $195,000 of which a maximum of $390,000 was eligible to be earned pursuant to the
Company's 2013 annual bonus plan and of which $215,772 was earned based on actual performance. The grant date fair values of the restricted stock units are calculated in accordance with FASB ASC Topic 718.
(6)
The amount noted reflects the grant date fair value of (i) the award of 105,392 restricted stock units to Mr. Cooper on March 26, 2015 for the long-term incentive portion of the Company's annual executive bonus plan for services performed for the year ended December 31, 2014 and (ii) the award of 88,028 restricted stock units granted to Mr. Cooper
on March 26, 2015 for the long-term incentive portion of the Company's annual executive bonus plan for services performed for the year ended December 31, 2015. The amount also includes the target award of $125,000 granted to Mr. Cooper on March 26, 2015 that will vest between 0% and 200% based on the achievement of financial performance conditions and be settled in common stock of the Company. This amount also includes the target award of $25,000 granted to Mr. Cooper on March 26, 2015 that will vest over three years based on safety achievements. In addition, this amount includes the target award of
$34,382 granted to Mr. Cooper on March 26, 2015 that will vest over three years. The grant date fair values of the restricted stock units are calculated in accordance with FASB ASC Topic 718.
(7)
The amount noted reflects the grant date fair value of the award of 55,555 restricted stock units to Mr. Cooper on March 28, 2014 for the long-term incentive portion of the Company's annual executive bonus plan for services performed for the year ended December 31, 2013. The amount also includes the target award of
$50,000 granted to Mr. Cooper on March 28, 2014 that will vest between 0% and 150% based on the achievement of performance conditions and be settled in common stock of the Company. The grant date fair values of the restricted stock units are calculated in accordance with FASB ASC Topic 718.
(8)
The amounts noted reflect the grant date fair value of (i) the award of 71,667 restricted stock units granted to Mr. Cooper on January 6, 2013 for the long-term incentive portion of the
Company's annual executive bonus plan for services performed for the year ended December 31, 2013 and (ii) the target award of $76,500 of which a maximum of $153,000 was eligible to be earned pursuant to the Company's 2013 annual bonus plan and of which $84,649 was earned based on actual performance. The grant date fair values of the restricted stock units are calculated in accordance with FASB ASC Topic 718.
(9)
This amount is comprised of $77,562 for fees earned as a director, $2,320 for premiums paid by the Company
for health and life insurance and $12,397 for an automobile and related auto expenses.
(10)
This amount is comprised of $47,000 for fees earned as a director, $4,203 for premiums paid by the Company for health and life insurance and $12,397 for an automobile and related auto expenses.
(11)
This amount is comprised of $45,000 for fees earned as a director, $2,215 for premiums paid by the
Company for health and life insurance and $18,289 for an automobile and related auto expenses.
(12)
This amount is comprised of $77,562 for fees earned as a director, $8,355 for premiums paid by the Company for health and life insurance and $12,397 for an automobile and related auto expenses.
(13)
This amount is comprised of $47,000 for fees earned as a director, $13,108 for premiums paid by the
Company for health and life insurance and $11,314 for an automobile and related auto expenses.
(14)
This amount is comprised of $45,000 for fees earned as a director, $5,230 for premiums paid by the Company for health and life insurance and $18,289 for an automobile and related auto expenses.
(15)
This amount is comprised of $5,922 for premiums paid by the
Company for health and life insurance and $12,465 as an allowance for an automobile and related auto expenses.
(16)
This amount is comprised of $11,121 for premiums paid by the Company for health and life insurance and $12,456 as an allowance for an automobile and related auto expenses.
21
(17)
This
amount is comprised of $4,137 for premiums paid by the Company for health and life insurance and $18,277 as an allowance for an automobile and related auto expenses.
22
2012 Equity Incentive Plan
The Board adopted the Plan on April 30, 2012 and the shareholders
of the Company subsequently approved the Plan at the Company’s 2012 annual shareholders' meeting. The Plan replaced that certain incentive plan adopted by the Board and approved by the Company’s sole shareholder in May 2008 (the “2008 Incentive Plan”).
The purpose of the Plan is to promote the success and enhance the value of the Company by linking the interests of employees and the members of our Board to those of our shareholders. We believe that to be successful, our employees need to think like owners. Consistent with this philosophy, our equity program continues to be
broad-based to provide us with a competitive advantage in our efforts to hire and retain top talent.
In order to ease the Company’s administration of its equity incentive programs, the Plan combined the shares of common stock authorized for issuance under the 2008 Incentive Plan with 1,022,500 additional shares of common stock authorized for issuance under the Plan. Under the 2008 Incentive Plan, there were a total of 2,977,500 shares of common stock authorized for issuance, of which 2,306,188 shares were issued or were subject to outstanding awards and 671,312 shares remained available for issuance under new awards. Upon the approval of the Plan by the shareholders of the Company, no further awards were made under the 2008 Incentive Plan; however, outstanding
awards granted under the 2008 Plan remained subject to the terms and conditions of the 2008 Incentive Plan. Any shares of common stock that were available to be granted under the 2008 Incentive Plan but which were not subject to outstanding awards under the 2008 Incentive Plan, including shares that became available due to the future lapse or forfeiture of outstanding awards, were added to the shares authorized for issuance under the Plan. The total number of shares of common stock that may be issued for awards to any single participant during a calendar year under the Plan (i) for stock options and stock appreciation rights (“SARs”) is 750,000, (ii) for restricted stock units performance shares, performance units and other stock based awards (excluding stock options and SARs) is 750,000, and (iii) for cash awards is $5,000,000. If any outstanding award under the Plan or the 2008 Incentive Plan expires, is terminated or is canceled without having been exercised
or settled in full, the shares of common stock subject to the expired, terminated or canceled portion of the award shall be added to the maximum number of shares of common stock authorized under the Plan.
The Plan was drafted to comply with Section 162(m) of the Internal Revenue Code (the “Code”), as amended, which generally disallows a tax deduction to public companies for certain compensation in excess of $1 million paid to certain of our executive officers unless such compensation is based on objective performance goals that are approved by our shareholders. While the compensation committee considers the deductibility of awards as one factor in determining executive compensation, the compensation committee also looks at other factors in making its decisions, as noted above, and retains the flexibility to award compensation that it determines to be consistent with the goals of our executive program, whether or not
such compensation is deductible. The Company believes that by using equity incentive compensation, the interests of the Company’s stockholders and the Company’s management employees remain aligned over the long-term.
23
Equity Compensation Plan Information
The following provides certain aggregate information
with respect to our equity compensation plans in effect as of December 31, 2015.
Plan
Category
Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights(1) (2)
Weighted Average Exercise Price of Outstanding Options, Warrants and Rights
Number of Securities Remaining
Available for Future Issuance under Equity Compensation Plans (Excluding Securities Reflected in First Column)
Equity Compensation Plans Approved by Security Holders
614,125
$
6.80
750,540
Equity
Compensation Plans Not Approved by Security Holders
—
—
—
Total
614,125
$
6.80
750,450
(1)
Includes
the number of shares of common stock issuable upon the settlement of outstanding restricted stock units.
(2)
On March 26, 2015, the compensation committee and the Board approved the cancellation of the stock options issued on August 11, 2011 and on August 15, 2011 to purchase shares of Company common stock without providing any additional consideration. The Board members and executive officers comprise all persons canceling such options. Pursuant to the Plan, any shares allocable to stock options that are cancelled without being exercised will once again be available for grant under the Plan.
Pension
and Retirement Plans
We do not have in place any pension or retirement plan with the exception of a 401(k) retirement plan for substantially all of its employees based on certain eligibility requirements. We may provide profit sharing contributions to the plan at the discretion of management. No such discretionary contributions have been made since inception of the plan.
GRANTS OF PLAN-BASED AWARDS
The following table provides information about the equity and non-equity awards we made to our executive officers under our Plan during the year ended December 31, 2015.
24
Name
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
(#)
All Other Option
Awards:
Number of Securities Underlying Options (#)
Exercise or Base Price of Option Awards ($/Sh)
Grant Date Fair Value of Stock and Option Awards ($)(3)
Each
of our named executive officers was eligible to receive non-equity incentive compensation based on the achievement of performance goals. The amount actually paid to each named executive officer for the year ended December 31, 2015 pursuant to these criteria is reflected in the “2015 Summary Compensation Table” under the heading “Non-Equity Incentive Compensation."
(2)
Each of our named executive officers is eligible to receive equity incentive compensation based on the achievement of performance goals. The target amount of these awards is reflected in the "2015 Summary Compensation Table" under the heading "Stock Awards".
(3)
These
amounts represent the award of 196,078 restricted stock units granted to each of Messrs. Crisp and Forbes and 105,392 restricted stock units to Mr. Cooper on March 26, 2015 for the long- term incentive portion of the Company's annual executive bonus plan for services performed for the year ended December 31, 2014. These amounts also include the award of 176,056 restricted stock units granted to each of Messrs. Crisp and Forbes and 88,028 restricted stock units to Mr. Cooper on March 26, 2015 for the long- term incentive portion of the Company's annual executive bonus plan for the year ended December 31,
2015. These amounts also include an award of 42,336 restricted stock units granted on March 26, 2015 and an award of 21,168 restricted stock units granted on June 29, 2015 to each of Messrs. Crisp and Forbes for their service as directors.
26
2015 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
The following table sets forth for each Named Executive Officer all option-based and share-based awards outstanding at December 31,
2015.
OPTION
AWARDS
STOCK AWARDS
Name
Number of Securities Underlying Unexercised Options (#) Exercisable
Number of Securities Underlying Unexercised Options (#) Unexercisable
Option Exercise Price
($)
Option Expiration Date
Number of Shares or Units of Stock That Have Not Vested (#)
Market Value of Shares or Units of Stock That Have Not Vested ($)
Equity Incentive Plan
Awards:
Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)
Incentive Plan
Awards:
Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
This
option-based award was granted on August 24, 2010 and is fully vested.
(2)
At the time of this grant, the Company’s common stock was not traded on a United States national securities exchange, therefore, pursuant to the 2008 Plan, the exercise price was determined using the volume weighted average trading price on the Toronto Stock Exchange over the five-day period immediately preceding the grant date. This exercise price was then converted from Canadian dollars to U.S. dollars. The closing price on the grant date of the Company’s
common stock on the “Pink Sheets” over-the-counter market was $2.44 per share (as adjusted for the Share Consolidation).
(3)
The amounts noted reflect (i) the award of restricted stock units granted to each of Messrs. Crisp, Forbes, and Cooper on January 4, 2013 for services performed through December 31, 2012 and vests over a three year period, (ii) the award of restricted stock units granted to each of Messrs. Crisp, Forbes, and Cooper on March 28, 2014 for services performed through December 31, 2013 and vests over a three year period and
(iii) the award of restricted stock units granted on June 29, 2015 to each of Messrs. Crisp and Forbes in their capacities as directors for 2014.
27
(4)
This restricted stock unit award was granted on March 26, 2015 for the long term incentive portion of the Company's annual executive
bonus plan for services performed for the year ended December 31, 2014 and vests in three equal annual installments over a three year period.
(5)
This restricted stock unit award was granted on March 26, 2015 for the long term incentive portion of the Company's annual executive bonus plan for the year ended December 31, 2015 and vests in three equal annual installments over a three year period.
(6)
This
amount represents four awards based on the Company’s future achievement of certain performance criteria. Two of the awards vest on March 26, 2017 and two awards vest on March 26, 2018. All four awards will be converted into the number of shares of Company common stock determined by dividing the cash value by the ten-day volume weighted average price per share immediately preceding the vesting date, and therefore, the number of shares underlying these awards is not calculable at this time.
The
value realized upon vesting of stock awards is determined by multiplying the number of shares vested by the closing market price of our common stock on the date of vesting.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
Potential payments upon termination, including after change in control, to Messrs. Crisp, Forbes, and Cooper are governed by the terms of their respective employment agreements. We have long-term employment agreements with our three executive officers. Each long-term employment agreement has a current term expiring April 30, 2018. The term of each employment agreement automatically extended for an additional year on May 1, 2012 and will automatically extend for an additional year every May
1 thereafter unless notice of termination is given before any such date by us or the employee. Potential payments upon change in control before termination to the executive officers are governed by the terms of the respective equity award agreements.
Payments Made Upon Termination Without Good Cause
Under the employment agreements, in the event any of Messrs. Crisp, Forbes or Cooper is terminated “without good cause” as defined in the employment agreements, he would be entitled to his base salary, bonus, automobile, and medical and other benefits through the actual expiration date of his employment agreement, and any and all options, rights, or awards granted in conjunction with the Plan would immediately vest.
Payments Made Upon a Change in Control
For purposes of the employment agreements
of Messrs. Crisp, Forbes, and Cooper, and the Plan, a “change in control” means:
(1)
the obtaining by any person or persons acting as a group of fifty percent (50%) or more of the voting shares of the Company pursuant to a “tender offer” for such shares as provided under Rule 14d-2 promulgated under the Securities Exchange Act of 1934, as amended, or any subsequent comparable federal rule or regulation governing tender offers; or
(2)
a
majority of the members of the Company’s Board is replaced during any twelve (12) month period by new directors whose appointment or election is not endorsed by a majority of the members of the Company's Board before the date of such new directors’ appointment or election; or
28
(3)
any person,
or persons acting as a group, acquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than seventy-five percent (75%) of the total gross fair market value of all of the assets of the Company immediately before such acquisition or acquisitions (other than transfers to related persons as defined in Section 1.409A-3(i)(5)(vii)(B) of the Treasury Regulations).
If we should undergo a change in control while the employment agreements are in effect and any of Messrs. Crisp, Forbes or Cooper is either constructively or actually terminated under the conditions set forth in his agreement,
then he will be entitled to receive three times his salary for the year in which the termination occurs, three years of medical and other insurance benefits from the date of termination and, in general, three times the greater of (x) the amount equal to the bonus paid for the last completed year for which bonuses have been paid or (y) the amount equal to the bonus that would have been payable for the then current year. To the extent that such medical benefits may be taxable to the employee or his or her dependents, the Company would gross up the employee for such taxes based on the employee’s actual tax rate, up to 35% (without a gross up on the initial gross up). In addition, under the respective equity award agreements for the executive officers, upon a change in control his unvested stock options or other awards would vest upon the termination event.
In
the event that it shall be determined that any payment by the Company to or for the benefit of the executive officers would be subject to the excise tax imposed by Section 4999 of the Code, or any successor provision thereto, by reason of being considered “contingent on a change in ownership or control” of the Company, within the meaning of Section 280G of the Code, or any successor provision thereto, or to any similar tax imposed by state or local law, or any interest or penalties with respect to such tax (such tax or taxes, together with any such interest and penalties, being hereafter collectively referred to as the “Excise Tax”), then the executive officer shall be entitled to receive an additional payment or payments, or gross-up payment, under his employment agreement or change
in control agreement. The gross-up payment shall be in an amount such that after payment by such executive officer of all taxes including any Excise Tax (and including any interest or penalties imposed with respect to such taxes and the Excise Tax, other than interest and penalties imposed by reason of such executive officer’s failure to timely file a tax return or pay taxes shown due on such executive officer’s return) imposed upon the gross-up payment, the amount of the gross-up payment retained by such executive officer is equal to the Excise Tax imposed upon the payment. Based on the Company's calculations as of December 31, 2015, the payments by the Company to or for the benefit of the executive officers would not be subject to the excise tax
imposed by Section 4999 of the Code, and the Company would not be required to pay to any of the executive officers an additional gross-up payment attributable to such excise tax.
Payments Made Upon Voluntary Termination or Termination with Cause
If the employment of any of Messrs. Crisp, Forbes or Cooper is terminated for good cause or if any of Messrs. Crisp, Forbes or Cooper voluntarily terminates his employment with the Company, the Company will pay any compensation earned but not paid to him prior to the effective date of termination. Messrs. Crisp, Forbes, and Cooper may voluntarily terminate their employment by giving
notice of at least thirty days. At any time after such notice, the Company would have the right to relieve the employee of his duties; however salary would continue during the notice period.
Payments Made Upon Permanent Disability or Death
Under the employment agreements, if Messrs. Crisp, Forbes or Cooper become permanently disabled or die during the term of their employment: (i) the Company shall pay to him or his estate the compensation that such executive would have earned through the date of death or determination of permanent disability, including salary, any prior year bonus earned but not yet paid and the pro-rated portion of any current year bonus as and when determined in the ordinary course, and his
dependents would be entitled to benefits, including medical, and other benefits and use of a Company automobile for a period of one year from the date of death and (ii) his options, rights or awards granted in conjunction with his incentive compensation and stock option plans would vest upon the date of death or determination of permanent disability. Also, the estate of Messrs. Crisp, Forbes, or Cooper would receive life insurance proceeds from the Company-paid term life insurance policies that were in effect on the date of his or her death.
Material Conditions and Obligations Under the Employment Agreements
Messrs. Crisp, Forbes and Cooper have each agreed that during the term of their respective agreements and for a period of one year after termination, they will not (1) be employed by or associated
with or own more than 5% of the outstanding securities of any entity that competed with us in the locations where we operate, (2) solicit any of our employees to terminate their employment or (3) solicit the purchase, performance or providing of any equipment or services which constitute any part of our business to, for or with any of our customers or (4) use, disclose or publish any company confidential information or trade secrets. Notwithstanding the foregoing, the respective agreements of Messrs. Crisp and Forbes permit their involvement with other business ventures provided that they are not competitive with the Company’s business or have been approved by the independent members of the Board. Certain of these transactions are described under “Certain Relationships and Related Transactions” beginning on page 35 of this Proxy Statement.
29
The
following table shows the amount of compensation payable to each of our executive officers under existing contracts, agreements, plans or arrangements, whether written or unwritten, for various scenarios involving termination of employment or a change in control event. The amounts shown assume that such termination was effective as of December 31, 2015, and thus include amounts earned through such time and are estimates of the amounts which would be paid out to such executive officers upon their termination. The equity value calculations use the closing price of our common stock as of December 31, 2015, which was $0.29. The actual amounts to be paid out can only be determined at the time of such executive’s separation from the
Company.
30
2015 POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL (1)
Name
and principal position
Voluntary Termination
Termination for Cause
Termination by Company without Cause
Change in Control with Termination for Good Reason by Executive or Without Cause
The following table details the compensation received by each Director, other than Named Executive Officers, for the year ended December 31, 2015.
Name
Fees Earned or Paid in Cash ($)
Stock Awards ($)(1)
Option Awards ($)(2)
Non-Equity Incentive Plan Compensation ($)
Change
in Pension Value and Nonqualified Deferred Compensation Earnings ($)
All Other Compensation ($)
Total ($)
Dale W. Bossert
101,000
73,115
—
—
—
—
174,115
Travis
H. Burris
106,000
73,115
—
—
—
—
179,115
Ted
A. Izatt
83,000
73,115
—
—
—
—
156,115
William
W. Sherrill
111,000
73,115
—
—
—
—
184,115
(1)
Each
director was granted (i) an award of 42,336 restricted stock units on March 26, 2015 and (ii) an award of 21,168 restricted stock units on June 29, 2015 for his or her service as a director for the year ended December 31, 2015.
In
fiscal 2015, each director received an annual cash retainer of $79,750. The chair of the audit committee, compensation committee and nominating and corporate governance committee each received additional retainers of $25,000, $20,000 and $15,000, respectively. Each director received $2,000 per meeting plus expenses for attendance at any Board or committee meeting.
Prior to 2015, the compensation committee adopted a policy of awarding directors annual grants of that number of shares of common stock equal to $89,500 divided by the average of the closing price of the Company’s common stock on NASDAQ for the 20 trading days immediately preceding the date of the Company’s prior year's Annual Meeting of Shareholders. These stock grants vest in four equal quarterly
increments over the course of a year.
In March 2015, the compensation committee evaluated its director compensation. Towers Watson was engaged to provide a study of compensation programs of directors offered by a broad peer group in order to assist the compensation committee in establishing and maintaining an appropriate compensation program to better enable the Company to attract and retain highly qualified directors. Based on this information, the compensation committee determined to keep the overall level of annual compensation in 2015 consistent with 2014. However, the compensation committee determined that, in consideration of the Company's low share price and low share reserve under the Plan, it was in the best interests of the
Company to shift the mix of director compensation to be more heavily weighted towards cash. Therefore, in 2015, each director received a cash retainer of $79,750 and an annual equity grant valued at $44,750 divided by the average of the closing price of the Company’s common stock on NASDAQ for the twenty (20) trading days immediately preceding the date of grant. The compensation committee believes this policy provides certainty and predictability to our director compensation structure.
The Company adopted a stock ownership policy in March 2015. Pursuant to this policy, directors are expected to own 100,000 shares of Company stock. Each individual is expected to satisfy the stock ownership requirement within five years of the date such individual
became subject to the policy.
32
Compensation Committee Report
The compensation committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on the review and discussions referenced above, the compensation committee recommended to the Board that the Compensation Discussion and Analysis referred to above be included in this Proxy Statement.
This foregoing report is given by the following members of the compensation committee:
Travis
H. Burris (Chair) Dale W. Bossert
William W. Sherrill
Compensation Committee Interlocks and Insider Participation
All members of the compensation committee are independent directors, and none of them are present or past employees of ours. No member of the compensation committee has had any relationship with us requiring disclosure under Item 404 of Regulation S-K of the Exchange Act and none of our executive officers has served on the compensation committee (or other committee serving an equivalent function or the full board, if no such committee exists) of any other entity, one of whose executive officers served on our compensation committee. Nevertheless, in the interest of providing information to our shareholders, we have disclosed, in our discussion of “Certain Relationships and Related Transactions” beginning on page
35 of this Proxy Statement, that Mr. Crisp, our President and Chief Executive Officer, serves on the Board of Texas Champion Bank for which Mr. Burris, the Chairman of our compensation committee, serves as President and Chief Executive Officer. However, no interlocking relationship exists as Texas Champion Bank has a separate compensation committee and Mr. Crisp does not serve on that committee. We have a business relationship with Texas Champion Bank and, as of December 31, 2015, 2014 and 2013, we had $1.1 million, $1.0 million and $0.7 million, respectively, on deposit with this bank.
Officers Who Also Act As Directors
Our Named Executive Officers who serve as directors receive the same compensation as our other directors for their
service as directors.
33
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial ownership of our voting securities as of April 11, 2016:
•
each person who is known to us to be the beneficial owner of more than 5% of our voting securities;
•
each
of our directors; and
•
each of our executive officers and all of our executive officers and directors as a group.
Unless otherwise indicated, each person named below has an address in care of our principal executive offices and has sole power to vote and dispose of the shares of voting securities beneficially owned by them, subject to community property laws where applicable.
All
directors and executive officers as a group (7 persons)
4,690,844 (2)
21.1
%
Other 5% Shareholders:
The
West Face Group
5,292,531(3)
23.8
%
Steel Excel Inc.
3,271,518(4)
14.7
%
Janet L. Forbes
2,164,243(5)
9.7
%
The
Modern Group Ltd
1,327,750(6)
6.0
%
Frigate Ventures LP
1,182,424(7)
5.3
%
FMR, LLC
2,190,141(8)
9.9
%
*
Indicates
beneficial ownership of less than 1% of the total outstanding common stock.
**
“Beneficial ownership” is a term broadly defined by the SEC in Rule 13d-3 under the Securities Exchange Act of 1934, as amended and includes more than typical forms of stock ownership, that is, stock held in the person’s name. The term also includes what is referred to as “indirect ownership,” meaning ownership of shares as to which a person has or shares investment or voting power. For purposes of this table, shares not outstanding that are subject to options, warrants, rights or conversion privileges exercisable within 60 days of April 14, 2014 are deemed outstanding for the purpose of calculating
the number and percentage owned by such person, but not deemed outstanding for the purpose of calculating the percentage owned by each other person listed.
(1)
Includes 118,750 shares of common stock issuable upon exercise of options.
(2)
Includes 118,750 shares of common stock issuable upon exercise of options.
(3)
Based
on a Schedule 13G/A dated February 16, 2016 filed with the Commission reflecting shares beneficially owned by the reporting person at December 31, 2015. This amount represents shares of common stock currently issuable upon the conversion of the 588,059 shares of Series B Preferred Stock currently held by the West Face Group. Each share of Series B Preferred Stock is convertible at the option of the holder into nine shares of common stock, provided that no holder is entitled to effect such a conversion if it would result in such holder (and affiliates) beneficially owning 20% or more of the number of shares of common stock outstanding immediately after giving effect to the conversion. The West Face Group consists of West Face Long Term Opportunities Limited Partnership, West Face Long Term Opportunities (USA) Limited Partnership and West Face Long Term Opportunities Master
Fund L.P. The West Face Group’s address is 2 Bloor Street East, Suite 810, Toronto, Ontario M4W 1A8.
(4)
Based on a Schedule 13D/A dated March 8, 2016 filed with the Commission reflecting shares beneficially owned by the reporting person at March 4, 2016.
34
(5)
Based
on a Schedule 13G/A dated January 27, 2016 filed with the Commission reflecting shares beneficially owned by the reporting person at December 31, 2015. Janet Forbe's address is 2522 McKinzie Road, Corpus Christi, Texas78410.
(6)
Based on information provided to the issuer by The Modern Group Ltd. on April 13, 2016. The
Modern Group Ltd.’s address is P.O. Box 790, Beaumont, TX77704.
(7)
Based on a Schedule 13G/A dated February 5, 2016 filed with the Commission reflecting shares beneficially owned by the reporting person at December 31, 2015. Frigate Ventures LP's address is 5950 Berkshire Lane, Suite 210, Dallas,
TX75225.
(8)
Based on a Schedule 13G/A dated February 12, 2016 filed with the Commission reflecting shares beneficially owned by the reporting person at December 31, 2015. FMR, LLC's address is 245 Summer Street, Boston, MA02210.
Certain
Relationships and Related Transactions
The Company and its subsidiaries enter into transactions with related parties in the normal course of conducting business. References in this section to the Company include the Company’s subsidiaries, unless the context indicates otherwise. We believe all of the terms with the companies are comparable to terms that were and are available to us in arm’s-length transactions with non-related parties. Below are the cash and cash equivalents, accounts
payable and accounts receivable balances as of December 31, 2015 and 2014 as well as the capital expenditures and revenues and expenses for the years ended December 31, 2015 and 2014 related to the related party transactions.
Related
parties cash and cash equivalents balances:
Balance at Texas Champion Bank (1)
$
1,132
$
1,040
Balance
at Brush Country Bank (2)
485
644
Related
parties receivable:
Dorsal Services, Inc. (3)
—
60
Wolverine
Construction, Inc. (4)
—
282
$
—
$
342
Related
parties payable:
Alice Environmental Services, LP/Alice Environmental Holding LLC (5)
$
—
$
83
Dorsal
Services, Inc. (3)
2
25
Tasco Tool Services, Inc. (6)
2
59
Texas
Quality Gate Guard Services, LLC (7)
4
11
Texas Water Disposal, LLC (8)
—
8
$
8
$
186
35
Years
ended December, 31
2015
2014
2013
(in thousands)
Related parties capital expenditures:
Tasco
Tool Services, Inc. (6)
$
—
$
16
$
64
JITSU Services, LLC (9)
—
240
—
$
—
$
256
$
64
Related
parties revenue activity:
Dorsal Services, Inc. (3)
$
—
$
—
$
18
Tasco
Tool Services, Inc. (6)
1
2
3
Wolverine Construction, Inc. (4)
—
249
152
Testco
Well Services, LLC (10)
—
—
69
Texas Water Disposal, LLC (8)
—
12
15
$
1
$
263
$
257
Related
parties expense activity:
Alice Environmental Services, LP/Alice Environmental Holding LLC (5)
$
1,889
$
1,861
$
1,810
Dorsal
Services, Inc. (3)
20
371
498
Tasco Tool Services, Inc. (6)
172
224
128
FCJ
Management, LLC (11)
15
27
36
JITSU Services, LLC (9)
—
243
396
Texas
Quality Gate Guard Services, LLC (7)
188
214
363
Animas Holdings, LLC (12)
225
265
670
Testco
Well Services, LLC (10)
—
—
32
Texas Water Disposal, LLC (8)
—
—
498
CJW
Group, LLC (13)
38
13
—
$
2,547
$
3,218
$
4,431
(1)The
Company has a deposit relationship with Texas Champion Bank. Travis Burris, one of the directors of the Company, is the President, Chief Executive Officer, and director of Texas Champion Bank. John E. Crisp, or Mr. Crisp, an executive officer and director of the Company, serves on the board of directors of Texas Champion Bank.
(2)Mr. Crisp and Charles C. Forbes, Jr., or Mr. Forbes, are directors and shareholders of Brush Country Bank, an institution with which the Company conducts business and has deposits. Mr. Forbes is an executive officer
and director of the Company.
(3)Dorsal Services, Inc., or Dorsal Services, is a trucking service company. Mr. Crisp is a partial owner of Dorsal Services. The Company uses Dorsal Services from time to time.
(4)Wolverine Construction, Inc., or Wolverine, is an entity that was owned by two sons and a brother of Mr. Crisp, and a son of Mr. Forbes. Wolverine provided construction and site preparation services to certain customers of the Company. The related party interests in Wolverine were sold in 2014.
(5)Messrs.
Crisp and Forbes are also owners and managers of Alice Environmental Holdings, LLC, or AEH, and indirect owners and managers of Alice Environmental Services, LP, or AES and Alice Environmental West Texas, LLC, or AEWT. The Company leases or rents land and buildings, and aircraft from AES. During January 2015, the Company purchased land from AEWT for an additional operating location. The aircraft leases were terminated during the third quarter of 2015.
(6)Tasco Tool Services, Inc., or Tasco, is a down-hole tool company that is partially owned and managed by a company that is owned by Mr. Forbes and Robert Jenkins, or Mr. Jenkins, a former manager of one of the
Company's subsidiaries. Tasco rents and sells tools to the Company from time to time.
(7)Texas Quality Gate Guard Services, LLC, or Texas Quality Gate Guard Services, is an entity owned by Messrs. Crisp and Forbes, and a son of Mr. Crisp. Texas Quality Gate Guard Services has provided security services to the Company.
(8) Texas Water Disposal Services, LLC, or TWDS, is partially owned by a brother of Mr. Crisp. TWDS is a company that owns a salt water disposal well that was used by the
Company. The Company has not done business with TWDS since March 2014.
(9)JITSU Services, LLC, or JITSU, is a financial leasing company owned by Janet Forbes, or Ms. Forbes, and Mr. Crisp. The Company previously leased ten vacuum trucks from JITSU. This lease was terminated in November 2014. Ms. Forbes served as a Company director until June 11, 2014.
(10)Testco Well Services, LLC, or Testco, is a company that provides valve and gathering system testing services to the Company. Mr.
Crisp, Mr. Forbes, and a son of Mr. Crisp were partial owners of Testco. In August 2013, Testco was sold to an unrelated third party. The Company has not done business with Testco subsequent to the sale in August 2013.
36
(11)FCJ Management, LLC, or FCJ, is an entity that leases land and facilities to the Company and is owned by Messrs. Crisp, Forbes, and Jenkins. The lease with FCJ was terminated during the third quarter of 2015.
(12)Animas Holdings, LLC, or Animas, is owned by the two sons of Mr. Crisp and three children of Mr. and Ms. Forbes. Animas owns land and property that it leases to the Company.
(13) CJW Group, LLC is an entity that leases office space to the Company and is partially owned by Messrs. Crisp and Forbes.
Review, Approval or Ratification of Transactions with Related Persons
The Board adopted a written Related Persons Transaction Policy on March
17, 2014. Prior to the adoption of the Related Persons Transaction Policy, certain significant related party transactions were reviewed and approved by the Board.
Pursuant to the Related Persons Transaction Policy, any transaction or series of transactions, arrangement or relationship between the company and a “related person” in which such related person has a direct or indirect material interest, and where the amount involved exceeds $120,000, must be submitted to our audit committee for review, approval, or ratification. A “related person” means a director, executive officer or beneficial holder of more than 5% of the Company’s outstanding common stock, or any immediate family member
of the foregoing, as well as any entity at which any such person is employed, is a partner or principal (or holds a similar position), or is a beneficial owner of a 10% or greater direct or indirect equity interest.
The Related Persons Transaction Policy requires our audit committee to be provided with full information concerning the proposed transaction, including the benefits to the Company and the related person, any alternative means by which to obtain like benefits, and terms that would prevail in a similar transaction with an unaffiliated third party. In considering whether to approve or ratify any such transaction, the audit committee will consider all relevant factors, including the nature of the interest of the related person in the transaction and whether the transaction may involve
a conflict of interest that is not in or consistent with the best interests of the Company and our shareholders.
Specific types of transactions are excluded from the Related Persons Transaction Policy, such as, for example, transactions in which the related person’s interest derives solely from his or her service as a director of another entity that is a party to the transaction.
Further, the Company is required by the indenture governing the notes to obtain the approval of the disinterested Board members when a related party transaction exceeds an aggregate consideration of
$500,000 and an opinion regarding the fairness of such transaction from an outside firm when such a transaction exceeds an aggregate consideration of $2.5 million.
Under the agreement governing our existing credit facility, we are only permitted to enter into new transactions with a related party if such transaction is entered into in the ordinary course of business and on an arm-length basis on terms no less favorable than those obtainable form a third-party, subject to certain exceptions, including exceptions for compensation relationships.
Additionally, the Company has a written Second Amended and Restated Employee Code of Business Conduct and Ethics that requires that an employee obtain written approval of the President or the Chief Executive Officer prior to doing business on behalf of the
Company with a member of that employee’s family. All of the transactions described above under “Certain Relationships and Related Transactions”" on page 35 were approved or ratified by the Board, including the disinterested members thereof.
Section 16(a) of the Exchange Act requires our officers and directors, and persons who own more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership with the Commission and NASDAQ. Officers, directors and greater than 10% shareholders are also required by Commission regulations to furnish us with copies of all Section 16(a) forms they file.
Based solely on a review of the Forms 3 and 4 and amendments thereto filed during the 2015 fiscal year and written certifications provided
to the Company, the Company believes that all of these reporting persons timely complied with their filing requirements, except (a) John E. Crisp, Charles C. Forbes, Jr. and L. Melvin Cooper each filed a Form 4 late with respect to the payment of a tax liability associated (i) with the vesting of a time-based restricted stock award on January 6, 2013 and (ii) with the vesting of a time-based restricted stock award on March 28, 2014, (b) Ted A. Izatt filed a late Form 4 with respect to the sales of shares on July
7, 2015 and July 8, 2015 and (c) William W. Sherrill filed a late Form 4 with respect to the sale of shares on June 4, 2015.
37
Audit Committee Report
In accordance with its written charter adopted by the Board, the audit committee assists the Board in fulfilling its responsibility for oversight of the quality and integrity of the accounting, auditing and financial reporting practices of the
Company. Management is responsible for the Company’s financial statements, and the independent auditors are responsible for the examination of those statements.
In keeping with its responsibilities, the audit committee has met and held discussions with management, the independent registered public accounting firm and the separate accounting consultants engaged to ascertain compliance with Section 404 of the Sarbanes-Oxley Act and to perform the internal audit function. Management represented to the audit committee that the Company’s consolidated financial statements were prepared in accordance with generally accepted accounting principles in the United States, and the audit committee has reviewed and discussed the consolidated financial statements
with management and the independent registered public accounting firm, both with and without management present. In addition, the audit committee has discussed with the Company’s independent registered public accounting firm all communications required by generally accepted auditing standards, including those required to be discussed by Auditing Standard No. 16, “Communication with Audit Committees,” as currently in effect and as adopted by the Public Company Accounting Oversight Board, or PCAOB. In addition, the Audit Committee has received written disclosures and the letter from our independent registered public accounting firm required by PCAOB Rule 3526, and has discussed with the independent registered public accounting firm matters pertaining to their independence. The audit committee has discussed with the independent auditors all relationships between the registered
public accounting firm and the Company that may bear on the auditor’s independence and any relationships that may impact their objectivity and independence and satisfied itself as to the auditor’s independence.
Based on the audit committee’s discussions with management and the independent registered public accounting firm, and the audit committee’s review of the audited financial statements, representations of management and the report of the independent registered public accounting firm, the audit committee recommended to the Board that the audited consolidated financial statements be included in our Annual Report on Form 10-K for the year ended December 31, 2015 as filed with the Securities and Exchange Commission. The audit committee reappointed BDO USA, LLP as independent registered public
accounting firm for the 2016 fiscal year, subject to shareholder ratification.
Neither we nor any of the persons named as proxies know of matters other than those described above to be voted on at the 2016 Annual Meeting of Shareholders. However, if any other matters are properly presented at the Annual Meeting, it is the intention of the persons named as proxies to vote in accordance with their judgment on these matters, subject to the direction of the Board.
Our 2015 Annual Report to Shareholders, which contains a copy of our Annual
Report on Form 10-K for the fiscal year ended December 31, 2015, accompanies this Proxy Statement, but is not to be deemed a part of the proxy soliciting material.
Shareholders may also obtain a copy of our 2015 Annual Report to Shareholders or the Company’s Annual Report on Form 10-K most recently filed with the Commission without charge by writing to the Assistant Secretary of the Company at 3000 South Business Highway 281, Alice, Texas78332. The
Company’s Annual Report on Form 10-K and other filings with the Commission may also be accessed on the Company’s website at www.forbesenergyservices.com.
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the
Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you call and then follow the instructions.
VOTE
BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY11717.
TO
VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
KEEP THIS PORTION FOR YOUR RECORDS
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
For
All
Withhold
All
For All
Except
To withhold authority
to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below.
The
Board recommends you vote FOR proposals 2 and 3.
For
Against
Abstain
2.
To approve amendments to the Company’s Certificate of Formation to effect a reverse stock split
of our issued and outstanding shares of common stock at a ratio and effective upon a date in such ratio as is to be determined by the Company’s board of directors and to effect a change in the par value of the Company’s common stock to $0.01 per share
o
o
o
3.
Ratification
of Selection of Auditors - To ratify the reappointment of BDO USA, LLP as the Company’s independent registered public accounting firm for the fiscal year 2016.
o
o
o
NOTE:
Such other business as may properly come before the meeting or any adjournment thereof.
For
address change/comments, mark here.
o
(see reverse for instructions)
Yes
No
Please
indicate if you plan to attend this meeting.
o
o
Please
sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer.
Signature [PLEASE SIGN WITHIN BOX]
Date
Signature (Joint Owners)
Date
Important
Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice & Proxy Statement, Annual Report is/are available at www.proxyvote.com.
The shareholder hereby appoint(s) John E. Crisp
and L. Melvin Cooper, or any of them, as proxies, with full powers of substitution, and hereby authorizes them to represent and to vote, as designated on the reverse side of this ballot, all of the shares of common stock of Forbes Energy Services Ltd. that the shareholder(s) are entitled to vote at the Annual Meeting of Shareholders to be held at 9:00 a.m. Central Time on June 10, 2016, at the Hyatt Regency Houston located at 1200 Louisiana Street, Houston, Texas77002 and any adjournment or postponement thereof.
THIS PROXY, WHEN PROPERLY
EXECUTED, WILL BE VOTED AS DIRECTED BY THE SHAREHOLDER(S). IF NO SUCH DIRECTIONS ARE MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES LISTED ON THE REVERSE SIDE FOR THE BOARD, AND FOR PROPOSALS 2 AND 3.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED REPLY ENVELOPE.
Address change/comments:
(If
you noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.)
Continued and to be signed on reverse side
APPENDIX A
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF FORMATION
OF
FORBES
ENERGY SERVICES LTD.
1.The name of the Corporation is Forbes Energy Services LTD.
2.
The filing entity is a for-profit corporation. The file number issued to the filing entity by the Secretary of State is 801465230. The date of formation of the entity is August 11, 2011.
3.
The first paragraph of Article Seven of the Certificate of Formation is amended and restated in its entirety to read as follows:
“The
total number of shares of all classes of stock that the corporation is authorized to issue is one hundred twenty-two million five hundred thousand (122,500,000) shares, consisting of one hundred twelve million five hundred thousand (112,500,000) shares of Common Stock, $0.01 par value per share (the “Common Stock”), and ten million (10,000,000) shares of Preferred Stock, $0.01 par value per share (the “Preferred Stock”). The holders of Common Stock shall, subject to the limitations provided herein (including, without limitation, the rights attaching to the Preferred Stock), (a) be entitled to one vote per share; (b) be entitled to such dividends as the board of directors of the corporation (the “Board”) may from time to time declare; (c) in the event of a winding-up or dissolution of the corporation, whether voluntary or involuntary
or for the purpose of a reorganization or otherwise or upon any distribution of capital, be entitled to the surplus assets of the corporation; and (d) generally be entitled to enjoy all of the rights attaching to common stock under the TBOC.”
4.
Article Seven of the Certificate of Formation is amended by adding the following paragraph to the end of Article Seven:
“Upon this Certificate of Amendment to the Certificate of Formation becoming effective pursuant to the TBOC (the “Reverse Stock Split Effective Date”), each share of Common Stock, par value $0.04 per share (the “Old Common Stock”), issued and outstanding immediately prior to the Reverse Stock Split Effective Date, shall be, and
hereby is, reclassified as and changed into [one-Xth (1/Xth)] of a share of Common Stock, par value $0.01 per share (the “New Common Stock”). Each outstanding stock certificate which immediately prior to the Reverse Stock Split Effective Date represented one or more shares of Old Common Stock shall thereafter, automatically and without the necessity of surrendering the same for exchange, represent the number of whole shares of New Common Stock determined by multiplying the number of shares of Old Common Stock represented by such certificate immediately prior to the Reverse Stock Split Effective Date by [one-Xth (1/Xth)] and rounding such number down to the nearest whole integer, and shares of Old Common Stock held in uncertificated form shall be treated in the same manner. The corporation shall not be required to issue or deliver any fractional shares of New Common Stock. Each holder of such New Common Stock shall be entitled to receive
42
for
such fractional interest, and at the Reverse Stock Split Effective Date any such fractional interest in such shares of New Common Stock shall be converted into the right to receive, an amount in cash, without interest, determined by multiplying (i) such fractional share interest to which the holder would otherwise be entitled by (ii) the closing sale price of the Common Stock (on a post-reverse-split basis as adjusted for the amendment effected hereby) on the trading day immediately prior to the Reverse Stock Split Effective Date on The NASDAQ Capital Market, or if the principal exchange on which the Common Stock is then traded is other than The NASDAQ Capital Market, such exchange as may be applicable. Shares of Common Stock that were outstanding prior to the Reverse Stock Split Effective Date and that are not outstanding after the Reverse Stock Split Effective Date shall resume the status of authorized but unissued shares of Common Stock.”
5.
The
amendments to the Certificate of Formation have been approved in the manner required by the Texas Business Organizations Code and by the governing documents of the entity.
The undersigned signs this document subject to the penalties imposed by law for the submission of a materially false or fraudulent instrument and certifies under penalty of perjury that the undersigned is authorized under the provisions of law governing the entity to execute the filing instrument.
DATE: [__________]
By: Name: Title:
43
Dates Referenced Herein and Documents Incorporated by Reference
