RigNet
RigNet, Inc. (Form: DEF 14A, Received: 04/20/2016 09:32:19)

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. _)

 

Filed by the Registrant ☒

 

Filed by a Party other than the Registrant ☐

 

Check the appropriate box:

Preliminary Proxy Statement
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Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to §240.14a-12

 

RigNet, Inc.

 

(Name of Registrant as Specified In Its Charter)

 

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

 

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(RIGNET LOGO)

NOTICE OF
2016 ANNUAL MEETING
OF STOCKHOLDERS

   
Time and Date: 10:00 a.m. Central Daylight Time, May 18, 2016
Location: RAC Conference Center – Washington Room
  1880 S. Dairy Ashford, Ashford Crossing II, Suite 220, Houston, Texas 77077

 

April 20, 2016

 

Dear Stockholder:

 

You are cordially invited to attend the 2016 Annual Meeting of Stockholders of RigNet, Inc. (the “Company” or “RigNet”), which will be held at 10:00 a.m., Central Daylight Time, on Wednesday, May 18, 2016 at RAC Conference Center – Washington Room, 1880 S. Dairy Ashford, Ashford Crossing II, Suite 220, Houston, Texas 77077. Following a report on RigNet’s business operations, stockholders will vote to:

 

(GRAPHIC) Elect the eight directors named in our proxy statement to serve until the 2017 Annual Meeting of Stockholders or until their respective successors have been elected and qualified;

 

(GRAPHIC) Ratify the selection of Deloitte & Touche LLP as our independent auditors for 2016;

 

(GRAPHIC) Approve the First Amendment to the RigNet, Inc. 2010 Omnibus Incentive Plan;

 

(GRAPHIC) Approve changes to the material terms of the performance goals for performance awards under the RigNet, Inc. 2010 Omnibus Incentive Plan;

 

(GRAPHIC) Approve an Amendment to our Amended and Restated Certificate of Incorporation; and

 

(GRAPHIC) Approve our named executive officers’ compensation as a non-binding advisory vote.

 

Stockholders will also consider any other business as may properly come before the Annual Meeting.

 

You are eligible to vote if you were a stockholder of record at the close of business on March 24, 2016. Please ensure that your shares are represented at the meeting by promptly voting and submitting your proxy on the Internet or by completing, signing, dating and returning your proxy card in the enclosed envelope. If you decide to attend the meeting and vote, you may withdraw your proxy at that time.

 

To assist you in voting your shares, in addition to this Notice of Annual Meeting, you will find enclosed the 2016 Proxy Statement and our 2015 Annual Report to Stockholders, which includes the Company’s audited financial statements.

 

On behalf of the Board of Directors and employees of RigNet, we thank you for your continued interest in and support of the Company.

 

Sincerely,      
       
/s/ James H. Browning   /s/ William D. Sutton  
James H. Browning   William D. Sutton  
Chairman of the Board   Senior Vice President and General Counsel

 

Houston, Texas

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS

FOR THE ANNUAL MEETING OF STOCKHOLDERS

 

Our Proxy Statement and Annual Report to Stockholders are available at
“https://materials.proxyvote.com/766582”

 

Your vote is important. Please vote promptly.

 

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PROXY SUMMARY

 

This summary highlights information contained elsewhere in the proxy statement. This summary does not contain all of the information that you should consider, and you should read the entire proxy statement carefully before voting.

 

RIGNET 2016 ANNUAL MEETING OF STOCKHOLDERS 

   
Time and Date: 10:00 a.m. Central Daylight Time, May 18, 2016
Location: RAC Conference Center – Washington Room
  1880 S. Dairy Ashford, Ashford Crossing II, Suite 220, Houston, Texas 77077

 

Voting. Stockholders as of the record date, March 24, 2016, are entitled to vote. Each share of common stock is entitled to one vote for each director nominee and one vote for each of the other proposals on which to be voted.

 

Each stockholder’s vote is important. Even if you plan to attend our Annual Meeting in person, please cast your vote as soon as possible by:

 

(GRAPHIC) using the Internet at
“https://materials.proxyvote.com/766582
(GRAPHIC) mailing your signed proxy or voting
instruction form

 

Attendance. RigNet stockholders as of the record date are entitled to attend the Annual Meeting.

 

MEETING AGENDA AND VOTING RECOMMENDATIONS

 

  Page Reference for More Information Board Vote
Recommendation
Election of 8 directors  4 and 40 For
each director nominee
Management proposal:    
Ratify Deloitte & Touche LLP as our independent auditors for 2016 40 For
Approve the First Amendment to the RigNet, Inc. 2010 Omnibus Incentive Plan 41 For
Approve changes to the material terms of the performance goals for performance awards under the RigNet, Inc. 2010 Omnibus Incentive Plan

46

For

Approve an Amendment to our Amended and Restated Certificate of Incorporation

49

For

Stockholder advisory vote:    
Approve our named executive officers’ compensation 49 For
Transact other business that properly comes before the meeting    

 

BOARD NOMINEES

 

Name   Director
Since
Position with Our
Company
Inde-
pendent
Committee Membership

Other Board

Service Experience

Age AC CC CGN CDC
James H. Browning 66 2010 Chairman, Independent Director X X/F X C   X
Kevin J. O’Hara 55 2010 Vice Chair, Independent Director X   * *  

Mattia Caprioli 42 2013 Independent Director X     X X X
Charles L. Davis 50 2005 Independent Director X X   X  
Ditlef de Vibe 61 2011 Independent Director X   X   X  
Kevin Mulloy 57 2012 Independent Director X X     C  
Keith Olsen 59 2010 Independent Director X   C X   X
Brent K. Whittington 45 2010 Independent Director X C/F     X  
2015 Meetings         5 8 5 3  
AC Audit Committee C Chair
CC Compensation Committee F Financial Expert
CGN Corporate Governance and Nominating Committee * Resigned from Committee upon being named Vice Chair of the Board
CDC Corporate Development Committee    

 

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Attendance:
In 2015, each of our current directors attended at least 75% of the meetings of the Board and committees on which the member served during the year.
  Director Elections:
Each director is elected annually by a plurality of votes cast.

 

 

2015 PERFORMANCE AND COMPENSATION HIGHLIGHTS

 

RigNet performance. The recent executive leadership changes will position the Company for continued growth in the oil and gas sector as well as accelerate our strategic expansion into adjacent remote communications markets. The former Chief Executive Officer (“CEO”) and other named executives responded to 2015’s challenging economic market conditions that reduced oil and gas industry activity levels and our operating revenue by reallocating resources and restructuring personnel to reduce operating costs for long-term financial stability.

 

Compensation decisions reflect a balanced and responsible pay approach. The Compensation Committee has responsibility for oversight of RigNet’s executive compensation framework. The Compensation Committee works with senior management, aligning pay with performance and creating incentives that reward responsible risk-taking, while also considering RigNet’s business environment.

 

The Compensation Committee targets executive base compensation to be between the 25 th percentile and the median for our peer group. Our pay for performance philosophy is incorporated into our Short-term Incentive Plan (“STIP”), which compensates our executives with cash bonuses for meeting and exceeding corporate goals and objectives. We target cash compensation to be at the median for our peer group at target performance and reward above target performance with above median compensation. Our performance during 2015 did not achieve the minimum 85% achievement of our performance goals under the STIP and as such no STIP cash bonuses were earned.

 

Mr. Slaughter’s employment with the Company ended effective January 7, 2016 and upon his separation, Mr. Jimmerson was reemployed and named interim CEO. During 2015, in response to current market conditions in the oil and gas industry, Mr. Slaughter’s base salary and target bonus levels for 2015 were unchanged from the preceding year. Mr. Slaughter was granted stock and option awards of 7,500 and 39,807 shares, respectively, which were forfeited upon his departure. Based on Company performance, Mr. Slaughter did not earn a 2015 cash bonus. As interim CEO, Mr. Jimmerson’s base salary and target bonus percentage for 2016 were set at $415,000 and 100%, respectively, which represents unchanged compensation levels for our CEO and President. The Compensation Committee believes that its recommendations on our CEOs’ pay reflect the leadership skills and level of responsibility given our current size and market conditions. The Compensation Committee believes its decisions on our CEO’s pay to be consistent with prior years and represents a balanced and responsible pay-for-performance approach to compensation.

 

Compensation decisions in 2015 for Messrs. Jimmerson, Schneider, Sutton, Maytorena and Hansen reflect their individual experience and contributions to the Company’s overall performance as well as that of their respective business functions. Total compensation for these named executives also reflects a balanced and responsible pay-for-performance approach to compensation.

 

Equity compensation. Through equity compensation, our executives have a significant portion of compensation “at risk” and accordingly have a potential for earning above the median of our peer group. “At risk” means executives will realize increased value as they manage and operate the Company to achieve financial, operational and strategic goals, which we believe closely correlate to long-term stockholder value creation. RigNet grants restricted stock and option awards to named executives annually, which typically vest over 4 years through continued employment. Pursuant to the Securities and Exchange Commission (“SEC”) rules, equity awards are reported in full for 2015 in the respective columns in the Summary Compensation Table.

 

Recent Leadership Changes. Following Mr. Slaughter’s separation on January 7, 2016, Mr. Jimmerson was reemployed as our Interim Chief Executive Officer and President. Mr. Jimmerson’s reported compensation reflects his service during 2015 as our Chief Financial Officer and Vice President until his employment ceased on December 31, 2015, for which he received separation pay. Mr. Charles Schneider joined the Company as our Senior Vice President and Chief Financial Officer on December 8, 2015 for which he received a sign-on bonus.

 

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2015 Summary Compensation

 

 

 

Salary     Bonus     Stock
Awards
    Option
Awards
    Non-Equity Incentive Plan     All Other Comp.    
Total
 
Martin Jimmerson $ 288,600     $        —      $ 74,836     $ 176,196      $  —      $ 1,010,960     $ 1,550,592  

Interim Chief Executive Officer

and President and Former Chief

Financial Officer

                                       
                                       
Mark Slaughter  415,000      —      224,558      540,499      —      10,960      1,191,017  

Former Chief Executive Officer

and President

                                       
Charles Schneider  22,500     125,000     97,596     227,265             472,361  
Senior Vice President and
Chief Financial Officer
                                       
                                       
William Sutton  262,000      —     100,168     241,257      —      10,960     614,385  

Senior Vice President and

General Counsel

                                       
Hector Maytorena  264,230         79,492     191,450         37,610     572,782  

Group Vice President,

Managed Services

                                       
                                       
Morten Hagland Hansen  230,000      —     74,643     179,719         52,251     536,613  
Senior Vice President and Chief
Technology Officer
                                       
                                       

 

For more information on total compensation as calculated under SEC rules, see the narrative and notes accompanying the 2015 Summary Compensation Table, on page 24.

 

EXECUTIVE COMPENSATION PROGRAM HIGHLIGHTS

 

Key Features

Clawback of incentive compensation and equity compensation, in the event of a financial restatement   Executive share ownership requirements and restrictions, including an anti-hedging and anti-pledging policy
No excise tax gross-ups      

 

Elements

 

Type   Form   Terms
Equity   Stock Options   • Options generally vest 25% per year while employed
       

• No automatic accelerated option vesting upon a change of control

 

    Restricted Stock   • Stock awards generally vest 25% per year while employed
        • No automatic accelerated stock award vesting upon a change of control
Cash   Salary  

• Generally eligible for annual increase

 

    STIP Bonus  

• Based on achievement of quantitative and qualitative goals

- Funding level based on revenue and Adjusted EBITDA results

- Awards based on achievement of specific goals

 

    Long-term Performance Awards  

• Based on achievement of quantitative performance goals over a multiple-year performance period

Retirement   401K Match   • 4% match of voluntary contribution vests immediately

 

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GOVERNANCE HIGHLIGHTS

 

Board Leadership

 

We have an independent director who is elected by the independent directors to serve as the chairman of the Board, with broad authority and responsibility over Board governance and its operations. While we have an interim CEO, we also have an independent director serving as the Vice Chairman of the Board to actively collaborate with the interim CEO and executive team. See “ Board Leadership Structure and Role in Risk Oversight ” on page 8 for more information.

 

Director Independence

 

All of our director nominees are independent. An independent director chairs each Board committee. We believe our Board should consist primarily of independent directors. See “ Director Independence ” on page 9 for more information.

 

Board Risk Oversight

 

Our Board has oversight for risk management with a focus on the most significant risks facing the Company, including strategic, operational, financial, legal and compliance risks. See “ Board Leadership Structure and Role in Risk Oversight ” on page 8 for more information.

 

Corporate Development

 

Our Board’s diversity of experience, technical and industry knowledge brings value by providing management oversight and guidance related to evaluating corporate development opportunities and managing risks from merger and acquisition initiatives. See “ Corporate Development Committee ” on page 12 for more information.

 

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(RIGNET LOGO)  

 

CONTENTS

NOTICE OF THE 2016 ANNUAL MEETING OF STOCKHOLDERS

 

    Page
PROXY SUMMARY   i
PROXY STATEMENT   2
GOVERNANCE   4
Director Nominees   4
Corporate Governance   8
Board Leadership Structure and Role in Risk Oversight   8
Director Independence   9
Policy Governing Director Qualifications and Nominations   9
Communications to Our Board of Directors   11
Meetings of Our Board of Directors and Attendance at Annual Meetings   11
Committees of Our Board of Directors   11
Report of the Audit Committee   13
DIRECTOR COMPENSATION   14
EXECUTIVE COMPENSATION   15
Our Executive Officers   15
Compensation Discussion and Analysis   16
Summary Compensation Table   24
2015 Grants of Plan-Based Awards   29
Outstanding Equity Awards at December 31, 2015   30
Option Exercises and Vesting of Restricted Stock   31
Pension Benefits   31
Non-Qualified Deferred Compensation   31
Potential Payments Upon Termination or Change of Control   31
Compensation Committee Report   33
SECURITY OWNERSHIP   34
Security Ownership of Certain Beneficial Owners and Management   34
Section 16(a) Beneficial Ownership Reporting Compliance   35
Securities Authorized for Issuance Under Equity Compensation Plans   35
Certain Relationships and Related Transactions   36
ADDITIONAL INFORMATION   37
Stockholder Proposals and Nominations for the 2017 Annual Meeting   37
Other Matters for the 2016 Annual Meeting   39
PROPOSALS   40
Proposal One: Election of Directors   40
Proposal Two: Ratification of Independent Auditors    40
Proposal Three: Approve the First Amendment to the RigNet, Inc. 2010 Omnibus Incentive Plan   41
Proposal Four: Approve changes to the material terms of the performance goals for performance awards under the RigNet, Inc. 2010 Omnibus Incentive Plan   46
Proposal Five: Approval of an Amendment to our Amended and Restated Certificate of Incorporation   49
Proposal Six: Advisory Vote on Compensation of Named Executive Officers   49
APPENDIX A – FIRST AMENDMENT TO THE RIGNET, INC. 2010 OMNIBUS INCENTIVE PLAN   A-1
APPENDIX B – RIGNET, INC. 2010 OMNIBUS INCENTIVE PLAN   B-1
APPENDIX C – AMENDMENT TO RIGNET, INC.’S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION   C-1

 

Your vote is important. Please complete, sign, date and return your proxy or voting instruction form, or submit your vote and proxy on the Internet. Our Proxy Statement and Annual Report to Stockholders are available at “https://materials.proxyvote.com/766582”

 

1
 

 

PROXY STATEMENT 

 

RIGNET, INC. 

1880 S. Dairy Ashford, Suite 300  

Houston, Texas 77077-4760

 

We are furnishing this proxy statement to stockholders in connection with RigNet’s solicitation of proxies on behalf of the Board of Directors for the 2016 Annual Meeting of Stockholders. Distribution of this proxy statement and proxy card to stockholders is scheduled to begin on or about April 20, 2016.

 

Date, Time and Place of Meeting

 

Our Board of Directors is asking for your proxy for use at the RigNet, Inc. 2016 Annual Meeting of Stockholders (the “Annual Meeting”) or at any adjournments or postponements thereof. The Annual Meeting will be held on Wednesday, May 18, 2016, at 10:00 a.m., Central Daylight Time, at RAC Conference Center – Washington Room, 1880 S. Dairy Ashford, Ashford Crossing II, Suite 220, Houston, Texas 77077.

 

Proposals

 

At our 2016 Annual Meeting of Stockholders, we are asking our stockholders to consider and act upon proposals to: (1) elect eight directors to serve until our 2017 Annual Meeting; (2) ratify the appointment of Deloitte & Touche LLP as our independent auditor for the fiscal year ending December 31, 2016; (3) approve the First Amendment to the RigNet, Inc. 2010 Omnibus Incentive Plan; (4) approve changes to the material terms of the performance goals for the performance awards granted under the RigNet, Inc. 2010 Omnibus Incentive Plan; (5) approve an Amendment to our Amended and Restated Certificate of Incorporation; and (6) approve, as a non-binding advisory vote, the compensation of our named executive officers.

 

Record Date, Outstanding Shares and Quorum

 

Only stockholders of record at the close of business on March 24, 2016 (the “Record Date”) are entitled to notice of, and to vote at the Annual Meeting. As of the Record Date, there were 17,738,204 outstanding shares entitled to vote at the Annual Meeting. The presence, in person or by proxy, of the holders as of the Record Date of a majority of our outstanding shares is necessary to constitute a quorum for purposes of voting on the proposals at the Annual Meeting. Abstaining and withheld votes will count as present for purposes of establishing a quorum on the proposals.

 

If by the date of the Annual Meeting we do not receive sufficient shares to constitute a quorum or approve one or more of the proposals, the Chair of the Annual Meeting, or the persons named as proxies, may propose one or more adjournments of the Annual Meeting to permit further solicitation of proxies. The persons named as proxies would typically exercise their authority to vote in favor of adjournment.

 

Voting

 

If you are a holder of our common stock, you are entitled to one vote at the Annual Meeting for each share that you held as of the Record Date. Cumulative voting for directors is not permitted. The Inspector of Elections appointed for the Annual Meeting will tabulate all votes.

 

You may vote in person at the Annual Meeting or by proxy. Even if you plan to attend the Annual Meeting, we encourage you to vote your proxy card in advance of the Annual Meeting. If you plan to attend the Annual Meeting and wish to vote in person, we will give you a ballot at the meeting. However, please note that if your shares are held in “street name” (in the name of a broker or by a bank or other nominee), you are considered the beneficial owner of these shares and proxy materials are being forwarded to you by your broker or nominee, which is considered, with respect to these shares, the stockholder of record. As the beneficial owner, you have the right to direct your broker how to vote; however, since you are not the stockholder of record, you may not vote these shares in person at the Annual Meeting unless you obtain from your brokerage firm an account statement, letter or other evidence satisfactory to us of your beneficial ownership of the shares. Please vote your proxy by mail as soon as possible so that your shares may be represented at the Annual Meeting.

 

Revoking Your Proxy

 

If you submit your proxy by mail, you may still revoke it at any time before voting takes place at the Annual Meeting. If you are the record holder of your shares and wish to revoke your proxy, you may revoke it as follows: (i) by delivering, before or at the Annual Meeting, a new proxy with a later date; (ii) by delivering, on or before the business day prior to the Annual Meeting, a notice of revocation to our Corporate Secretary at the address set forth in the notice of the Annual Meeting; (iii) by attending

 

2
 

 

the Annual Meeting and voting, although your attendance at the Annual Meeting, without actually voting, will not by itself revoke a previously granted proxy; or (iv) if you have instructed a broker to vote your shares, you must follow the directions received from your broker to change those instructions.

 

If you sign and return your proxy card but do not give any voting instructions, your shares will be voted in favor of the election of each of the director nominees listed in Proposal One and in favor of Proposals Two, Three, Four, Five and Six. As far as we know, no other matters will be presented at the Annual Meeting. However, if any other matters of business are properly presented, the proxy holders named on the proxy card are authorized to vote the shares represented by proxies according to their judgment.

 

Soliciting Proxies

 

RigNet will pay all expenses of soliciting proxies to be voted at the Annual Meeting. After the proxies are initially distributed, RigNet and its officers, directors and employees (who will not receive any additional compensation for any solicitation of proxies) may also solicit proxies by mail, electronic mail, telephone or in person. We will ask brokers, custodians, nominees and other record holders to forward copies of the proxy materials to beneficial owners for whom they hold shares.

 

Annual Report on Form 10-K and Additional Materials

 

The Notice of Annual Meeting, this proxy statement and our Annual Report on Form 10-K for the year ended December 31, 2015 have been made available to all stockholders entitled to vote at the Annual Meeting. These materials may also be viewed at “https://materials.proxyvote.com/766582”.

 

Unless the context requires otherwise, the terms “RigNet,” the “Company,” “our,” “we,” “us” and similar terms refer to RigNet, Inc., together with its consolidated subsidiaries.

 

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GOVERNANCE 

 

Our Board of Directors currently consists of eight directors, each of whom has a term that expires at the Annual Meeting. Each of our current Board members, has been nominated to stand for re-election at the Annual Meeting. Each director elected at the Annual Meeting to our Board of Directors will serve in such capacity until his or her term expires at our next Annual Meeting or his or her successor has been duly elected and qualified, subject to their earlier death, resignation or removal. All directors meet the independence requirements under the listing standards of the NASDAQ. Mark Slaughter, our former CEO who resigned from our board on January 31, 2016, was not independent by virtue of his role as former CEO and President of our Company. There are no family relationships among any of our directors or executive officers.

 

At the Annual Meeting, our stockholders will consider and act upon a proposal to elect eight directors to our Board of Directors to serve until the 2017 Annual Meeting of Stockholders. Each of the nominees has consented to serve as a director if so elected. The persons named as proxies in the accompanying proxy card, who have been designated by our Board of Directors, intend to vote FOR the election of the director nominees unless otherwise instructed by a stockholder in a proxy card. If these nominees become unable for any reason to stand for election as a director, the persons named as proxies in the accompanying proxy card will vote for the election of such other person or persons as our Board of Directors may recommend and propose to replace such nominee or nominees.

 

DIRECTOR NOMINEES

 

Information concerning the eight director nominees is set forth below.

 

 Name   Age   Position with Our Company   Director Since
  James H. Browning   66   Chairman, Independent Director   2010
  Kevin J. O’Hara   55   Vice Chairman, Independent Director   2010
 Mattia Caprioli   42   Independent Director   2013
  Charles L. Davis   50   Independent Director   2005
 Ditlef de Vibe   61   Independent Director   2011
 Kevin Mulloy   57   Independent Director   2012
 Keith Olsen   59   Independent Director   2010
 Brent K. Whittington   45   Independent Director   2010
         
(PHOTO OF JAMES H. BROWNING)        
  James H. Browning
       
    DIRECTOR QUALIFICATIONS
       
  Finance Experience Retired KPMG LLP partner, served as KPMG’s Southwest Area Professional Practice Partner and SEC Reviewing Partner
       
       
  Leadership and Board Experience – Service on public company boards of Texas Capital Bancshares, Inc. and previously, Endeavour International Corporation
       

 

Mr. Browning has served on our Board since December 2010, and as the Chairman of our Board since May 16, 2012 and Co-Chairman of our Board from March 7, 2012 to May 16, 2012. Mr. Browning served as a partner at KPMG LLP, an international accounting firm, from July 1980 until his retirement in September 2009. Mr. Browning began his career at KPMG LLP in 1971, becoming a partner in 1980. Mr. Browning most recently served as KPMG’s Southwest Area Professional Practice Partner in Houston. Mr. Browning has also served as an SEC Reviewing Partner and as Partner in Charge of KPMG LLP’s New Orleans audit practice. Mr. Browning received a B.S. degree in Business Administration from Louisiana State University and is a Certified Public Accountant. He currently serves on the board of Texas Capital Bancshares, Inc., a publicly traded financial holding company and previously served on the board of Endeavour International Corporation, a publicly traded international oil and gas exploration and production company. Mr. Browning brings a wealth of knowledge dealing with financial and accounting matters to our Board as well as extensive knowledge of the role of public company boards of directors.

 

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(PHOTO OF KEVIN J. O'HARA)        
  Kevin J. O’Hara
       
    DIRECTOR QUALIFICATIONS
       
  Industry Knowledge and Technology Experience
    - Former President, CEO and Director of Integra, a communications provider
    - Co-founder of Level 3 Communications, Inc., a provider of IP-based communications
       
       
  Leadership and Board Experience
    - Former CEO and Director of Integra
    - CEO and president positions for over 20 years
       

 

Kevin J. O’Hara has served as a Director since December 2010 and Vice Chairman of the Board since January 7, 2016. Mr. O’Hara most recently served as President, Chief Executive Officer and director of Integra, a communications provider. He served on its Board since December 2009, was appointed Chairman of the Board in March 2011 and was named CEO in December 2011. Mr. O’Hara left Integra in September 2014. Prior to joining Integra, he was a co-founder and Chairman of the Board of Troppus Software Corporation, an early stage software company providing technical solutions to service providers that support home technology and networks, from March 2009 until it was acquired by a major service provider in January 2011. Mr. O’Hara also served on the Board of Directors of Elemental Technologies, Inc., a leading provider of video processing solutions for broadcast and on-line video customers, from January 2011 until October 2015, serving as Chairman from August 2011 until October 2015. Prior to that, Mr. O’Hara was a co-founder of Level 3 Communications, Inc., a provider of IP-based communications services to enterprise, content, government and wholesale customers, and served as its President from July 2000 to March 2008 and as the Chief Operating Officer of Level 3 Communications, Inc. from March 1998 to March 2008. From August 1997 to July 2000, Mr. O’Hara served as Executive Vice President of Level 3 Communications, Inc. Prior to that, Mr. O’Hara served as President and Chief Executive Officer of MFS Global Network Services, Inc. from 1995 to 1997, and as Senior Vice President of MFS and President of MFS Development, Inc. from October 1992 to August 1995. From 1990 to 1992, he was a Vice President of MFS Telecom, Inc. Mr. O’Hara has a Master of Business Administration from the University of Chicago and a Bachelor of Science in Electrical Engineering from Drexel University. Mr. O’Hara brings a wealth of experience in the communications industry to our Board as well as experience running a public company.

         
(PHOTO OF MATTIA CAPRIOLI)   Mattia Caprioli
       
    DIRECTOR QUALIFICATIONS
       
  Global Experience
    - Leads KKR’s Business Services industry team in Europe
    - Mergers, acquisitions and financing experience with Goldman Sachs in London
       
       
  Leadership and Board Experience – Serves on the Board of PortAventura and SBB Telemach
       

 

Mattia Caprioli has served on our Board since October 2013. Mr. Caprioli is a Member of Kohlberg Kravis Roberts & Co. L.P. (“KKR”) responsible for its Business Services industry team in Europe. Mr. Caprioli has held leadership roles in many KKR investments including Legrand, Toys ‘R’ Us, Alliance Boots, Inaer and Bond (now Avincis) since 2001. He also currently serves on the Boards of PortAventura and SBB Telemach. Prior to joining KKR, Mr. Caprioli was with Goldman Sachs International in London, where he was involved in a broad array of mergers, acquisitions and financings across a variety of industries. He holds a Master of Science degree from L. Bocconi University, Milan, Italy. Mr. Caprioli brings a diverse international background with extensive business services expertise to the Board.

 

5
 

 

         
(PHOTO OF CHARLES L. DAVIS)        
  Charles L. Davis
       
    DIRECTOR QUALIFICATIONS
       
  Industry Knowledge and Experience – Partner in Houston Ventures, an investment firm funding companies that apply technology solutions in the energy industry
       
       
  Finance Experience – Experience in finance, accounting and investment banking
       

 

Charles L. Davis has served as a member of our Board of Directors since June 2005. Mr. Davis has been a partner in Houston Ventures, formerly known as SMH Private Equity Group, a United States-based investment firm that funds companies that apply technology solutions in the energy sector, since December 2004. Mr. Davis received a Bachelor’s degree in Business from Washington and Lee University and is a Certified Public Accountant in the Commonwealth of Virginia. Mr. Davis brings experience in finance, accounting and investment banking to our Board as well as a wealth of experience in the energy industry. 

         
(PHOTO OF DITLEF DE VIBE)        
  Ditlef de Vibe
       
    DIRECTOR QUALIFICATIONS
       
  Leadership and Global Experience – Former Managing Partner of Kistefos Venture Capital, a venture capital firm investing in the IT and telecommunications industries
       
       
 

Technology Knowledge and Experience

- Former CEO of Global IP Solutions

- Various Director roles with IBM

       

 

Ditlef de Vibe has served on our Board since May 2011. From 2001 to 2011, Mr. de Vibe served as managing partner of Kistefos Venture Capital, a venture capital firm that primarily invests in the IT and telecommunications industries. Since leaving Kistefos Venture Capital, Mr. de Vibe’s principal occupation is as an independent investor and board member for several private Norwegian companies. From 2007 to 2008, Mr. de Vibe also served as Chief Executive Officer of Global IP Solutions (GIPS) Holdings AB, a company that was publicly traded in Norway until its sale to Google, Inc. From 1996 to 2001, Mr. de Vibe served in various capacities with IBM, including IBM’s Director of Network Outsourcing EMEA from 1999 to 2001, Director of Network Service Sales EMEA from 1998 to 1999, and Director of Network Outsourcing Services EMEA from 1996 to 1998. He holds a Master of Science degree from the University of Oslo. Mr. de Vibe brings a wealth of experience in IT and telecommunications along with extensive operational and commercial competencies.

         
(PHOTO OF KEVIN MULLOY)        
  Kevin Mulloy
       
    DIRECTOR QUALIFICATIONS
       
  Leadership and Global Experience
    - Former President of Presidio Managed Networks
    - Former President of Intelsat Global Service Corporation
       
       
  Technology Experience – Served as Executive Vice President of Corporate Development at an advanced information technology professional and managed service company
       

 

Kevin Mulloy has served as a Director since March 2012. Mr. Mulloy has served as Executive Vice President of Corporate Development at Presidio, Inc., an advanced information technology professional and managed service company, from July 2011 to May 2013. Prior to that, Mr. Mulloy served as President of Presidio Managed Networks, the managed services business at Presidio, from June 2008 to July 2011, and from September 2007 to June 2008 he served as the Executive Vice President of Operational Strategy for Presidio. For the five years prior to joining Presidio, Mr. Mulloy held leadership roles with Intelsat S.A., a provider of satellite services worldwide, including President of Intelsat Global Service Corporation from January 2003 to

 

6
 

 

February 2006 and Senior Vice President of Strategy, Business Development and M&A from January 2001 to January 2003. Mr. Mulloy’s experience also includes ten years with McKinsey & Company, a management consulting firm; three years with Gould Inc., an aerospace and defense company; and more than five years in the United States Navy, serving in the Surface Nuclear Propulsion branch of the Navy. Mr. Mulloy has a BSME from the US Naval Academy and an MBA from Wharton, University of Pennsylvania. Mr. Mulloy brings extensive operational satellite, telecommunications and information technology infrastructure experience to the Board.

         
(PHOTO OF KEITH OLSEN)   Keith Olsen
       
    DIRECTOR QUALIFICATIONS
       
  Industry Knowledge and Technology Experience
    - CEO and Director of a data center services company
    - Former CEO, President and Director of a provider of network-neutral data center
       
       
  Leadership and Global Experience
    - International business development with international carriers and service providers
    - Former Public Company CEO
       

 

Mr. Olsen has served as a Director since December 2010 when we completed our IPO. Mr. Olsen currently serves as Chairman and Chief Executive Officer of vXchnge Holdings LLC, a private company offering data center services. Mr. Olsen served as Chief Executive Officer, President and Director of Switch and Data Facilities Company, Inc., a listed NASDAQ company, which provided network-neutral data centers that house, power and interconnect the Internet, from February 2004 to May 2010, when Switch and Data Facilities Company, Inc. was acquired by Equinix, Inc. Prior to that, Mr. Olsen served as a Vice President of AT&T, where he was responsible for indirect sales and global sales channel management from May 1993 to February 2004. From 1986 to 1993, Mr. Olsen served as Vice President of Graphnet, Inc., a provider of integrated data messaging technology and services. Mr. Olsen has a Bachelor’s degree from the State University of New York, Geneseo. Mr. Olsen brings experience in running a public company to our Board as well as a wealth of experience in the communications industry.

         
(PHOTO OF BRENT K. WHITTINGTON)   Brent K. Whittington
       
    DIRECTOR QUALIFICATIONS
       
  Finance Experience—
    - Former CFO of Windstream Corporation and its predecessor, Alltel Holding Corp
    - Arthur Andersen LLP experience for over eight years
       
       
  Leadership and Industry Experience – Former COO of a communications company providing phone, high-speed Internet and high-definition digital TV services
       

 

Mr. Whittington has served as a Director since December 2010 when we completed our IPO. Mr. Whittington has served as the Chief Operating Officer of Windstream Corporation, a publicly traded communications company providing phone, high-speed Internet and high-definition digital TV services, from August 2009 to September 2014. Prior to that, Mr. Whittington served as the Executive Vice President and Chief Financial Officer of Windstream Corporation from July 2006 to August 2009. From December 2005 to July 2006, Mr. Whittington served as Executive Vice President and Chief Financial Officer of Windstream Corporation’s predecessor, Alltel Holding Corp. From 2002 to August 2005, Mr. Whittington served as Vice President of Finance and Accounting of Alltel Corporation, parent company of Alltel Holding Corp and, from August 2005 to December 2005, Mr. Whittington also served as the Senior Vice President-Operations Support of Alltel Corporation. Prior to joining Alltel, Mr. Whittington was with Arthur Andersen LLP for over eight years. Mr. Whittington has a degree in accounting from the University of Arkansas at Little Rock. Mr. Whittington brings experience in finance and accounting to our Board as well as a wealth of experience in the communications industry.

 

7
 

 

 

CORPORATE GOVERNANCE

 

The Board and the Company annually review RigNet’s governance documents, which are available on our website. These governance materials include, but are not limited to, our Code of Ethics and Business Conduct, Policy Governing Director Qualifications and Nominations, Policy Governing Related Person Transactions and Board committee charters. The Board regularly reviews corporate governance developments and, when appropriate, modifies its governance policies, committee charters and key practices.

 

Code of Ethics

 

We have a code of ethics and business conduct applicable to our principal executives, financial and accounting officers and all persons performing similar functions. A copy of that code is available on our corporate website at “ http://investor.rig.net/governance.cfm”.

 

Composition of the Board of Directors

 

Our Board of Directors currently consists of eight members, all of whom are non-employee members. Mr. Slaughter, our former CEO and President, served as a director until his resignation on January 31, 2016. Each director holds office until the election and qualification of his or her successor, or his or her earlier death, resignation or removal. Our by-laws permit our Board of Directors to establish by resolution the authorized number of directors.

 

With respect to the Annual Meeting, we have eight nominees and eight available board seats. Currently, a board member may be removed outside of the normal election process for cause by the affirmative vote of the holders of a majority of the shares then entitled to vote at an election of our directors. The eight nominees receiving the most votes cast at the Annual Meeting will be elected to our Board of Directors.

 

At the Annual Meeting, our stockholders will also consider and act upon a proposal to amend our Amended and Restated Certificate of Incorporation to enable a board member to be removed outside of the normal election process by the affirmative vote of the holders of a majority of the shares then entitled to vote at an election of our directors. Each properly executed proxy received in time for the Annual Meeting will be voted as specified therein.

 

BOARD LEADERSHIP STRUCTURE AND ROLE IN RISK OVERSIGHT

 

Currently, we separate the role of Chairman and Chief Executive Officer. In addition, each Board committee is presently comprised solely of independent directors. The Chief Executive Officer is responsible for setting the strategic direction for the Company and the day-to-day leadership and performance of the Company, while the Chairman of the Board provides guidance to the Chief Executive Officer, approves the agenda for Board meetings, and presides over meetings of the full Board. The independent members of the Board also regularly meet in executive session without management present. The Board believes this separation is appropriate at this time because of our public status. Our Board does not have a policy on whether or not the roles of Chairman of the Board and Chief Executive Officer should be separate and, if they are to be separate, whether the Chairman of the Board should be selected from the non-employee directors or be an employee or former employee. The Board believes that it should be free to make a choice from time to time in any manner that it believes is in the best interests of our Company and our stockholders at that time.

 

While we have an interim CEO, we also have an independent director serving as the Vice Chairman of the Board to lead our efforts in the search and selection of a permanent Chief Executive Officer and President and actively collaborate with the interim CEO and executive team to support our next phase of development both in merger and acquisition activities and other initiatives to expand our products and solutions. The Board actively oversees management, particularly through regular conferences between the Chief Executive Officer and the Chairman. The Board reviews the Chairman of the Board position annually after the Annual Meeting of Stockholders.

 

Risk Oversight

 

Risk is an inherent part of RigNet’s business activities and is critical to the Company’s growth and success. The Board seeks to assess major risks facing our Company and options for their mitigation in order to promote our stockholders’ and other stakeholders’ long-term interests. We reward our executives for taking responsible risks in line with the Company’s strategic objectives and overall risk appetite. Depending on the nature of the risk involved and the particular business function involved, we use a wide variety of risk mitigation strategies, including delegation of authorities, standardized processes, strategic planning, operating reviews and insurance.

 

8
 

 

The Board has oversight for risk management and actively reviews risk management practices through continuous dialogues and receipt of management reports. The Board and its committees collectively oversee risk by actively reviewing material management decisions throughout the year in the areas that risk responsibility has been delegated.

 

The Board has delegated responsibility for the oversight of specific risks to the Board committees as follows:

 

Corporate Governance and Nominating Confirms the existence and capability of risk management systems and controls specific to operational, technological, compliance, reputational and political risks
Reviews assessments and implementation of risk-based controls for our business activities
Oversees risk related to the Company’s governance structure and processes, including risks arising from related person transactions
   
Audit Oversees policies and processes related to the financial statements, financial reporting process, compliance and auditing
Monitors ongoing compliance issues and matters and meets with our independent accounting firm
Reviews risk management practices and performance related to credit, liquidity and compliance risks
   
Compensation Oversees the risk management associated with management resources, structure, succession planning and supports the selection process
Evaluates the effect the compensation structure may have on risk decisions
   
Corporate Development Provides guidance related to corporate development opportunities
Reviews risk mitigation strategies in connection with merger and acquisition initiatives
     

The extent of the Board’s oversight function has the effect of solidifying the Board’s leadership structure by providing knowledge and input into material risk decisions.

 

DIRECTOR INDEPENDENCE

 

Our Board of Directors has reviewed the independence of each director and considered whether any director had or has a material relationship with us that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities. As a result of this review, our Board of Directors has determined that Messrs. Browning, Caprioli, Davis, de Vibe, Mulloy, O’Hara, Olsen, and Whittington qualify as “independent” in accordance with the published listing standards of the NASDAQ. Mr. Slaughter was not independent by virtue of his role as former CEO and President of our Company.

 

In addition, the members of the Audit Committee of our Board of Directors each qualify as “independent” under standards established by the SEC and NASDAQ for members of audit committees, and the Audit Committee includes at least one member who is determined by our Board of Directors to meet the qualifications of an “audit committee financial expert” in accordance with SEC rules. Messrs. Browning and Whittington are independent directors who have been determined to be audit committee financial experts. Stockholders should understand that this designation is a disclosure requirement of the SEC related to Messrs. Browning and Whittington’s experience and understanding with respect to certain accounting and auditing matters. The designation does not impose on them any duties, obligations or liability that are greater than are generally imposed on them as members of the Audit Committee and Board of Directors, and their designation as audit committee financial experts pursuant to this SEC requirement does not affect the duties, obligations or liability of any other member of the Audit Committee or Board of Directors.

 

In addition, the members of the Compensation Committee of our Board of Directors each qualify as “independent” under standards established by the SEC and NASDAQ for members of compensation committees.

 

POLICY GOVERNING DIRECTOR QUALIFICATIONS AND NOMINATIONS

 

Our Company seeks directors who possess, at a minimum, the qualifications and skills described below and as set forth in our Policy Governing Director Qualifications and Nominations. Our Company considers diversity in its nomination of directors, and in its assessment of the effectiveness of the Board and its committees. In considering diversity, we evaluate each director candidate in the context of the overall composition and needs of our Board, with the objective of recommending a group that can best manage the business and affairs of the Company and represent stockholder interests using its diversity of experience. Our Corporate Governance and Nominating Committee will consider these and other qualifications, skills and attributes when recommending candidates to our Board.

 

9
 

 

At a minimum, our Corporate Governance and Nominating Committee must be satisfied that each Committee-recommended nominee meets the following minimum qualifications:

 

The candidate shall exhibit high standards of integrity, commitment and independence of thought and judgment.
     
The candidate shall be committed to representing the long-term interests of our Company’s stockholders.
     
The candidate shall have sufficient time and availability to devote to the affairs of our Company, particularly in light of the number of boards on which the nominee may serve.
     
To the extent the candidate serves or has previously served on other boards, the candidate shall have a demonstrated history of contributing at board meetings.
     
The candidate shall meet any other minimum qualifications and other criteria for Board membership approved by our Board from time to time.

 

In addition to the minimum qualifications for each candidate set forth above, our Corporate Governance and Nominating Committee shall recommend that our Board select persons for nomination to help ensure that:

 

A majority of the Board is “independent” in accordance with the standards, if any, promulgated by the SEC, any exchange upon which securities of our Company are traded and any governmental or regulatory body exercising authority over our Company.
     
Each of our Audit, Compensation and Corporate Governance and Nominating Committees are comprised entirely of independent directors.
     
At least one member of our Audit Committee shall have such experience, education and other qualifications necessary to qualify as an “audit committee financial expert” as defined by the rules of the SEC.

 

In addition, for the overall structure and composition of our Board, the Committee seeks directors with the following types of experience

 

Leadership experience. We believe that directors who have held significant leadership positions, especially CEO positions, over an extended period, provide the Company with unique insights. These individuals generally possess extraordinary leadership qualities, and the ability to identify and develop those qualities in others. They demonstrate a practical understanding of organizations, processes, strategy and risk management, and know how to drive change and growth.  

Finance experience. We believe that an understanding of finance and financial reporting processes is important for our directors as RigNet measures its operating and strategic performance by reference to financial goals. In addition, accurate financial reporting and robust auditing are critical to RigNet’s success. We seek to have directors who qualify as audit committee financial experts, and we expect all of our directors to be financially knowledgeable. As part of this qualification, we also seek directors who have relevant risk management experience.

 
Technology experience. As a technology-based communication company, we seek directors with backgrounds in technology and a deep understanding of technology risks because our success depends on reliability of our technology, investments in new technologies and access to new ideas.  

Industry experience. We seek to have directors with experience as executives or directors or in other leadership positions in the industries in which we participate. For example, we seek directors with experience in the communications and oil and gas industries, since many of our customers operate in the oil and gas industry.

     
Global experience. RigNet’s continued success depends, in part, on its success in continuing to grow its businesses outside the United States. For example, in 2015, approximately 70% of RigNet’s revenues came from outside the United States.  

Marketing experience. RigNet seeks to grow organically by identifying and developing new markets for its products as well as by acquisition. Therefore, marketing expertise, especially on an international basis, is important to us.

 

   

10
 

 

COMMUNICATIONS TO OUR BOARD OF DIRECTORS

 

Our Board of Directors has a process in place for communications with stockholders. Stockholders should initiate any communications with our Board in writing and send them to our Board of Directors, c/o William Sutton, Senior Vice President and General Counsel, RigNet, Inc., 1880 S. Dairy Ashford, Suite 300, Houston, Texas 77077-4760. All such communications will be forwarded to the appropriate directors. This centralized process will assist our Board of Directors in reviewing and responding to stockholder communications in an appropriate manner. If a stockholder wishes for a particular director or directors to receive any such communications, the stockholder must specify the name or names of any specific Board recipient or recipients in the communications. Communications to our Board of Directors must include the number of shares owned by the stockholder as well as the stockholder’s name, address, telephone number and e-mail address, if any.

 

MEETINGS OF OUR BOARD OF DIRECTORS AND ATTENDANCE AT ANNUAL MEETINGS

 

During 2015, our Board of Directors held seven compensated meetings and six non-compensated special telephonic meetings to obtain updates on the industry and business environment. The standing Committees of our Board of Directors held an aggregate of 21 meetings during this period. Each director attended at least 75% of the aggregate number of meetings of the Board and Committees on which they served. Each member of our Board of Directors is expected to attend our annual meetings of stockholders. Each person who was a director at the time of our 2015 Annual Meeting of Stockholders attended such meeting, except Mr. Whittington.

 

COMMITTEES OF OUR BOARD OF DIRECTORS

 

Our Board of Directors currently has standing Audit, Compensation, Corporate Governance and Nominating and Corporate Development Committees. Each member of the Audit, Compensation, Corporate Governance and Nominating and Corporate Development Committees is an independent director in accordance with the NASDAQ listing standards described above and applicable SEC regulations. Our Board of Directors has adopted a written charter for each of these Committees, which sets forth each Committee’s purposes, responsibilities and authority. These committee charters are available on our website at “http://investor.rig.net/governance.cfm” .

 

Audit Committee    
Select and oversee the independent accounting firm Number of Meetings in 2015:
Oversee the quality and integrity of our financial reporting 5  
Review the organization and scope of our internal audit function and our disclosure and internal controls Committee Members:
Oversee the Company’s legal and regulatory compliance

Whittington (C, F, I)
Browning (F, I)

Davis (I)

Mulloy (I)

Approve audit and non-audit services provided by our independent auditors

Monitor financial reporting activities and the accounting standards and principles followed

         
C  Chair of the Committee      
F  Audit Committee Financial Expert as defined under SEC rules      
I   Satisfies standards established by the SEC and NASDAQ to be designated as an independent director    
  T  Served during 2015 and temporarily resigned from committee service upon being named Vice Chair of the Board    

 

The report of our Audit Committee appears under the heading “Report of the Audit Committee” below.

 

Compensation Committee

 

Compensation Committee    
Review and recommend for Board approval the compensation of the CEO Number of Meetings in 2015:
Review and recommend for Board approval the compensation of the Board 8  
Make recommendations to the Board with respect to our non-CEO
executive officers
Committee Members:
Administer and implement Board approved compensation plans, policies, and programs, including short and long-term incentive plans

Olsen (C, I)
Browning (F, I)

de Vibe (I)

O’Hara (T, I)

Review succession planning for our executive officers

 

11
 

 

All Compensation Committee members are also “non-employee directors” as defined by Rule 16b-3 under the Securities Exchange Act of 1934, as amended (“Exchange Act”). The report of our Compensation Committee appears under the heading “Compensation Committee Report” below.

 

Procedures and Processes for Determining Compensation - Please refer to “Compensation Discussion and Analysis, The Compensation Committee,” below for a discussion of the Compensation Committee’s procedures and processes for making compensation determinations.

 

Compensation Committee Interlocks and Insider Participation - No member of the Compensation Committee has any relationship with our Company requiring disclosure in any of the reports that we file with the SEC, other than service on our Board of Directors. None of our named executive officers serves as a member of the Board of Directors or compensation committee of any entity that has one or more of its executive officers serving as a member of our Board of Directors or Compensation Committee.

 

Corporate Governance and Nominating Committee

 

Corporate Governance and Nominating Committee    
Identify and recommend nominees for the Board Number of Meetings in 2015:
Monitor and develop our corporate governance practices, guidelines, code of conduct and compliance mechanisms 5  
Review risk performance and enterprise risk exposure across operational, technological, compliance, reputational and political areas Committee Members:
Oversees the Company’s legal and regulatory compliance

Browning (C, F, I)
Caprioli (I)
Olsen (I)

O’Hara (T, I)

Monitor the existence and capability of risk management systems and control in all critical business activities and enterprise risk categories

 

The Committee will evaluate each nominee based upon a consideration of a nominee’s qualification as independent as well as their diversity, skills and experience in the context of the needs of the Board of Directors as described in our Corporate Governance Guidelines. The Corporate Governance and Nominating Committee may rely on various sources to identify director nominees. These include input from directors, management, professional search firms and other sources that the Committee feels are reliable.

 

Stockholders may recommend director candidates for consideration by the Corporate Governance and Nominating Committee, which will consider such suggestions made by stockholders in the same manner as other candidates. Any such suggestions should be submitted to the Chairman of the Corporate Governance and Nominating Committee, c/o William Sutton, Senior Vice President and General Counsel, RigNet, Inc., 1880 S. Dairy Ashford, Suite 300, Houston, Texas 77077-4760. The written request must include the candidate’s name, contact information, biographical information and qualifications. The request must also include the potential candidate’s written consent to being a nominee and to serving as a director if nominated and elected. The Committee may request additional information from time to time from the nominee or the stockholder or group of stockholders. Stockholder nominations that seek to bypass the consideration of the Corporate Governance and Nominating Committee must follow the procedures set forth in our bylaws, which are summarized below in the Section entitled “Stockholder Proposals and Nominations for the 2017 Annual Meeting.”

 

Corporate Development Committee

       
Corporate Development Committee    
Provide oversight and guidance for the evaluation of corporate development opportunities Number of Meetings in 2015:
3  


Provide oversight and guidance over the strategies and processes regarding merger and acquisition initiatives

 

Committee Members:

Mulloy (C, I)

Caprioli (I)
Davis (I)
de Vibe (I)
Whittington (F, I)

 

12
 

 

REPORT OF THE AUDIT COMMITTEE

 

The Audit Committee oversees the financial reporting process of the Company on behalf of its Board of Directors. Management has the primary responsibility for the preparation of the financial statements and the reporting process, including the systems of internal control.

 

With respect to the financial statements for the year ended December 31, 2015, the Audit Committee reviewed and discussed the financial statements of RigNet, Inc. and the quality of financial reporting with management and the independent auditor. The Audit Committee received the written disclosure and the letter from the independent auditor required under applicable requirements including Auditing Standard No. 16, Communication with Audit Committees , as established by the Public Company Accounting Oversight Board. Additionally, the Audit Committee has discussed with the independent auditor their independence with respect to the Company. The Audit Committee determined that the non-audit services provided to RigNet by the independent auditor (discussed below under “Proposal Two: Ratification of Independent Public Accountants”) are compatible with maintaining the independence of the independent auditor.

 

Based on the reviews and discussions described above, the Audit Committee recommended to our Board of Directors that the financial statements of RigNet, Inc. be included in the Annual Report on Form 10-K for the year ended December 31, 2015 for filing with the SEC.

 

    Submitted By:


 
Audit Committee
   

 

Brent K. Whittington, Chairman

James H. Browning

Charles L. Davis

Kevin Mulloy

 

This Report of the Audit Committee is not “soliciting material” and shall not be deemed incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933 or under the Securities Act of 1934, as amended, except to the extent the Company specifically incorporates this report by reference, and shall not otherwise be deemed filed under such Acts.

 

13
 

DIRECTOR COMPENSATION

 

The following summarizes the compensation of each non-employee member of our Board of Directors for the fiscal year ended December 31, 2015. During 2015, our former CEO was also a board member. Since he was an employee of the Company, he did not receive additional compensation specifically related to his service on our Board of Directors. In addition, Mr. Caprioli does not receive any compensation for his role as a member of our Board of Directors due to his affiliation with KKR, a holder of over 25% of our outstanding shares of common stock.

 

Our Board of Directors has implemented a compensation policy applicable to our non-employee directors, which provides those directors the following compensation for Board and committee services:

 

an annual retainer paid in cash in an amount equal to $9,000 per quarter;

 

annual equity awards of restricted stock in an amount to be approved by the Board or, at the option of our Company, an equivalent payment in cash;

 

$1,500 for each Board meeting attended in person if traveling within North America or telephonically or $4,500 for each meeting attended in person if traveling from outside North America; and

 

$1,000 for each committee meeting attended.

 

In addition, this compensation policy provides that the chairman of the Audit Committee will receive an additional annual retainer of $15,000; the chairman of the Compensation Committee will receive an additional annual retainer of $10,000; the chairman of the Corporate Governance and Nominating Committee will receive an additional annual retainer of $10,000; the chairman of the Corporate Development Committee will receive an additional annual retainer of $10,000; and the non-executive chairman of the Board of Directors will receive an additional annual retainer of $50,000. Retainers and meeting fees are paid at the end of each quarter on a pro rata basis for any partial service periods.

 

The following table summarizes the compensation of each non-employee member of our Board of Directors in 2015:

 

Name (1)   Fees Earned or
Paid in Cash (2)
  Stock
Awards (3)
  Total
James H. Browning   $   111,858   $ 96,369   $ 208,227
Kevin J. O’Hara      68,500      96,369      164,869
Mattia Caprioli (4)              
Charles L. Davis      53,500      96,369      149,869
Ditlef de Vibe      67,000      96,369      163,369
Kevin Mulloy      64,500      96,369      160,869
Keith Olsen      68,500      96,369      164,869
Brent K. Whittington      60,684      96,369      157,053
                   
(1) Each non-employee director listed above served as a director for all of 2015. Our former CEO is excluded from this table, as he received no compensation specifically related to his service on our Board and his compensation as an employee is reflected in the Summary Compensation Table.

 

(2) Amounts reflect annual retainers and Board and committee fees earned by the directors during 2015.

 

(3) Reflects the aggregate grant date fair value for restricted stock granted in 2015 computed in accordance with FASB ASC Topic 718. Each independent director received an equity award in 2015 and the grant date fair value is reflected in the table above. Information about the assumptions used to value these awards can be found in Note 11 to the consolidated financial statements in the Annual Report on Form 10-K for the fiscal year ended December 31, 2015. As of December 31, 2015, each independent director had 2,657 shares of restricted stock outstanding.

 

(4) Mr. Caprioli received no compensation for his Board service by agreement between the Company and KKR, our stockholder for which Mr. Caprioli is a member.

 

The table above reflects all compensation received by our independent directors during 2015. The Company does not provide a pension plan for non-employee directors.

 

14
 

 

EXECUTIVE COMPENSATION

 

OUR EXECUTIVE OFFICERS

 

The following table provides information regarding our executive officers.

 

Name   Age   Position with Our Company
Martin Jimmerson   52   Interim Chief Executive Officer and President
Charles Schneider   52   Senior Vice President and Chief Financial Officer
William Sutton   62   Senior Vice President and General Counsel
Hector Maytorena   55   Group Vice President, Managed Services
Morten Hagland Hansen   43   Senior Vice President and Chief Technology Officer
Gerry Gutierrez   53   Group Vice President, Telecommunications Systems Integration
         

Martin Jimmerson has served as our Interim Chief Executive Officer and President since January 7, 2016. Prior to that, Mr. Jimmerson served as our Senior Vice President from December 8, 2015 through December 31, 2015, Senior Vice President and Chief Financial Officer from February 2014 through December 7, 2015 and our Chief Financial Officer from November 2006 through January 2014. Mr. Jimmerson served as Chief Financial Officer for River Oaks Imaging & Diagnostic, LP from November 2002 to December 2005. Mr. Jimmerson received a B.A. degree in accounting from Baylor University.

 

Charles Schneider has served as our Senior Vice President and Chief Financial Officer since December 8, 2015. Prior to that, Mr. Schneider served various financial leadership roles at KBR, Inc. including Vice President and Chief Financial Officer for the Engineering and Construction, Americas division from January 2015 to December 2015; Vice President, Finance and Treasurer from February 2010 to December 2014; Vice President, Corporate Development from December 2008 to February 2010; and interim Chief Financial Officer from March 2008 to June 2008. In addition, his professional career includes experience in commercial banking, project finance, corporate finance and M&A. Mr. Schneider received a B.B.A. degree in finance and a MBA from University of Texas at Austin, McCombs School of Business.

 

William Sutton has served as our Senior Vice President and General Counsel since February 2014. Prior to that, Mr. Sutton served as our Vice President, General Counsel and Corporate Secretary from May 2009 through January 2014 and Vice President and General Counsel from March 2008 through May 2009. Mr. Sutton served as Chairman for Sweeten & Sutton Brokerage, Inc. from March 2007 to February 2008 and President and Chief Executive Officer for Abbey SA, LP from April 2004 to October 2006. He has attended Stanford Law School’s Directors’ College. Mr. Sutton received a Bachelor of Business Administration degree from the University of Texas at Austin and a Juris Doctorate from the University of Houston.

 

Hector Maytorena has served as our Group Vice President, Managed Services since February 19, 2015. Prior to that he served as our Group Vice President, Eastern Hemisphere from February 2014 through February 18, 2015, our Vice President & General Manager, Eastern Hemisphere from April 2012 through January 2014, our Vice President & General Manager, Western Hemisphere from November 2009 through March 2012, and as Vice President, Global Sales & Marketing from November 2007 through October 2009. Prior to joining RigNet, he served as General Manager of Southeast Texas for United Technologies’ UTC Fire & Security (operating under the Chubb Security and Redhawk brands) from November 2006 to November 2007 and Director of Sales at Chubb Security USA from August 2005 to November 2006. Prior to that role, Mr. Maytorena served in various leadership roles at Stratos Global Corporation’s Broadband Division with his last assignment as Director of Global Sales and Marketing from November 2002 to August 2005. Mr. Maytorena is a graduate of United Technologies’ Emerging Leaders Program at the University of Virginia’s Darden Graduate School of Business and has completed an executive education course in Emerging Growth Companies at Stanford University’s Graduate School of Business.

 

Morten Hagland Hansen has served as our Senior Vice President, Business Services and Chief Technology Officer since February 2014. Prior to that, Mr. Hansen served as our Vice President, Business Services from February 2013 through January 2014, Vice President, Global Engineering and Operations from July 2011 through January 2013, Vice President, Global Engineering from February 2009 to July 2011, and Director of Global Engineering from January 2007 to February 2009.  From October 2001 to January 2007, Mr. Hansen served as our Engineering Manager. Prior to joining RigNet in 2001, he had experience in information technology and telecoms engineering, design and deployment. Mr. Hansen recently completed an executive education course in Customer-Focused Innovation at Stanford University’s Graduate School of Business.

 

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Gerry Gutierrez has served as our Group Vice President, Telecommunications Systems Integration since June 2014. Prior to joining RigNet, Mr. Gutierrez served in various leadership roles at Honeywell, most recently as Marketing Director, Global Major Projects from January 2013 to June 2014, as Vice President of Major Projects from August 2011 to December 2012, and he served as marketing director, Global Major Projects at Honeywell and Regional General Manager for Latin America from May 2008 to July 2011. Mr. Gutierrez earned both his Bachelor of Science degree in Electrical Engineering and Master’s degree in Business Administration from the University of Houston.

 

COMPENSATION DISCUSSION AND ANALYSIS

 

This Compensation Discussion and Analysis addresses the following topics:

 

the role of our Compensation Committee in establishing a recommendation for executive compensation for adoption by the Board;
our process for setting executive compensation;
our compensation philosophy and policies regarding executive compensation; and
our compensation decisions for fiscal year 2015 with respect to our named executive officers.

 

This section of the proxy also describes the compensation paid to our 2015 named executive officers:

 

Martin Jimmerson – Interim Chief Executive Officer and President and Former Senior Vice President and Chief Financial Officer
Mark Slaughter – Former Chief Executive Officer and President
Charles Schneider – Senior Vice President and Chief Financial Officer
William Sutton – Senior Vice President and General Counsel
Hector Maytorena – Group Vice President, Managed Services
Morten Hagland Hansen – Senior Vice President and Chief Technology Officer

 

The compensation programs described, however, apply more broadly to other officers and management personnel at the Company, with appropriate changes to reflect different levels and types of responsibility. The Company believes this approach helps to align RigNet employees into a unified team committed to the Company’s corporate objectives.

 

The Compensation Committee

 

The Compensation Committee of the Board of Directors (the “Compensation Committee” or “Committee”) assists the Board in fulfilling its duties relating to compensation matters. The fundamental responsibilities of the Committee are to:

 

develop RigNet’s compensation objectives and philosophy;
review and oversee the incentive compensation and equity plans;
review performance goals, objectives and policies relevant to CEO executive compensation;
review performance goals, objectives and policies relevant to Board compensation;
evaluate executive performance in light of those goals to recommend executive compensation levels;
review and make recommendations for Board compensation levels;
review and recommend compensation levels and awards under incentive compensation plans that are consistent with our compensation philosophy and the performance of our Company, its senior management, employees and the Board;
administer the stock ownership policy;
review and approve disclosures relating to compensation; and
oversee succession planning for the CEO and our named executive officers.

 

The Compensation Committee may form and delegate its authority to one or more subcommittees as it deems necessary or advisable from time to time, provided, that any such subcommittee must report any actions taken by it to the full Compensation Committee at its next regularly scheduled meeting.

 

The Board approves all compensation plans and compensation arrangements for our named executive officers based upon Compensation Committee recommendations.

 

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The Compensation Setting Process

 

Our Compensation Committee holds regularly scheduled meetings, which coincide with our Board meetings. It also holds additional meetings as required to carry out its duties. The Committee Chairman works with our management to establish each meeting agenda.

 

At its meetings, the Committee:

 

updates the Company’s compensation strategy and objectives;
considers changes in compensation elements for the upcoming year;
reviews actual results compared to the pre-established performance metrics for the current year to determine annual STIP incentive awards for our named executive officers and total awards authorized;
reviews equity awards, either in the form of restricted stock grants, performance shares and or stock option awards;
reviews Company performance metrics under our cash incentive compensation plans;
reviews Board performance and evaluates the compensation paid to our independent directors and makes recommendations for adjustments, if any, to the Board; and
reviews the performance of our CEO.

 

Role of Compensation Consultant

 

The Committee’s Charter grants the Committee the sole and direct authority to retain and terminate compensation advisors and to approve their fees. All such advisors report directly to the Compensation Committee and all assignments are directed by the Committee Chairman. Pearl Meyer & Partners (“Pearl Meyer”) serves as the Committee’s independent compensation consultant to assist the Committee in assessing and determining competitive compensation packages for our named executive officers and directors.

 

In this capacity, Pearl Meyer has at the Committee’s request and under the direction of the Committee Chairman, assembled information regarding:

 

identification of an updated peer group of companies;
compensation trends in the telecommunication and oil and gas service industries;
use and structure of performance-based equity awards;
relative compensation for similarly-situated executive officers within peer group companies or other companies with revenues, transactions or growth trends comparable to our Company; and
relative compensation for similarly situated independent board directors of the peer group companies or other companies with revenues, transactions or growth trends comparable to our Company.

 

While the Committee relies on data provided by our independent compensation consultant or Equilar, Inc., a provider of executive compensation information based on publicly available information contained in SEC filings, it also considers a number of other factors including:

 

performance of the executive;
historical compensation levels;
specific role the executive plays within our Company; and
changes in scope, roles and responsibilities.

 

With the assistance of our independent compensation consultant, we updated our compensation peer group during 2015 reflecting changes in our global company, the industry and our size as a public company to include the following seventeen companies: Calix Inc., Cogent Communications Group, Dawson Geophysical Company, 8X8 Inc., Forbes Energy Services, Hornbeck Offshore Services, Gulf Island Fabrication Inc., GulfMark Offshore Inc., inContact Inc., Iridum Communications, Kvh Industries Inc., Magnum Hunter Resources Corporation, Rex Energy Corporation, Shoretel Inc., Tesco Corporation, TETRA Technologies Inc. and Vantage Drilling Company. We selected these companies because they were public companies of similar size and headcount, and they serve the geographies and customer bases in which we operate and compete for senior management personnel. During 2013 and again in 2015, we obtained a compensation peer group study from Pearl Meyer for our executive officers and directors, which provided specific input on cash and equity compensation levels and ranges. The 2013 data was used to establish 2015 base compensation, short-term incentive compensation targets and long-term incentive compensation targets as a percentage of base compensation and the 2015 data was used to establish 2016 compensation. During 2015, we consulted with our compensation consultant in setting the compensation of our interim CEO. See “Determining the Amount of Each Element of Compensation – Base Compensation” below.

 

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Role of Chief Executive Officer in Executive Compensation Decisions

 

Our Compensation Committee seeks input from the CEO when discussing the performance of and compensation levels for our named executive officers other than himself. The CEO provides information related to each named executive officer’s performance to support the Compensation Committee’s decision-making on executive compensation.

 

Our Executive Compensation Program

 

Compensation Objectives

 

Our executive compensation program is designed to encourage our executives to focus on building long-term stockholder value, maximizing growth consistent with our strategic plan and delivering strong financial results. Our executive compensation program is intended to align the interests of our named executive officers with those of our stockholders by motivating our named executive officers to achieve strong financial and operating results, as well as to further our strategic growth initiatives, which we believe closely correlate to long-term stockholder value. This pay-for-performance based alignment of interests is reflected through each named executive officer’s total compensation.

 

Our Compensation Committee reviews our executives’ total compensation elements on an annual basis taking into consideration any changes in position or responsibilities. In the event of material changes in position, responsibilities or other factors, the Compensation Committee may consider changes in base pay during the year.

 

In addition to changes in position or responsibilities, the Committee primarily considered:

 

experience and competencies;
peer data provided by our outside consultant;
industry published data; and
internal review of the executive’s compensation, both individually and relative to other executive officers.

 

Compensation Philosophy

 

Executive base compensation is expected to be between the 25 th percentile and the median for our peer group, adjusted for each individual’s education, experience, performance and potential. In addition, our executives can earn short-term incentive compensation in support of our pay-for performance philosophy. Through equity compensation, our executives have a significant portion of compensation “at risk” and accordingly have a potential for earning above the median of our peer group. “At risk” means executives will not realize value unless they meet performance goals, the majority of which are tied to Company financial, operational and strategic goals, which we believe closely correlate to long-term stockholder value creation.

 

Our compensation program provides for the following elements:

 

base salaries - designed to allow us to attract and retain qualified candidates in a highly competitive market;

 

short-term incentive compensation - provides additional compensation or bonuses designed to support our pay-for-performance philosophy based on achievement of annual financial results and specific individual personal goals;

 

long-term incentive compensation - intended to reward executives for equity value growth to align executive interests with our stockholders’ interests to grow long-term value and incentivize retention; and

 

benefits package - available to all of our employees, including our executives.

 

Our Compensation Committee’s review of compensation over the long term targets total direct compensation (including base salary and short-term incentive compensation) for all named executive officers at approximately the median of compensation paid to similarly situated executives of the companies comprising our compensation peer group. As more fully described below under “Determining the Amount of Each Element of Compensation”, the Committee reviews base compensation for named executive officers compared to the 25 th percentile to median range of our peer group and available industry data. The Committee again is seeking over the long-term to place more compensation “at risk” by setting: 1) base salaries and management incentive targets within the 25 th percentile and median; and 2) awards under our 2010 Omnibus Incentive Plan above the median of our peer group. Our executives have the potential to earn above the median with performance at or above their goals and objectives in line with our performance-based compensation philosophy.

 

Risk Assessment of Compensation Programs

 

We review our compensation programs company-wide to assess whether they encourage our employees to take unnecessary or excessive risks that could have a material adverse effect on our business. We have concluded that our programs are appropriately tailored to encourage employees to grow our business, but not to incent them to do so in a way that poses

 

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unnecessary or excessive material risk to us. For example, the STIP and our long-term incentive compensation, which are our two primary performance-based compensation programs, balance each other by providing compensation that rewards short-term and long-term performance. The STIP balances risk by considering a mix of performance goals, capping the maximum payout a participant can receive and allows the Compensation Committee to approve the final amount of all bonuses, while the long-term incentive awards are equity-based awards that have four-year vesting schedules to encourage a focus on long-term growth and that support management retention. In addition, we have various policies, such as our clawback, anti-hedging and executive equity ownership policies that are designed to discourage undue risk-taking or manipulation of results. In addition, the STIP portion of the executives’ compensation is sized to encourage appropriate risk-taking that is aligned with the long-term health of the Company.

 

Influence of Say on Pay Results on Executive Compensation Decisions

 

We and our Compensation Committee are attentive to the outcome of the stockholder “Say on Pay” vote. At the Company’s 2015 Annual Stockholder Meeting, 15,651,573 votes were cast for approval of the proposal and 104,999 votes were cast against approval. As such, the Committee did not change any practices or programs as a result of the 2015 meeting “Say on Pay” vote outcome.

 

Elements of Our Executive Compensation Program

 

We look at the total compensation value in determining the appropriateness of our executive remuneration program. Total compensation includes various cash and non-cash elements that offer immediate, short-term and long-term value.

 

Base Salary

 

Our Compensation Committee reviews our executives’ base salaries on an annual basis taking into consideration any changes in position or responsibilities. We utilize base salary as the primary means of compensation for performing the essential elements of an executive’s job. We believe our base salaries are set at levels between the 25 th percentile and the median for our peer group, adjusted for each individual’s role, experience, performance and potential, which allow us to attract and retain executives in competitive markets.

 

Short-term Incentive Compensation

 

Our executives are eligible for short-term incentive compensation in the form of an annual cash bonus through our STIP. The STIP is intended to incent our executives to meet our corporate and business unit objectives and compensate them for achieving these objectives. In addition, our STIP is intended to reward and incentivize our executives for achieving specific individual goals. Total STIP funding is based on actual consolidated performance against the annual Revenue and Adjusted EBITDA 1 targets with no bonus paid if the Company does not achieve 85.0% of the annual Adjusted EBITDA target. Since we establish financial targets, we believe in paying smaller bonuses if we achieve at least 85.0% of our target and larger bonuses if we exceed the target level to reward performance above the target levels, up to a maximum individual amount, but unlimited as to any single metric.

 

Once the bonuses are computed, as provided for in the STIP, an executive’s bonus may be increased or decreased up to 100.0% based on the achievement of specific individual objectives and input from the CEO. For the CEO’s bonus, the Board has discretion to increase or decrease the bonus up to 100.0%. For all other executives, the CEO has discretion to increase or decrease the bonus up to 25.0%, using his judgment of the executive’s relative contribution to results, subject to Compensation Committee and Board approval. Individual payouts under the STIP cannot exceed 2.5 times target payout. Further, total short-term incentive compensation payouts for all employees as a group, excluding sales commissions, are limited to the total computed target bonuses based on actual company performance measured against the annual Revenue and Adjusted EBITDA targets.

 

Short-term incentive compensation is determined based on the following performance metrics:

 

Management EBITDA (a non-U.S. GAAP measure), which is our Adjusted EBITDA further adjusted based on budgeted exchange rates, the final STIP compensation accrual, and other exceptional items such as acquisitions, as approved by the Board.

 

 

1 We define Adjusted EBITDA as net income (loss) plus: interest expense, income tax expense (benefit), depreciation and amortization, impairment of goodwill, (gain) loss on retirement of property and equipment, change in fair value of derivatives, stock-based compensation and IPO or merger/acquisition costs and related bonuses. Adjusted EBITDA should not be considered as an alternative to net income (loss), operating income (loss) or any other measure of financial performance calculated or presented in accordance with generally accepted accounting principles (GAAP).

 

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Revenue, which we define as gross revenue less credits and uncollectible billings, as reported in accordance with U.S. GAAP.

 

The following multiplier table was used to determine each executive’s bonus formula:

 

    Target Multiplier
           
Management
    Revenue   EBITDA
Target Bonus Weighting Percentage of Plan:   40.0%       60.0%  
               
125%      2.500        2.500  
120%      2.200        2.200  
115%      1.900        1.900  
110%      1.600        1.600  
105%      1.300        1.300  
100%      1.000        1.000  
95%      0.750        0.750  
90%      0.500        0.500  
85%      0.250        0.250  
Less than 85.0%            

 

See the table on page 21 of this proxy statement for the application of this matrix for 2015. If the results are between two levels the multiplier will be interpolated on a straight-line basis between those levels. For our executives, short-term incentive compensation is based on the achievement of financial targets and further adjusted based on the achievement of personal objectives for each individual.

 

Long-term Incentive Compensation

 

Long-term incentive compensation is intended to enhance our ability to retain executive talent over a longer period of time, reward long-term efforts that enhance future value of the Company, and provide executives with a form of reward that aligns their interests with those of our stockholders. Our executives may receive long-term incentive awards annually as the Compensation Committee determines consistent with the objectives described above. Long-term incentive compensation may be awarded in the form of stock, option or long-term performance awards.

 

In 2015, the Compensation Committee established long-term incentive compensation targets as a percentage of base compensation for each of our named executive officers. This target was used to determine the value of the long-term incentive awards made to each executive. In establishing each of the targets, the Compensation Committee considered, among other things, the data obtained from the compensation peer group study that was adjusted for market increases, the role and responsibility of each executive, competitive factors, personal performance, the amount of stock-based equity compensation already held by the executive, the non-equity compensation received by the executive, the total number of stock and options awards to be granted to all participants during the year and the discretion and judgment of the Compensation Committee.

 

Our 2010 Omnibus Incentive Plan permits the award of (i) incentive and non-qualified stock options, (ii) stock appreciation rights, (iii) restricted stock, (iv) restricted stock units, (v) performance stock, (vi) performance units, (vii) director awards (viii) annual cash incentive awards, (ix) cash-based awards, (x) substitution awards or (xi) other stock-based awards, as approved by the Board of Directors or its designated committee. Generally, awards will vest over four years, with 25.0% of the shares vesting on each of the first, second, third and fourth year anniversary of the grant date assuming continued employment, and options and stock appreciation rights expire on the tenth anniversary date of the applicable award agreement, unless terminated earlier. No further awards can be made under our 2006 and 2001 Plans.

 

Nondiscriminatory Health and Welfare Benefits

 

Our benefits, such as our basic health benefits, short-term and long-term disability, life insurance, and accidental death and dismemberment insurance are intended to provide a stable array of support to executives and their families throughout various stages of their careers, and these core benefits are provided to all employees based on the regional programs regardless of their individual performance levels. All U.S. employees have the option to participate in the 401(k) plan, which allows participants to defer up to 100.0% of their annual compensation, subject to the cap set by the Internal Revenue Code. In 2014, we amended our 401(k) plan to provide for all eligible employees the Company’s matching contribution based on 100.0% of the first 2.0% and 50.0% of the next 4.0% of eligible employee contributions. Employee elective deferrals and employee matching contributions are immediately vested and non-forfeitable upon contribution to the 401(k) plan. As of January 2016, the Company is no longer matching employee contributions in the 401(k) plan.

 

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Perquisites

 

We believe in a simple, straight-forward compensation program. Consistent with the Committee’s strategy, no perquisites or other personal benefits are expected to exceed $10,000 annually for any of our named executive officers. However, from time-to-time we do invest in our executives’ development through tuition reimbursement of approved leadership and higher education programs.

 

Determining the Amount of Each Element of Compensation

 

On an annual basis, our Compensation Committee takes into consideration the results of our operations, long and short-term goals, individual goals, the competitive market for our executives along with the experience of Compensation Committee members with similar companies and general economic factors in determining the amount of each element of our compensation program.

 

Base Compensation

 

We utilize our previously established peer group along with a market-based pay philosophy across base pay, short-term incentive compensation and long-term equity awards as described under “The Compensation Setting Process – Role of the Compensation Consultant.” On March 4, 2015, our Compensation Committee, having evaluated our compensation consultant’s relevant materials used in 2014, current economic market conditions, and the published survey for average annual market increases, recommended base compensation levels and short-term and long-term incentive compensation targets effective April 1, 2015, which were approved by the Board for our named executive officers. For Messrs. Slaughter, Jimmerson, Sutton and Hansen base compensation levels and short-term and long-term incentive compensation targets remained unchanged. Mr. Maytorena’s base compensation was set at $270,000 in recognition of his promotion and increased responsibilities. The Compensation Committee believes that the 2015 base compensation levels achieved our target of the 25 th percentile while recognizing each officer’s level of responsibility, current workload and past experience performing their duties.

 

For Mr. Schneider, who had not previously been a named executive officer, we evaluated his base compensation compared to other officer level personnel considering his prior experience and our compensation consultant’s previously obtained materials that were used in 2014 and approved his starting base compensation of $325,000 along with a 2016 STIP Bonus target of 70.0% and 2016 long-term incentive target of 140.0% to incentivize achievement of both financial and individual goals.

 

For 2015, targeted STIP bonus levels and long-term incentive targets as a percentage of base salary remained unchanged for Messrs. Jimmerson, Slaughter, Sutton and Hansen. Mr. Maytorena’s STIP bonus level was increased 10% to recognize his increased responsibilities and his long-term incentive target was increased 20% in recognition of his promotion and increased operational responsibilities and to further incentivize achievement of both financial and individual goals. The STIP and long-term incentive targets represent the midpoint of the range of our peer group annual incentive target percentages for Messrs. Jimmerson, Slaughter, Schneider, and Sutton and at a level equitable for their responsibilities when compared to other officers of our Company for Messrs. Maytorena and Hansen. We believe the increase in STIP targets, when considered in connection with the established financial performance goals that must be achieved in order to earn a bonus, enables our executive officers the potential to realize at or above medium compensation when compared to our peer group.

 

Base compensation, STIP bonus results and long-term incentive targets during 2015 are summarized as follows:

 

    Base Salary  

2015

Target
STIP Bonus

   

Computed

STIP
Amount

    Discretionary
Adjustment
    2015 STIP
Total
   

2015
Target

Long-term
Incentive

 
Name  
2015 
   
2014 
                 
Martin Jimmerson   $  288,600     $  288,600     70.0 %                       140.0 %
Mark Slaughter     415,000       415,000     100.0 %                       200.0 %
Charles Schneider (1)     325,000                                    
William Sutton     262,000       262,000     65.0 %                       140.0 %
Hector Maytorena     270,000       245,000     70.0 %                       140.0 %
Morten Hagland Hansen     230,000       230,000     60.0 %                       120.0 %

 

(1) Mr. Schneider joined the Company on December 8, 2015 and will begin participating in the Company’s incentive plans in 2016. This represents Mr. Schneider’s annual base salary provided for in his agreement.

 

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Short-term Incentive Compensation

 

The Compensation Committee considers short-term incentive compensation targets and performance for our executives annually with distributions typically made during the first calendar quarter of the next year after determination of whether goals have been achieved. The Compensation Committee may adjust an executive officer’s short-term incentive cash compensation up to 25.0% based on the individual’s performance and contribution to Company results. However, individual payouts under the STIP cannot exceed 2.5 times target payout or the total annual short-term incentive compensation maximum for all employees as a group based on the Company’s actual performance measured against the plan.

 

The following table summarizes the 2015 financial targets and actual results of those targets for all named executive officers.

 

Name   Plan
(In Millions)
    Actual
(In Millions)
    Percentage
of Plan
    Resulting Multiplier
Consolidated Management EBITDA   $ 75.8     $ 46.9       61.9 %     %
Consolidated Revenue     336.9       271.3       80.5 %     %
Managed Services EBITDA     117.0       97.7       83.5 %      — %
Managed Services Revenue     298.8       249.7       83.6 %      — %

 

The percentage of plan was compared to the table described above in “Elements of Our Executive Compensation Program – Short-term Incentive Compensation” to obtain the target multiplier. The 2015 bonus formula would multiply each executive officer’s potential target bonus as a percentage of their current base salary, adjusted for partial-year employment, by the sum of (i) 60.0% of the consolidated Management EBITDA multiplier plus (ii) 40.0% of the consolidated revenue multiplier; except that for Mr. Maytorena the Management EBITDA and Revenue multipliers were weighted based 80.0% upon performance results from his operational area of responsibility and 20.0% of the consolidated multipliers. However, since less than 85.0% was achieved compared to plan, there are no 2015 short-term incentive compensation payments or discretionary adjustments as reported in the “Non-Equity Incentive Plan Compensation” and the “Bonus” columns for 2015 in the Summary Compensation Table.

 

Long-term Incentive Awards

 

Our Compensation Committee typically makes annual grants of equity awards to our employees in connection with its annual review of our employees’ compensation and then throughout the year our Compensation Committee evaluates grants for new hires, promotions or other changes that may warrant additional grants. We do not have any program, plan or practice to time stock or option grants in coordination with the release of material non-public information. Our Compensation Committee uses the weighted average of the trading price of our common stock for the five days prior to the date of grant as the exercise price of option grants and valuations based on the weighted average of the trading price of our common stock for the five days prior to the date of grant as used for determining share awards.

 

Grants were made on March 5, 2015 as part of our normal annual review of equity awards and annual compensation to incentivize our executives for the long-term success of our Company to account for 70.0% of each named executive officer’s long-term target incentive compensation. Since, the Compensation Committee had not yet completed the design of long-term performance awards with formulaic payouts based on specific multiple-year performance metrics, in November 2015, the Compensation Committee granted equity awards for the remaining 30.0% of the named executive officer’s long-term incentive targeted compensation, except no additional awards were made to Mr. Jimmerson, who at that time was supporting an orderly transition to a successor CFO. These equity awards were made consistent with our philosophy that such awards should enhance our ability to retain executives and align individual performance with the objectives of our stockholders. In determining the above awards, the number of equity awards for our named executive officers were allocated 30.0% to restricted stock awards and 70.0% to stock options. All awards vest ratably over the next four years.

 

Tax and Accounting Implications

 

In the review and establishment of our compensation programs, we consider the anticipated accounting and tax implications to us and our executives. While we consider the applicable accounting and tax treatment of alternative forms of equity compensation, these factors alone are not dispositive, and we also consider the cash and non-cash impact of the programs and whether a program is consistent with our overall compensation philosophy and objectives.

 

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Deductibility of Compensation and Tax Obligations

 

Our Compensation Committee does not have any policies concerning the payment of tax obligations on behalf of our employees. We are required by law to withhold a portion of every compensation payment we make to our employees. In the case of noncash compensation, that means either (i) we withhold a portion of the noncash compensation payment and pay cash to the appropriate tax authorities or (ii) the employees make a cash payment directly to us in lieu of our withholding a portion of the noncash compensation. All payments to or on behalf of our employees, including tax payments, are considered compensation and are evaluated by our Compensation Committee as part of our overall compensation packages.

 

As part of its role, the Compensation Committee reviews and considers the deductibility of executive compensation. Section 162(m) of the Internal Revenue Code imposes a limit on the amount of compensation that we may deduct in any one year with respect to the CEO and each of our next three most highly compensated named executive officers, unless specific and detailed criteria are satisfied. Performance-based compensation, as defined in the Internal Revenue Code, is fully deductible if the programs are approved by stockholders and meet other requirements. We believe that grants of equity awards under our existing stock plans qualify as performance-based for purposes of satisfying the conditions of Section 162(m), thereby permitting us to receive a federal income tax deduction in connection with such awards. In general, we have determined that we will not seek to limit executive compensation so that it is deductible under Section 162(m). However, from time to time, we monitor whether it might be in our interests to structure our compensation programs to satisfy the requirements of Section 162(m). We seek to maintain flexibility in compensating our executives in a manner designed to promote our corporate goals and therefore our Compensation Committee has not adopted a policy requiring all compensation to be deductible. Our Compensation Committee will continue to assess the impact of Section 162(m) on our compensation practices and determine what further action, if any, is appropriate.

 

Accounting for Stock-Based Compensation

 

We account for stock-based payments for all awards under our 2010 Omnibus Incentive, 2006 Long-Term Incentive and the 2001 Performance Stock Option Plans in accordance with the requirements of ASC Topic 718, subtopic 10, section 10, Stock Compensation . The Committee reviews stock compensation grant date value in connection with granting equity awards.

 

Clawback Policy

 

On March 6, 2015, the Compensation Committee recommended and the Board of Directors unanimously approved the adoption of a clawback policy for the recoupment of incentive-based compensation from its current or former executive officers and such other senior executives and employees (“Covered Executives”) under certain circumstances. Under the clawback policy, the Company may, at the Board of Directors’ discretion, recover from Covered Executives short and long-term cash incentives, stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, and/or performance units (“Incentive Compensation”) in excess of the Incentive Compensation that would have been paid or distributed according to the financial statements, as restated. The Company may also require, as a condition to the grant of any incentive compensation, a Covered Executive to agree in writing to abide by the terms of the clawback policy.

 

Policy Against Hedging

 

We prohibit our executive officers and directors from engaging in short-term or speculative transactions involving company securities, including activities involving short selling our securities, hedging their ownership in our securities by the purchase or sale of options of any kind, whether puts, calls or other derivative securities, purchasing of company securities in the open market on margin or pledging securities against loans or similar arrangements.

 

Executive Equity Ownership

 

We encourage our executives to hold a significant equity interest in our Company. In 2015, we adopted a stock ownership policy, which superseded and replaced the former stock ownership guidelines adopted in 2013 by the Company. The policy requires certain executives and directors to hold shares with a value equal to a multiple of their annual base salary for executives or annual retainer for directors. Our CEO is required to hold equity shares of our Company with a multiple of four (4) times and our CFO is required to hold two (2) times their annual base salary. All other executive officers are required to hold two (2) times and non-employee Board members three (3) times their annual base salary and annual retainers, respectively. Each executive officer and director must attain the applicable stock ownership level within five (5) years of the effective date of the policy, November 3, 2015, or the fifth anniversary of his or her becoming subject to the policy, whichever shall be the later to occur. To ensure covered individuals make continuous progress towards their respective stock ownership levels, they must own 25% of their total applicable stock ownership level by the end of the second fiscal year after becoming subject to the policy, 50% by the end of the third fiscal year, 75% by the end of the fourth fiscal year and 100% by the end of the fifth fiscal year.

 

23
 

 

 

SUMMARY COMPENSATION TABLE

 

The following table sets forth certain information with respect to the compensation paid to our Chief Executive Officers, our Chief Financial Officers and our three other most highly compensated executive officers for the years ended December 31, 2015, 2014 and 2013.

                                                 
Name and Principal Position   Year   Salary   Bonus
(1)
  Stock Awards
(2)
  Option Awards
(2)
  Non-Equity Incentive Plan Compensation
(3)
  All Other
Compensation
(4)
  Total  
Martin Jimmerson (5)   2015   $ 288,600   $   $ 74,836   $ 176,196   $   $ 1,010,960   $ 1,550,592  
Interim Chief Executive Officer   2014     287,125         129,349     287,078     226,262     360     930,174  
and President & Former Chief
Financial Officer
  2013     276,275         113,709     272,984     185,025     360     848,353  
Mark Slaughter (6)   2015     415,000         224,558     540,499         10,960     1,191,017  
Former Chief Executive Officer   2014     404,723     46,480     244,359     542,393     464,800     360     1,703,115  
and President   2013     365,393         214,864     515,782     407,848     360     1,504,247  
Charles Schneider (7)   2015     22,500     125,000     97,596     227,265             472,361  
Senior Vice President and                                                
Chief Financial Officer                                                
William Sutton   2015     262,000         100,168     241,257         10,960     614,385  
Senior Vice President and   2014     259,000         114,343     253,874     190,736     360     818,313  
General Counsel   2013     248,000     24,975     107,085     257,052     163,192     357     800,661  
Hector Maytorena   2015     264,230         79,492     191,450         37,610     572,782  
Group Vice President,   2014     235,250     25,578     67,321     149,421     170,520     360     648,450  
Managed Services   2013     204,500         63,216     151,740     118,428     294     538,178  
Morten Hagland Hansen (6)   2015     230,000         74,643     179,719         52,251     536,613  
Senior Vice President and                                                
Chief Technology Officer                                                

 

(1) Bonuses represent discretionary STIP cash bonuses based on individual performance and in 2015, Mr. Schneider’s 2015 sign-on bonus.

 

(2) Reflects the aggregate grant date fair value for stock and option awards computed in accordance with FASB ASC Topic 718. Assumptions used in the determination of these amounts which represent grant date fair value are included in Note 11, Stock-Based Compensation, to our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2015.

 

(3) Non-equity incentive plan compensation reflects the Board approved cash bonuses as reviewed by the Compensation Committee based on the achievement of performance metrics under our STIP program for the year. These bonuses are paid in the month of March following the year in which they were earned.

 

(4) Other compensation represents life insurance coverage equal to two times annual base pay not to exceed $500,000. In 2015, other compensation also includes maximum 401K match benefits of $10,600, Mr. Jimmerson’s separation pay under his agreement to separate as our Chief Financial Officer effective December 31, 2015, and tuition reimbursement for Messrs. Maytorena and Hansen of $37,250 and $41,291, respectively. Other than the tuition reimbursement amounts, we did not provide perquisites and other personal benefits exceeding a value of $10,000 to our named executive officers.

 

(5) Mr. Jimmerson’s employment ended with the Company on December 31, 2015 for which he was paid a separation payment, which is included in other compensation. He was reemployed as our interim CEO and President on January 8, 2016.

 

(6) Mr. Slaughter ‘s employment ended with the Company on January 7, 2016.

 

(7) Mr. Schneider joined the Company on December 8, 2015 and will participate in the Company’s incentive plans beginning in 2016. Mr. Schneider’s agreement provided for a sign-on bonus of $455,000 of which $125,000 was paid in cash in January 2016 and the balance was provided through his December 2015 equity awards.

 

On March 9, 2016, consistent with our market-based pay philosophy and as discussed above under “The Compensation Setting Process – Role of Compensation Consultant”, our Compensation Committee considered the current economic market conditions, compensation data obtained in 2015 and each executive’s responsibility related to the current size of our Company. Effective April 1, 2016, no changes to base compensation, target STIP bonus levels and long-term incentive targets were approved by the Board for any named executive officers. Mr. Jimmerson’s 2016 compensation as our Interim CEO and President was established through the employment arrangements, which are discussed in detail below under “Employment Agreements”. Mr. Scheidner’s employment agreement set his 2016 STIP bonus level and long-term incentive target at 70% and 140%, respectively as a percentage of his base compensation.

 

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Employment Agreements

 

Mr. Jimmerson

 

As our interim CEO and President, we agreed to employ Mr. Jimmerson’s as our Interim CEO and President and reinstated and amended his prior employment agreement effective January 7, 2016 to revise his duties and to remove severance compensation, with the exception of the payment of COBRA premiums for up to 18 months, with such premiums paid to Mr. Jimmerson on a fully grossed-up after-tax basis, if necessary, for Mr. Jimmerson not to be subject to tax under Section 105 of the Internal Revenue Code. Mr. Jimmerson’s agreement sets his annual base salary at $415,000 along with the potential to earn a cash performance bonus equal to 100% of his annual base salary. He also received equity incentive awards including a non-performance based stock award of $300,000 with a one-year vesting period and a $300,000 performance-based restricted stock unit award with a one-year vesting period that has a potential 2 times multiplier, if the Company exceeds performance targets, to be approved by the Board. If Mr. Jimmerson’s employment would end prior to completion of a permanent CEO and President being recruited, he would forfeit the cash and restricted stock unit award performance incentives. However, if Mr. Jimmerson’s employment is terminated as a result of a “change of control” as defined in Section 409A of the Internal Revenue Code (a “Change of Control”), his 2016 equity awards shall automatically vest in full and shall remain exercisable for the term specified in the applicable award agreement.

  

Mr. Jimmerson’s previous employment agreement was effective from March 14, 2012 through December 31, 2015 when he ceased to be an employee until his appointment as interim CEO and President. The 2012 agreement was amended on July 1, 2015, under which he agreed to remain employed as our Chief Financial Officer until the new Chief Financial Officer was hired and supported through transition or until December 31, 2015, and was further amended on January 7, 2016, as discussed above. In connection with him ceasing to be the Chief Financial Officer, Mr. Jimmerson agreed to a cash severance amount of $1,000,000, which was deemed incentive compensation for purposes of our clawback policy. He was also eligible for COBRA premiums for up to 18 months, with such premiums paid to Mr. Jimmerson on a fully grossed-up after-tax basis, if necessary, for Mr. Jimmerson not to be subject to tax under Section 105 of the Internal Revenue Code.

 

Mr. Jimmerson is subject to restrictive covenants of noncompetition and non-solicitation for a period of 18 months from his termination date. The agreement provides for ongoing confidentiality and non-disparagement obligations.

 

Mr. Slaughter

 

As previously reported, Mr. Slaughter’s employment with us ended effective January 7, 2016. Prior to his departure, the Company had an agreement to employ Mr. Slaughter as the CEO and President until he or we decide to terminate his position for any reason. Under the agreement, pursuant to Mr. Slaughter’s termination of employment without “cause”, ” and other than for death or disability or Mr. Slaughter terminated his employment with us for “good reason”, he was entitled to and did receive (i) any earned but unpaid base salary; (ii) any accrued but unused current year vacation up to a maximum of four weeks, plus up to the maximum unused carry-over of vacation provided in our written vacation policy then in effect (iii) all unreimbursed business expenses he incurred; (iv) a lump sum cash severance in an amount equal to twice the sum of his then annual base salary and target bonus for the bonus period in which the termination occurs; (v) COBRA premiums for up to 18 months, with such premiums paid to Mr. Slaughter on a fully grossed-up after-tax basis, if necessary, for Mr. Slaughter not to be subject to tax under Section 105 of the Internal Revenue Code; (vi) a pro-rated amount equal to the annual bonus that would have been paid to Mr. Slaughter had he remained employed through the end of the calendar year in which his employment terminates, to be calculated based on the level of achievement of our financial targets under the STIP at the end of the calendar year; (vi) if applicable, an amount equal to the unpaid annual bonus for the preceding calendar year that would have been paid to Mr. Slaughter had he remained employed through the date of the bonus payments under the STIP for the prior calendar year; and (vii) outplacement services not to exceed $20,000. In connection with his departure and pursuant to his severance agreement, he also received an additional $100,000 cash separation benefit.

 

If Mr. Slaughter’s termination would have been due to death or disability or he resigned without good reason, he would have been entitled to, in addition to unpaid salary, unused vacation, and certain business expenses: (i) a pro-rated amount equal to the annual bonus that would have been paid had he remained employed through the end of the calendar year in which his employment terminates, to be calculated based on the level of achievement of our financial targets under the STIP at the end of the calendar year and (ii) if applicable, an amount equal to the unpaid annual bonus for the preceding calendar year that would have been paid to Mr. Slaughter had he remained employed through the date of the bonus payments under the STIP for the prior calendar year. In addition, all equity awards outstanding as of the effective date of his agreement shall automatically vest in full and shall remain exercisable for the term specified in the applicable award agreement.

 

If Mr. Slaughter’s employment would have been terminated for good reason or his employment was terminated by us for any reason other than cause and such termination occurs within two years on or after a “change of control” as defined in Section 409A of the Internal Revenue Code (a “Change of Control”), all equity awards outstanding as of the effective date of his agreement shall automatically vest in full and shall remain exercisable for the term specified in the applicable award

 

25
 

 

agreement. In addition, if any equity award is not assumed or continued by our successor after a Change of Control, such award shall automatically vest and become exercisable and/or payable on the date of the Change of Control.

 

In February 2013, Mr. Slaughter’s agreement was amended to remove a provision that would provide him a gross-up payment in the event any payment to Mr. Slaughter would be subject to excise taxes by Section 4999 of the Internal Revenue Code.

 

Under the agreement, “cause” is defined as any of the following: (i) Mr. Slaughter’s plea of guilty or nolo contendre, or conviction of a felony or a misdemeanor involving moral turpitude; (ii) any act by Mr. Slaughter of fraud or dishonesty with respect to any aspect of our business including, but not limited to, falsification of our records; (iii) Mr. Slaughter’s intentional and continued failure to perform his duties (other than by reason of an illness or a disability); (iv) intentional engagement in misconduct by Mr. Slaughter that is materially injurious to us (monetarily or otherwise); (v) Mr. Slaughter’s breach of the confidentiality, noncompetition or non-solicitation provisions of his employment agreement; (vi) commencement by Mr. Slaughter of employment with an unrelated employer; (vii) material violation by Mr. Slaughter of any of our written policies, including but not limited to any harassment and/or non-discrimination policies; (viii) Mr. Slaughter’s gross negligence in the performance of his duties; provided, however, that he would not be deemed to have been terminated for cause under clauses (ii) through (viii) above unless the determination of whether cause exists is made by a resolution duly adopted by the affirmative vote of not less than three-fourths of the entire membership of the Board (excluding Mr. Slaughter, if a member) at a meeting of the Board that was called for the purpose of considering such termination (after 15 days’ notice to Mr. Slaughter and an opportunity for Mr. Slaughter, together with Mr. Slaughter’s counsel, to be heard before the Board and, if reasonably possible, to cure the breach that is the alleged basis for cause) finding that, in the good faith opinion of the Board, Mr. Slaughter was guilty of conduct constituting cause and specifying the particulars thereof in detail.

 

Under the agreement, “good reason” means: (i) a material adverse change in Mr. Slaughter’s position, authority, duties or responsibilities; (ii) a reduction in Mr. Slaughter’s base salary or the taking of any action by us that would materially diminish the annual bonus opportunities of Mr. Slaughter from those provided to Mr. Slaughter immediately prior to the effective date of the agreement; (iii) the relocation of the our principal executive offices by more than 50 miles from where such offices are located on the effective date of the agreement or Mr. Slaughter being based at any office other than our principal executive offices, except for travel reasonably required in the performance of Mr. Slaughter’s duties and reasonably consistent with Mr. Slaughter’s travel prior to the effective date of his agreement; (iv) a material breach of the agreement by us; or (v) the failure of a successor to us to assume the agreement.

 

Mr. Slaughter is subject to restrictive covenants of noncompetition and non-solicitation for a period of 24 months from his termination date. The agreement provides for ongoing confidentiality and non-disparagement obligations.

 

Mr. Schneider

 

The Company has an agreement to employ Mr. Schneider as a Senior Vice President and Chief Financial Officer with an initial annual base salary was set at $325,000. Under the agreement, pursuant to Mr. Schneider’s termination of employment without “cause” or should Mr. Schneider terminate his employment for “good cause” within two years of a “change of control” as defined in Section 409A of the Internal Revenue Code, he is entitled to receive i) a lump sum cash severance in an amount equal to one and a half times his then annual base salary and target bonus for the period in which the termination occurs; ii) COBRA premiums for up to 12 months, with such premiums paid to Mr. Schneider on a fully grossed-up after-tax basis, if necessary, for Mr. Schneider not to be subject to tax under Section 105 of the Internal Revenue Code and iii) outplacement services not to exceed $20,000. In addition, he is subject to restrictive covenants of noncompetition and non-solicitation for a period of 12 months from his termination date.

 

Under the agreement, “cause” is defined as any of the following: (i) Mr. Schneider’s plea of guilty or nolo contendre, or conviction of a felony or a misdemeanor involving moral turpitude; (ii) any act by Mr. Schneider’s of fraud or dishonesty with respect to any aspect of our business including, but not limited to, falsification of our records; (iii) Mr. Schneider’s intentional and continued failure to perform his duties (other than by reason of an illness or a disability); (iv) intentional engagement in misconduct by Mr. Schneider that is materially injurious to us (monetarily or otherwise); (v) Mr. Schneider’s breach of the confidentiality, noncompetition or non-solicitation provisions of his employment agreement; (vi) commencement by Mr. Schneider of employment with an unrelated employer; (vii) material violation by Mr. Schneider of any of our written policies, including but not limited to any harassment and/or non-discrimination policies; (viii) Mr. Schneider’s gross negligence in the performance of his duties.

 

Under the agreement, “good reason” means (i) a material adverse change in Mr. Schneider’s position, authority, duties or responsibilities, (ii) a reduction in Mr. Schneider’s base salary or the taking of any action by us that would materially diminish the annual bonus opportunities of Mr. Schneider, (iii) the relocation of the our principal executive offices by more than 50 miles from where such offices are located on the effective date of the agreement or Mr. Schneider being based at any office other than our principal or hemisphere management executive offices, except for travel reasonably required in the performance of

 

26
 

 

Mr. Schneider’s duties, (iv) a material breach of the agreement by us, or (v) the failure of a successor to us to assume the agreement.

 

Mr. Sutton

 

We entered into an employment agreement with Mr. Sutton, effective on March 14, 2012. In that agreement, we agreed to employ Mr. Sutton as the Vice President and General Counsel. Mr. Sutton’s initial annual base salary was set at $235,000, subject to increase from time to time, and his annual target bonus potential is at least 60.0% of his base salary.

 

If Mr. Sutton’s employment is terminated for cause, he is entitled to (i) any earned but unpaid base salary, (ii) any accrued but unused current year vacation up to a maximum of four weeks, plus up to the maximum unused carry-over of vacation provided in our written vacation policy then in effect and (iii) all reasonable, well documented, unreimbursed business expenses incurred by Mr. Sutton

 

Under the agreement, if we terminate Mr. Sutton’s employment without “cause” and other than for death or disability or Mr. Sutton terminates his employment with us for “good reason”, he is entitled to (i) a lump sum cash severance in an amount equal to the sum of his then annual base salary and target bonus for the bonus period in which the termination occurs; (ii) COBRA premiums for up to 18 months, with such premiums paid to Mr. Sutton on a fully grossed-up after-tax basis, if necessary, for Mr. Sutton not to be subject to tax under Section 105 of the Internal Revenue Code; (iii) a pro-rated amount equal to the annual bonus that would have been paid to Mr. Sutton had he remained employed through the end of the calendar year in which his employment terminates, to be calculated based on the level of achievement of our financial targets under the STIP at the end of the calendar year; provided that (a) any such determination shall be made without application of any modifier that is based on individual performance, and (b) such bonus amount achieved, if any, shall be prorated based on a fraction, the numerator of which is the number of days of Mr. Sutton’s employment during the applicable calendar year and the denominator of which is 365. This prorated amount shall be paid during the immediately following calendar year, and not later than, when the STIP participants are paid; (iv) if applicable, an amount equal to the unpaid annual bonus for the preceding calendar year that would have been paid to Mr. Sutton’s had he remained employed through the date of the bonus payments under the STIP for the prior calendar year, which payment shall be made without application of any modifier that is based on individual performance; and (v) outplacement services not to exceed $20,000.

 

If Mr. Sutton’s termination is due to death or disability, he is entitled to (i) a pro-rated amount equal to the annual bonus that would have been paid to Mr. Sutton had he remained employed through the end of the calendar year in which his employment terminates, to be calculated based on the level of achievement of our financial targets under the STIP at the end of the calendar year; provided that (a) any such determination shall be made without application of any modifier that is based on individual performance, and (b) such bonus amount achieved, if any, shall be prorated based on a fraction, the numerator of which is the number of days of Mr. Sutton’s employment during the applicable calendar year and the denominator of which is 365. This prorated amount shall be paid during the immediately following calendar year, and not later than, when the STIP participants are paid and (ii) if applicable, an amount equal to the unpaid annual bonus for the preceding calendar year that would have been paid to Mr. Sutton had he remained employed through the date of the bonus payments under the STIP for the prior calendar year, which payment shall be made without application of any modifier that is based on individual performance. In addition, all equity awards shall automatically vest in full and shall remain exercisable for the term specified in the applicable award agreement.

 

If Mr. Sutton’s terminates his employment for good reason or his employment is terminated by us for any reason other than cause and such termination occurs within two years on or after a “change of control” as defined in Section 409A of the Internal Revenue Code (a “Change of Control”), all equity awards outstanding at the date of the agreement shall automatically vest in full and shall remain exercisable for the term specified in the applicable award agreement. In addition, if any such equity award is not assumed or continued by our successor after a Change of Control, such award shall automatically vest and become exercisable and/or payable on the date of the Change of Control.

 

Under the agreement, “cause” and “good reason” are defined consistent with the definitions included in Mr. Schneider’s agreement with the exception that if Mr. Sutton is terminated for cause with regard to clauses (ii) through (viii) in the above cause definition he would not be deemed to have been terminated for cause unless the determination of whether cause exists is made by a resolution duly adopted by the affirmative vote of not less than three-fourths of the entire membership of the Board (excluding Mr. Sutton, if a member) at a meeting of the Board that was called for the purpose of considering such termination (after 15 days’ notice to Mr. Sutton and an opportunity for Mr. Sutton, together with Mr. Sutton’s counsel, to be heard before the Board and, if reasonably possible, to cure the breach that is the alleged basis for cause) finding that, in the good faith opinion of the Board, Mr. Sutton was guilty of conduct constituting cause and specifying the particulars thereof in detail.

 

Mr. Sutton is subject to restrictive covenants of noncompetition and non-solicitation for a period of 12 months from his termination date. The agreement provides for ongoing confidentiality and non-disparagement obligations.

 

27
 

 

Mr. Maytorena

 

We also entered into a similar employment agreement with Mr. Maytorena, effective on March 14, 2012. In that agreement, we agreed to employ Mr. Maytorena as a Vice President and General Manager. The agreement has all of the same terms as Mr. Sutton’s agreement, except that Mr. Maytorena’s initial annual base salary was set at $180,125, subject to increase from time to time, and his annual target bonus potential was at least 50.0% of his base salary. Under the agreement, if we terminate Mr. Maytorena’s employment without “cause” and other than for death or disability or Mr. Maytorena terminates his employment with us for “good reason”, he is entitled to the same benefits described above for Mr. Sutton, except that his lump sum cash severance will be in an amount equal to the sum of his then annual base salary and target bonus for the bonus period in which the termination occurs. In addition, he is subject to restrictive covenants of noncompetition and non-solicitation for a period of 12 months from his termination date.

 

Mr. Hansen

 

We entered into an offer letter agreement with Mr. Hansen, effective on February 11, 2013. In that agreement, we agreed to employ at an initial annual base salary set at $180,000, subject to merit review, and an annual target bonus potential of 45.0% of his base salary. Under the agreement, if we terminate Mr. Hansen’s employment without “cause” or Mr. Hansen terminates his employment with us for “good reason” within two years on or after a “Change of Control”, he is entitled to (i) a lump sum cash severance in an amount equal to his then annual base salary; (ii) COBRA coverage for up to 12 months, with Mr. Hansen responsible for the employee portion of premiums; (iii) a pro-rated amount equal to the annual bonus that would have been paid to Mr. Hansen had he remained employed through the end of the calendar year in which his employment terminates, to be calculated based on the level of achievement of our financial targets under the STIP at the end of the calendar year; (iv) if applicable, an amount equal to the unpaid annual bonus for the preceding calendar year that would have been paid to Mr. Hansen had he remained employed through the date of the bonus payments under the STIP for the prior calendar year; and (v) outplacement services not to exceed $20,000. The terms of “cause”, “good reason” and “Change of Control” are defined consistent with that described under Mr. Schneider’s agreement above.

 

In addition, if Mr. Hansen’s employment is terminated after a “Change of Control”, all equity awards shall automatically vest in full and shall remain exercisable for the term specified in the applicable award agreement. In addition, if any equity award is not assumed or continued by our successor after a Change of Control, such award shall automatically vest and become exercisable and/or payable on the date of the Change of Control.

 

28
 

 

2015 GRANTS OF PLAN-BASED AWARDS

                                                 
        Estimated Future Payouts   Number of Securities Restricted Stock Awards   Option Awards   Grant Date
Fair Value
of Stock and
Option
Awards (3)
 
        Under Non-equity Incentive Plan (1)     Number of Securities Underlying Options        
Name     Grant 
Date
 
85.0% Revenue
Threshold
  100% Target   250% Maximum       Exercise 
Price Per
Share (2)
   
Martin Jimmerson   3/4/15   $   $   $     2,555               $ 74,836  
    3/4/15                       13,564   $ 33.20     176,196  
          30,303     202,020     505,050                        
Mark Slaughter   3/4/15                 5,250                 153,773  
    3/4/15                       27,865   $ 33.20     361,966  
    11/3/15                 2,250                 70,785  
    11/3/15                       11,942   $ 33.20     178,533  
          62,250     415,000     1,037,500                          
Charles Schneider   12/8/15                 4,481                 97,596  
    12/8/15                       20,850   $ 22.09     227,265  
                                         
William Sutton   3/4/15                 2,320                 67,953  
    3/4/15                       12,314   $ 33.20     159,959  
    11/3/15                 1,024                 32,215  
    11/3/15                       5,438   $ 33.20     81,298  
          25,545     170,300     425,750                          
Hector Maytorena   3/4/15                 1,859                 54,450  
    3/4/15                       9,870   $ 33.20     128,211  
    11/3/15                 796                 25,042  
    11/3/15                       4,230   $ 33.20     63,239  
          5,670     189,000     472,500                          
Morten Hagland   3/4/15                 1,745                 51,111  
 Hansen   3/4/15                       9,265   $ 33.20     120,352  
    11/3/15                 748                 23,532  
    11/3/15                       3,971   $ 33.20     59,366  
          20,700     138,000     345,000                          

 

(1) The STIP provides for cash incentive bonuses based upon each financial metric if the threshold of Adjusted EBITDA achieves 85.0% of plan, subject to limitations, as discussed under “Elements of our Compensation Program − Short-term Incentive Compensation”. The actual amounts paid to the named executive officers for 2015 pursuant to the STIP before discretionary increases are reflected in the “Non-Equity Incentive Plan Compensation” column and discretionary increases are reflected in the “Bonus” column in the “Summary Compensation Table”.

 

(2) For a discussion of our methodology in determining the fair value of our common stock see Note 11, Stock-Based Compensation, to our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2015.

 

(3) Reflects the aggregate grant date fair value for restricted stock granted in 2015 computed in accordance with FASB ASC Topic 718. Assumptions used in the determination of these amounts which represent grant date fair value are included in Note 11, Stock-Based Compensation, to our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2015.

 

Then on March 9, 2016, the Committee recommended and the Board approved restricted stock unit and performance stock awards to our named executive officers, as part of our normal annual review of equity awards to incentivize our executives for the long-term success of our Company and to provide critical retention incentives.

                         
    Number of Securities Underlying   Long-term  

Name

  Unit
Awards (1)
    Retention Unit Awards (2)     Performance Awards (3)  
Martin Jimmerson     24,430             24,430  
Charles Schneider     26,000       12,000       11,200  
William Sutton     21,000       12,000       9,000  
Hector Maytorena     21,600       16,000       9,300  
Morten Hagland Hansen     15,800       10,000       6,800  

 

(1) The unit awards vest equally over four years beginning March 19, 2017, except for Mr. Jimmerson’s, which vest on May 15, 2017.

(2) The retention awards vest on March 19, 2019.

(3) Except for Mr. Jimmerson, this represents the shares to be awarded for the achievement of target performance thresholds over a three-year period and vest on March 19, 2019, with a potential for a three times performance multiplier. Due to Mr. Jimmerson’s interim role, his award is based on one-year performance thresholds with a potential for a two times multiplier and vest in one year.

 

29
 

 

OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2015

                                       
    Option Awards   Stock Awards
Name   Number of Securities Underlying Unexercised Options -
Exercisable (1)
    Number of
Securities
Underlying Unexercised

Options -
Unexercisable
  Option
Exercise
Price
    Option
Expiration
Date
  Number of
Securities

that have
not Vested
(1)
  Market
Value of
Securities that have
not Vested
(2)
 
Martin Jimmerson     45,375       (3)   $    7.00       7/3/2016                
      3,125       (3)     9.64       7/3/2016                
      9,375       (3)     8.48       7/3/2016                
      16,677       (3)     18.00       7/3/2016                
      4,389       (3)     17.08       7/3/2016                
      2,504       (3)     19.96       7/3/2016                
      2,788       (3)     47.17       7/3/2016                
Mark Slaughter     107,625       (4)     7.00       8/1/2016     2,899 (10)   $   59,980  
      12,500       (4)     9.64       8/1/2016     5,109 (12)     105,705  
      15,000       (4)     8.48       8/1/2016     3,567 (14)     73,801  
      47,536       (4)     18.00       8/1/2016     5,250 (15)     108,623  
      37,635       12,545 (4)     17.08       8/1/2016     2,250 (16)     46,553  
      23,212       23,213 (4)     19.96       8/1/2016                
      5,268       15,804 (4)     47.17       8/1/2016                
            27,865 (4)     33.20       8/1/2016                
            11,942 (4)     33.20       8/1/2016                
Charles Schneider           20,850 (17)     22.09       12/8/2025     4,481 (17)     92,712  
William Sutton     5,700       (6)     9.64       1/1/2018     1,445 (10)     29,897  
      5,750       (8)     8.48       1/1/2020     2,546 (12)     52,677  
      22,696       (9)     18.00       3/22/2021     1,669 (14)     34,532  
      18,733       6,245 (10)     17.08       3/7/2022     2,320 (15)     48,001  
      11,568       11,569 (11)     19.96       3/6/2023     1,024 (16)     21,187  
      2,465       7,398 (13)     47.17       3/5/2024                
            12,314 (15)     33.20       3/4/2025                
            5,438 (16)     33.20       11/3/2025                
Hector Maytorena     6,250       (5)     11.00       11/5/2017     791 (10)     16,366  
      6,250       (6)     9.64       1/1/2018     1,503 (12)     31,097  
      6,250       (7)     5.32       1/1/2019     983 (14)     20,338  
      6,250       (8)     8.48       1/1/2020     1,859 (15)     38,463  
      12,604       (9)     18.00       3/22/2021     796 (16)     16,469  
      10,264       3,422 (10)     17.08       3/7/2022                
      6,829       6,829 (11)     19.96       3/6/2023                
      1,451       4,354 (13)     47.17       3/5/2024                
            9,870 (15)     33.20       3/4/2025                
            4,230 (16)     33.20       11/3/2025                
Morten Hagland Hansen     3,235       (7)     5.32       1/1/2019     932 (10)     19,284  
      6,250       (8)     8.48       1/1/2020     2,029 (12)     41,980  
      5,582       (9)     18.00       3/22/2021     837 (14)     17,318  
      5,179       1,727 (10)     17.08       3/7/2022     1,745 (15)     36,104  
      3,951       3,951 (11)     19.96       3/6/2023     748 (16)     15,476  
      1,236       3,709 (13)     47.17       3/5/2024                
            9,265 (15)     33.20       3/4/2025                
            3,971 (16)     33.20       11/3/2025                

 

(1) The option and stock awards reflected in the table above generally vest as to one-fourth of the total number of shares on the first, second, third and fourth year anniversary of the date of award or first vesting date as specified in the award agreement.
(2) Based on the closing price of our common stock on December 31, 2015 of $20.69.
(3) Due to Mr. Jimmerson’s employment ending on December 31, 2015 and his subsequent reemployment as our Interim CEO and President, we have agreed that these awards will expire July 3, 2016.
(4) Due to Mr. Slaughter’s employment ending on January 7, 2016 these awards will have no further vesting and will expire August 1, 2016.
(5) The date of the award was November 5, 2007.
(6) The date of the award was January 1, 2008.

 

  30

 

 

(7) The date of the award was January 1, 2009.
(8) The date of the award was January 1, 2010.
(9) The date of the award was March 22, 2011.
(10) The date of the award was March 7, 2012.
(11) The date of the award was March 6, 2013.
(12) The date of the award was March 6, 2013, with the initial one-fourth vesting on May 1, 2014 and one-fourth annually thereafter.
(13) The date of the award was March 5, 2014.
(14) The date of the award was March 5, 2014, with the initial one-fourth vesting on May 15, 2016 and one-fourth annually thereafter.
(15) The date of the award was March 4, 2015, with the initial one-fourth vesting on May 15, 2016 and one-fourth annually thereafter.
(16) The date of the award was November 3, 2015, with the initial one-fourth vesting on May 15, 2016 and one-fourth annually thereafter.
(17) The date of the award was December 8, 2015, with the initial one-fourth vesting on May 15, 2017 and one-fourth annually thereafter.

 

OPTION EXERCISES AND VESTING OF RESTRICTED STOCK

 

The following table contains information about the exercise of stock options by, and vesting of restricted stock for our named executive officers during 2015.

                           
    Option Awards     Stock Awards  
Name   Number of
Shares Acquired
on Exercise
    Value Realized
on Exercise (1)
    Number of
Shares Acquired
on Vesting
    Value Realized
on Vesting (2)
   
Martin Jimmerson     68,853     $ 1,005,152       6,208     $ 195,103    
Mark Slaughter                 11,715       368,226    
Charles Schneider                          
William Sutton                 5,804       182,282    
Hector Maytorena                 3,214       101,510    
Morten Hagland Hansen                 3,362       107,872    

 

(1) Value realized on exercise represents the difference between the sales price obtained on the sale of shares and the exercise price per share, multiplied by the number of shares sold in each exercise transaction.
(2) Value represents the closing price per share of our stock on the vesting date, multiplied by the gross number of shares vested.

 

PENSION BENEFITS

 

We do not provide pension benefits for our named executive officers or other employees. Retirement benefits are provided through the Savings Plan discussed below.

 

NON-QUALIFIED DEFERRED COMPENSATION

 

We do not have a non-qualified deferred compensation plan and as such, no compensation has been deferred by our named executive officers or our other employees. The Savings Plan is a 401(k) deferred compensation arrangement and a qualified plan under section 401(a) of the Internal Revenue Code (the “Code”).

 

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL

 

Payments Made Upon Termination

Regardless of the manner in which an executive officer’s employment terminates, the executive will be entitled to receive amounts earned (but unpaid) during his term of employment. Such amounts include:

 

earned, but unpaid base salary;
target non-equity incentive compensation earned during the fiscal year;
unpaid non-equity compensation for the preceding year;
unused vacation pay; and
amounts contributed and vested through our Savings Plan.

 

If provided for in the executive’s employment agreement and their separation is the result of death or “Disability”, the executive or his or her estate shall receive the above benefits, any long-term disability benefits and certain unvested equity awards shall immediately vest and become exercisable.

 

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The employment agreements with each of our executives also provide certain benefits if their employment is terminated under various circumstances. See above under “Employment Agreements” for a description of those circumstances and the benefits to which the named executive officers are entitled.

 

Excise Taxes

For all named executive officers, if any benefits payable or otherwise provided under each named executive officer’s employment agreement would be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), we will not pay or otherwise reimburse the executive for, such Excise Tax and any related taxes, fees or penalties thereon.

 

Quantification of Payments on Termination

The chart below reflects the amount of compensation payable to each of our named executive officers in the event of termination of such executive’s employment pursuant to his employment agreement and our stock compensation plans. The amount of compensation payable to each executive officer upon voluntary termination with “Good Reason,” involuntary termination other than for “Cause,” termination following a “Change of Control” and the occurrence of the “Disability” or death of the executive is shown below. The amounts shown are calculated assuming that such termination was effective as of December 31, 2015, and thus include amounts earned through such time (other than amounts payable pursuant to our Savings Plan) and are estimates of the amounts, which would be paid out to the executives upon their termination. The actual amounts to be paid out may only be determined at the time of the executive’s actual separation from us.

 

Post Employment Compensation Table

                                 
Name   Severance
Payment
    Early Vesting
of Equity
Awards (1)
    Health &
Welfare
Benefits (2)
    Total Benefit  
Martin Jimmerson (4)                                
Change of Control   $  1,000,000     $  55,785     $  48,382     $  1,104,167  
Other than Cause or for Good Reason (3)     1,000,000             48,382       1,048,382  
Disability or Death           55,785             55,785  
Mark Slaughter (5)                                
Change of Control     1,680,750             48,382       1,729,132  
Other than Cause or for Good Reason (3)     1,680,750             48,382       1,729,132  
Disability or Death     20,750                   20,750  
Charles Schneider                                
Change of Control     489,895             32,301       522,196  
Other than Cause or for Good Reason (3)     489,895             32,301       522,196  
Disability or Death     2,395                   2,395  
William Sutton                                
Change of Control     448,927       52,442       38,451       539,820  
Other than Cause or for Good Reason (3)     448,927             38,451       487,378  
Disability or Death     16,627       52,442             69,068  
Hector Maytorena                                
Change of Control     482,885       28,719       48,382       559,986  
Other than Cause or for Good Reason (3)     482,885             48,382       531,267  
Disability or Death     23,885       28,719             52,604  
Morten Hagland Hansen                                
Change of Control     253,885       28,402       38,921       321,208  
Other than Cause or for Good Reason (3)     253,885             38,921       292,806  
Disability or Death     23,885       28,402             52,287  

 

(1) See the table Outstanding Equity Awards as of December 31, 2015 presented earlier in this section of this proxy statement.
(2) This column includes any applicable Cobra premiums paid for the executive and $20,000 in outplacement services.
(3) Termination assumes there has not been a change of control event within the prior two years.
(4) Termination payout was determined under Mr. Jimmerson’s employment agreement in place as of December 31, 2015, which is described above under “Employment Agreements – Mr. Jimmerson’s” and does not include any potential payouts pursuant to the Third Amendment to his employment agreement, which are discussed above.
(5) Mr. Slaughter’s employment terminated effective January 7, 2016 for other than cause and he resigned from our Board of Directors effective January 31, 2016. In addition to severance payments received under his employment agreement, he also received an additional $100,000 cash separation benefit.

 

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COMPENSATION COMMITTEE REPORT

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis included in this proxy statement with management and, based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

   
  Submitted By:
   
  Compensation Committee
   
  Keith Olsen, Chairman
  James H. Browning
  Ditlef de Vibe

 

This Report of the Compensation Committee is not “soliciting material” and shall not be deemed incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933 or under the Securities Act of 1934, as amended, except to the extent the Company specifically incorporates this report by reference, and shall not otherwise be deemed filed under such Acts.

 

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SECURITY OWNERSHIP

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth as of March 24, 2016, the number of shares beneficially owned by: (i) each person who is known to us to beneficially own more than 5.0% of a class of shares; (ii) the current directors and nominees of our Board of Directors; (iii) each named executive officer included in the Summary Compensation Table; and (iv) all current directors and executive officers as a group. As noted in the footnotes to the table below, we obtained certain information in the table from filings made with the SEC. Unless otherwise noted in the footnotes to the table below, to our knowledge each beneficial owner has sole voting power and sole investment power, subject to community property laws for individuals that may apply to create shared voting and investment power. Unless indicated in the footnotes below, the address of each beneficial owner is c/o RigNet, Inc., 1880 S. Dairy Ashford, Suite 300, Houston, Texas 77077-4760.

 

Except as otherwise noted in the table below, we calculated the percentage of shares outstanding based on 17,738,204 shares of common stock outstanding on March 24, 2016. In accordance with SEC regulations, we also include (i) shares subject to options that are currently exercisable or will become exercisable within 60 days of March 24, 2016, and ii) shares issuable upon settlement of restricted stock units that are vested, or will become vested within 60 days of March 24, 2016. Those shares are deemed to be outstanding and beneficially owned by the person holding such option or restricted stock unit for the purpose of computing the percentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

 

Security Ownership Table

 

Directors / Nominees Stock  Total %   Named Executive Officers Stock  Total %
James H. Browning (1)  16,316 Λ  18,973 *   Martin Jimmerson (3)    30,056 Λ  114,289 *
Kevin J. O’Hara (1)  13,316 Λ  15,973 *   Charles Schneider (4) — Λ  4,481 *
Mattia Caprioli  — Ŧ  — *   William Sutton (5) 13,412 Λ  104,150 *
Charles L. Davis (2)  47,156 Ŧ  49,813 *   Hector Maytorena (6)      7,530 Λ  78,887 *
Ditlef de Vibe (1)    8,106 Λ  10,763 *   Morten Hagland Hansen (7)     12,493 Λ 49,615 *
Kevin Mulloy (1)    4,745 Λ  7,402 *          
Keith Olsen (1)    7,575 Λ 10,232 *   All Directors and Executives Stock  Total %
Brent K. Whittington (1)  18,716 Ŧ 21,373 *   As a group (14 persons)  180,839 494,037 2.7%
                 
5% Beneficial Owners Stock  Total %   *      Less than 1.0% of class
Kohlberg Kravis Roberts & Co (8)    4,750,000 4,750,000 26.8%   Ŧ    Meets or exceeds executive equity ownership requirements
Arrowpoint Asset Management (9) 2,451,315 2,451,315 13.8%   Λ    Within transition period for equity ownership requirements
Franklin Resources (10) 1,700,062 1,700,062 9.6%  
Rutabaga Capital Management (11)  1,020,384 1,020,384 5.8%    

 

(1) Includes 2,657 shares of restricted stock.

 

(2) Includes 2,657 shares of restricted stock and 3,907 shares of common stock owned by SMH Private Equity Group II, LP. Mr. Davis is a manager of SMH PEG Management II, LLC, which is the general partner of SMH Private Equity Group II, LP, and may vote or sell securities owned by SMH Private Equity Group II, LP. Mr. Davis disclaims beneficial ownership of the shares owned by SMH Private Equity Group II, LP and SMH PEG Management II, LLC, except to the extent of any pecuniary interest therein.

 

(3) Includes 84,233 shares of stock subject to options, which are exercisable within 60 days of March 24, 2016.

 

(4) Includes 4,481 shares of restricted stock.

  

(5) Includes 85,844 shares of stock subject to options, which are exercisable within 60 days of March 24, 2016 and 4,894 shares of restricted stock.

  

(6) Includes 67,959 shares of stock subject to options, which are exercisable within 60 days of March 24, 2016 and 3,398 shares of restricted stock.

 

(7) Includes 33,679 shares of stock subject to options, which are exercisable within 60 days of March 24, 2016 and 3,443 shares of restricted stock.

 

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(8) Based on Amendment No. 1 to Schedule 13D filed with the SEC on September 26, 2013, the 4,750,000 shares of Common Stock are held directly by Digital Investments LP., a wholly owned subsidiary of Kohlberg Kravis Roberts & Co. As disclosed, each of Digital Oilfield Investments GP Limited, KKR European Fund III Limited Partnership, KKR Associates Europe III Limited Partnership, KKR Europe III Limited, KKR Fund Holdings L.P., KKR Fund Holdings GP Limited, KKR Group Holdings L.P., KKR Group Limited, KKR & Co. L.P., KKR Management LLC, Henry R. Kravis and George R. Roberts has voting and dispositive power over all the securities held directly by Digital Investments LP and may be deemed to be the beneficial owner of the securities held directly by Digital Investments LP, and each disclaims beneficial ownership of the securities. The address of each such beneficial owner (except Mr. Roberts) is c/o Kohlberg Kravis Roberts & Co. L. P., 9 West 57 th Street, Suite 4200, New York, NY 10019. The address of Mr. Roberts is c/o Kohlberg Kravis Roberts & Co. L. P., 2800 Sand Hill Road, Suite 200, Menlo Park, CA 94025.

  

(9) Based on Amendment No. 2 to Schedule 13G filed with the SEC on February 16, 2016, Arrowpoint Asset Management, LLC reported that they have sole dispositive and voting power as to all such shares. The Schedule 13G also reported that Meridian Growth Fund is the beneficial owner of 930,845 shares, which per the Schedule 13G constitutes 5.2% of the common stock. We have assumed that these 930,845 shares over which Meridian has voting power are included in the 2,451,315 shares over which Arrowpoint Asset Management has voting power; however, the 13G is unclear on this point and is unclear as to the relationship between Arrowpoint Asset Management and Meridian. The address for each such beneficial owner is 100 Fillmore Street, Suite 325, Denver, Colorado 80206.

  

(10) Based on Schedule 13G filed with the SEC on February 10, 2016, Franklin Resources Inc. (“FRI”) reported that it had sole dispositive power and voting rights as to 1,686,462 shares. Furthermore, FRI reported securities beneficially owned by one or more investment companies or client accounts of investment managers that are direct and indirect subsidiaries of FRI, including Franklin Advisors, Inc., Charles B. Johnson, Rupert H. Johnson, Jr., and Fiduciary Trust Company International. Fiduciary Trust Company Institutional has sole voting power over 13,600 shares. Charles B. Johnson and Rupert H. Johnson, Jr. are the principal stockholders of FRI and each own in excess of 10% of the outstanding common stock. The Schedule 13G states FRI, Charles B. Johnson, Rupert H. Johnson, Jr. and each of the Investment Management Subsidiaries believe that they are not a “group” within the meaning of Rule 13d 5 under the Act. The address for each such beneficial owner is One Franklin Parkway, San Mateo, CA 94403-1906.

 

(11) Based on Schedule 13G filed with the SEC on February 11, 2016, Rutabaga Capital Management, LLC reported that it had sole dispositive power as to all such shares, but only sole voting power with respect to 890,684 of such shares. The address of Rutabaga Capital Management, LLC is 64 Broad Street, 3 rd Floor, Boston, Massachusetts 02109.

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Exchange Act requires our named executive officers and directors and persons who beneficially own more than ten percent of our common stock to file reports of ownership and changes in ownership concerning our common stock with the SEC and to furnish us with copies of all Section 16(a) forms they file. Based solely upon our review of the Section 16(a) filings that have been received by us and representations made to us by our executive officers and directors, we believe that all filings required to be made under Section 16(a) during 2015 were made timely, except for reporting the issuance of a share award for Mr. Schneider filed two days late, a share transaction for Mr. Davis filed three days late, and a share transaction for Mr. de Vibe filed twelve days late and the issuance of a share award for Mr. de Vibe filed one day late. 

 

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

 

The table below sets forth the following information as of the end of December 31, 2015 for (i) all compensation plans previously approved by our stockholders and (ii) all compensation plans not previously approved by our stockholders.

 

Plan category   Number of securities to
be issued upon exercise
of outstanding options (a)
  Weighted-average
exercise price of
such outstanding

options
  Number of securities remaining
available for future issuance under
equity compensation plans (excluding
securities reflected in column (a) (1)
Equity compensation plans approved by security holders   993,138   $ 20.40   1,735,517
Equity compensation plans not approved by security holders          —
               
Total    993,138   $ 20.40    1,735,517
               
(1) Represents shares available under the 2010 Omnibus Incentive Plan. No additional shares will be awarded the RigNet, Inc. 2006 Long-Term Incentive Plan or the RigNet Inc. 2001 Performance Stock Option Plan.

 

In addition to our 2010 Omnibus Incentive Plan, we maintain the RigNet, Inc. 2006 Long-Term Incentive Plan and the RigNet Inc. 2001 Performance Stock Option Plan, both of which were previously approved by our stockholders in connection with their adoption prior to our IPO. We do not maintain any equity compensation plans that have not been approved by our stockholders.

 

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

Kohlberg Kravis Roberts & Co. L.P.

 

A vendor who provides dedicated consulting services to KKR and its affiliated funds’ portfolio companies, was used by RigNet for business consulting services in the ordinary course of business totaling $0.3 million, $0.5 million and $0.3 million during the years ended December 31, 2015, 2014 and 2013, respectively. Neither KKR, a significant stockholder of RigNet, nor any entity affiliated with KKR own any equity in this vendor.  

 

Review and Approval of Related Party Transactions

 

Under our policy governing related person transactions, our employees, officers and directors are discouraged from entering into any transaction that may cause a conflict of interest for us. In addition, they must report any potential conflict of interest, including related party transactions, to their managers or our general counsel who then reviews and summarizes the proposed transaction for our Audit Committee. Pursuant to its charter, our Audit Committee must then approve any related-party transactions, including those transactions involving our directors. In approving or rejecting such proposed transactions, the Audit Committee considers the relevant facts and circumstances available and deemed relevant to the Audit Committee, including the material terms of the transactions, risks, benefits, costs, availability of other comparable services or products and, if applicable, the impact on a director’s independence. Our Audit Committee will approve only those transactions that, in light of known circumstances, are in, or are not inconsistent with, our best interests, as our Audit Committee determines in the good faith exercise of its discretion. A copy of our code of business conduct and ethics and Audit Committee charter may be found at our corporate website “ http://investor.rig.net/governance.cfm” .

 

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ADDITIONAL INFORMATION

 

Stockholder Proposals and Nominations for the 2017 Annual Meeting 

 

Any stockholder who intends to present a proposal for inclusion in our 2017 proxy statement and form of proxy must submit the proposal, in writing, so that our Corporate Secretary receives it at our principal executive offices, located at 1880 S. Dairy Ashford, Suite 300, Houston, Texas 77077-4760, by December 22, 2016, which is 120 days prior to the one year anniversary of the date this proxy statement is being sent to our stockholders. Any stockholder who wishes to bring a proposal or nominate a person for election to our Board of Directors at the 2017 Annual Meeting of Stockholders must provide written notice of the proposal or nomination to our Corporate Secretary, at our principal executive offices, between January 18, 2017 and February 17, 2017, which is 90 to 120 days prior to the one year anniversary of the upcoming annual meeting. In addition, our stockholders must comply with the requirements of the SEC related to nominations and stockholder proposals and the procedural requirements in our bylaws, which stockholders can obtain from us upon request and which are also on file with the SEC or available on our website at “ http:// investor.rig.net”

 

Our bylaws provide that if a stockholder wishes to nominate a person for election as director (which is separate from simply recommending someone to be considered by our Corporate Governance and Nominating Committee for inclusion on the Company’s slate of directors) or to propose other business to be considered at one of our annual meetings of stockholders, that stockholder must follow the procedures contained in our bylaws and satisfy the requirements of Regulation 14A of the Securities Exchange Act of 1934. The stockholder proposing such business or making such nomination must be a stockholder of record of our Company on the date the nomination is delivered to our Corporate Secretary and at the time of our annual meeting and be entitled to vote at the annual meeting. The proposal or nomination must be received by our Corporate Secretary at our principal executive offices not less than the close of business on the 90 th day nor earlier than the close of business on the 120 th day prior to the first anniversary of the preceding year’s annual meeting, except that if the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the stockholder must be delivered not earlier than the close of business 120 days prior to the annual meeting and no later than 90 days prior to such annual meeting or 10 days following our first public announcement of the date of the annual meeting. In addition, if the number of directors to be elected to our Board of Directors at an annual meeting is increased and there is no public announcement by us naming all of the nominees for director or specifying the size of the increased Board of Directors at least 100 days prior to the first anniversary of the preceding year’s annual meeting, a stockholder’s nomination shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it is delivered to our Corporate Secretary at our principal executive offices not later than the close of business on the 10th day following the day on which we first make such public announcement. These time periods are designed to allow us time to adequately consider all proposals and nominees.

 

To be considered, each nomination must include the following information:

 

all information relating to the nominee that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to and in accordance with Section 14 of the Exchange Act and the rules and regulations promulgated thereunder;

 

the nominee’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected;

 

a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among the nominating stockholder and beneficial owner, if any, and their respective affiliates and associates, or others acting in concert with them, on the one hand, and each proposed nominee, and his or her respective affiliates and associates, or others acting in concert with him, on the other hand, including, all information that would be required to be disclosed pursuant to Rule 404 promulgated under Regulation S-K if the stockholder making the nomination and any beneficial owner on whose behalf the nomination is made, if any, or any of their respective affiliates or associates or persons acting in concert with any such person, were the “registrant” for purposes of such rule and the nominee were a director or executive officer of such registrant;

 

a written questionnaire with respect to the background and qualification of the nominee and the background of any other person or entity on whose behalf the nomination is being made, the form of which questionnaire will be provided by our Corporate Secretary upon written request; and

   

a written representation and agreement, in the form provided by our Corporate Secretary upon written request, that the nominee is not and will not become a party to any agreement, arrangement or understanding with, and has not

 

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given any commitment or assurance to, any person or entity as to how the nominee, if elected as a director, will act or vote on any issue or question that has not been disclosed to us or that could limit or interfere with the nominee’s ability to comply, if elected as a director, with the nominee’s fiduciary duties under applicable law, is not and will not become a party to any agreement, arrangement or understanding with any person or entity other than us with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as our director that has not been disclosed to us, and in the nominee’s individual capacity and on behalf of any person or entity on whose behalf the nomination is being made, would be in compliance, if elected as our director, and will comply with all of our applicable publicly disclosed corporate governance, conflict of interest, confidentiality and stock trading policies and guidelines.

 

To be considered, proposals for business to be considered by our stockholders at an annual meeting, other than the nomination of persons for election as directors, must include the following information: 

 

a brief description of the business desired to be brought before the annual meeting;

 

the reasons for conducting such business at the annual meeting;

 

the text of the proposal or business, including the text of any resolutions proposed for consideration and in the event that such business includes a proposal to amend our Bylaws, the language of the proposed amendment;

 

any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made;

 

a description of all agreements, arrangements and understandings between such stockholder and beneficial owner, if any, and any other person or persons, including their names, in connection with the proposal of such business by such stockholder; and

 

as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made:

 

the name and address of such stockholder, as they appear on our books, and of such beneficial owner, if any,

 

the class or series and number of shares of our capital stock that are, directly or indirectly, owned beneficially and of record by such stockholder and by such beneficial owner,

 

any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or series of our capital stock, whether or not such instrument or right shall be subject to settlement in the underlying class or series of our capital or otherwise directly or indirectly owned beneficially by such stockholder and by such beneficial owner, if any,

 

any other direct or indirect opportunity held or owned beneficially by such stockholder and by such beneficial owner, if any, to profit or share in any profit derived from any increase or decrease in the value of our shares,

 

any proxy, contract, arrangement, understanding, or relationship pursuant to which such stockholder or beneficial owner, if any, has a right to vote any shares of any of our securities,

 

any short interest in any of our securities,

 

any right to dividends on our shares of capital stock owned beneficially by such stockholder or such beneficial owner, if any, which right is separated or separable from the underlying shares,

 

any proportionate interest in shares of our capital stock or derivative instrument held, directly or indirectly, by a general or limited partnership in which such stockholder or such beneficial owner, if any, is a general partner or with respect to which such stockholder or such beneficial owner, if any, directly or indirectly, beneficially owns an interest in a general partner, and

 

any performance-related fees, other than an asset-based fee, to which such stockholder or such beneficial owner, if any, is entitled to based on any increase or decrease in the value of our shares or derivative instruments, if any, in each case with respect to the information required to be included in the notice.

 

Such information must include any such interests held by members of such stockholder’s or such beneficial owner’s immediate family sharing the same household. All such information must be supplemented by such stockholder and such beneficial owner, if any, not later than 10 days after the record date for the Annual Meeting to disclose such ownership as of the record date, 10 days before the Annual Meeting date, and immediately prior to the commencement of the Annual Meeting, by delivery of such supplemented information to our Corporate Secretary. Such information shall also include any other information relating to such stockholder and beneficial owner, if any, that would be required to be disclosed in a proxy

 

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statement or other filings required to be made in connection with solicitation of proxies for election of directors in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder, a representation that the stockholder is a holder of record of our stock entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business or nomination, and a representation whether the stockholder or the beneficial owner, if any, intends or is part of a group that intends to deliver a proxy statement and/or form of proxy to holders of at least the percentage of our outstanding capital stock required to approve or adopt the proposal or elect the nominee or otherwise to solicit proxies from stockholders in support of such proposal or nomination.

 

The proposing stockholder must also include such other information as we may reasonably require or that is otherwise reasonably necessary to determine the eligibility of such proposed nominee to serve as a director of our Company, to determine whether such nominee qualifies as an “independent director” or “audit committee financial expert” under applicable law, securities exchange rule or regulation, or any of our publicly-disclosed corporate governance guidelines or committee charters; including our policy governing director qualifications and nominations, and that could be material to a reasonable stockholder’s understanding of the independence and qualifications, or lack thereof, of such nominee. 

 

Where You May Find More Information About Us 

 

We file annual, quarterly and current reports and proxy statements with the SEC. Our SEC filings are available to the public over the Internet at the SEC’s website at “ www.sec.gov” . You may also read and copy any document that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. You can call the SEC at 1-800-SEC-0330 for further information on the public reference room and its copy charges. We maintain a website at “http:// investor.rig.net” , where we post our SEC filings.

 

You may request copies of our filings, including any documents incorporated by reference in this proxy statement as described below, without charge, by calling our Investor Relations representative at (281) 674-0100 or write to Investor Relations, 1880 S. Dairy Ashford, Suite 300, Houston, Texas 77077-4760. 

 

If you would like to request documents from us, please do so at least five business days before the date of the Annual Meeting in order to receive timely delivery of the documents before the Annual Meeting. If you request any incorporated documents from us, we will mail them to you by first class mail or other equally prompt means within one business day of receipt of your request, provided that we will not mail any exhibits to the information that is incorporated by reference unless such exhibits are specifically incorporated by reference into the information that this proxy statement incorporates. 

 

You should rely only on the information contained or incorporated by reference in this proxy statement to vote your shares at the Annual Meeting. We have not authorized anyone to provide you with information that is different from what is contained or incorporated by reference in this proxy statement.

 

The information contained in this document or any document incorporated by reference herein speaks only as of the date indicated on the cover of this document or the document incorporated by reference unless the information specifically indicates that another date applies. 

 

OTHER MATTERS FOR 2016 ANNUAL MEETING

 

As of the date of this proxy statement, our Board of Directors knows of no matters to be acted upon at the Annual Meeting other than the proposals included in the accompanying notice and described in this proxy statement. If any other matter requiring a vote of stockholders arises, including a question of adjourning the Annual Meeting, the persons named as proxies in the accompanying proxy card will have the discretion to vote thereon according to their best judgment of what they consider to be in the best interests of our Company. The accompanying proxy card confers discretionary authority to take action with respect to any additional matters that may come before the Annual Meeting or any adjournment or postponement thereof.

 

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PROPOSALS  

 

PROPOSAL ONE: ELECTION OF DIRECTORS

 

Members of our Board of Directors are elected each year at the annual meeting of stockholders. All of our current Board members have been nominated to stand for re-election at the Annual Meeting. Our Corporate Governance and Nominating Committee, consisting solely of independent directors as determined by our Board of Directors, recommended the directors for nomination by our full Board of Directors. Based on that recommendation, our Board of Directors has nominated eight directors for election at the Annual Meeting.

 

Nominees

 

The following eight directors have all been nominated to serve on our Board of Directors until the 2017 Annual Meeting of Stockholders: James H. Browning, Mattia Caprioli, Charles L. Davis, Ditlef de Vibe, Kevin Mulloy, Kevin J. O’Hara, Keith Olsen, and Brent K. Whittington. Each of the nominees has consented to serve as a director if so elected. Each nominee who is elected to our Board of Directors will serve in such capacity until his term expires or his successor has been duly elected and qualified or, if earlier, until such director dies, resigns or is removed.

 

Directors will be elected by a plurality of the votes cast by the share of common stock present in person or represented by proxy at the Annual Meeting. As a result, the eight nominees with the most votes will be elected. Broker non-votes will have no effect on the outcome of the election of directors. 

 

Our Board recommends that you vote

“FOR” the election of each of the nominated directors.

 

PROPOSAL TWO: RATIFICATION OF INDEPENDENT AUDITORS

 

The Audit Committee has selected Deloitte & Touche LLP, an independent registered public accounting firm, to audit our consolidated financial statements for fiscal year 2016. Deloitte & Touche LLP has served as our independent auditors since 2007. We are asking the stockholders to ratify the appointment of Deloitte & Touche LLP as our independent auditors for the fiscal year ending December 31, 2016. The Audit Committee selected Deloitte & Touche LLP in accordance with its charter.

 

The submission of this matter for ratification by stockholders is not legally required; however, the Audit Committee and Board of Directors believe that such submission is consistent with best practices in corporate governance and is an opportunity for stockholders to provide direct feedback on an important issue of corporate governance. If the selection is not ratified, the Audit Committee will consider whether it is appropriate to select another independent registered public accounting firm. The Audit Committee continually monitors the services and fees of the independent auditors and even if the selection is ratified, the Audit Committee in its discretion may select different auditors at any time during the year if it determines that such a change would be in the best interests of our Company and our stockholders.

 

The Audit Committee has approved all services provided by Deloitte & Touche LLP. A representative of Deloitte & Touche LLP is expected to be present at the Annual Meeting, will have the opportunity to make a statement, and is expected to be available to respond to appropriate questions you may ask.  

 

Fees Paid to Independent Auditors

 

The following table reflects fees for professional audit services rendered by Deloitte & Touche LLP for (i) the audit of our financial statements for the years ended December 31, 2015 and 2014; and (ii) fees billed for other services.

 

    2015     2014  
Audit Fees (1)   $ 1,486,000     $ 1,565,000  
Audit Related Fees (2)     117,000        
Tax Fees (3)     780,000       338,000  
All Other Fees (4)     2,000        
Total   $ 2,385,000     $ 1,903,000  

 

(1) Audit Fees consist of professional services and related expenses for the review of interim financial statements, the audit of our annual financial statements and statutory financial audits outside of our annual financial statements.

(2) Audit related fees include professional services and related expenses for services in connection with merger and acquisition activity.

(3) Tax Fees include professional services for tax return preparation, tax advisory services and income tax audit support.

(4) Fees include subscription costs.

 

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Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services

 

Pursuant to its charter, the Audit Committee of our Board of Directors is responsible for reviewing and approving, in advance, any audit and any permissible non-audit engagement between the Company and its independent auditors. Deloitte & Touche LLP’s engagement to conduct the audit of RigNet, Inc. for fiscal 2015 was approved by the Audit Committee on July 28, 2015. All (100.0%) of the services covered in the table above were approved by the Audit Committee and none were provided under the de minimis exception of Section 10A of the Securities Exchange Act of 1934, as amended.

 

We have been advised by Deloitte & Touche LLP that substantially all of the work done in conjunction with its 2015 audit of the Company’s financial statements for the most recently completed fiscal year was performed by full-time employees and partners of Deloitte & Touche LLP. The Audit Committee has determined that the provisions of services rendered for all other fees, as described above, is compatible with maintaining independence of Deloitte & Touche LLP. 

 

Proposal No. 2 must be approved by a majority of the votes cast on the proposal. As approval of auditors is a routine matter on which brokers may vote without instructions, broker non-votes will not affect the outcome of the vote on this proposal and abstentions will have no effect on this proposal under Delaware law as they are not votes cast. If the selection of Deloitte & Touche LLP is not ratified accordingly, our Board of Directors will consider whether we should select another independent registered public accounting firm as our auditors.

 

Our Board recommends that you vote 

“FOR” the ratification of Independent Auditors

 

PROPOSAL THREE: APPROVAL OF THE FIRST AMENDMENT TO THE RIGNET, INC. 2010 OMNIBUS INCENTIVE PLAN

 

The RigNet, Inc. 2010 Omnibus Incentive Plan (the “2010 Plan”) is a broad-based incentive plan that provides for the grant of incentive stock options that are intended to satisfy the requirements of Section 422 of the Internal Revenue Code, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance stock, performance units, annual cash incentive awards, other stock-based awards and certain other cash awards. Our Board of Directors believes that our Company’s success and long-term progress are dependent upon attracting and retaining qualified individuals who may serve as directors, officers, employees, consultants, and advisers, and aligning the interests of such individuals with those of its stockholders. Our 2010 Plan is designed to give our Board of Directors and Compensation Committee the flexibility to use various forms of incentive awards as part of our Company’s overall compensation program.

 

Our Board of Directors has adopted the 2010 Plan, and our stockholders have previously approved the 2010 Plan at our 2011 Annual Meeting of Stockholders. On March 10, 2016 our Board of Directors adopted an amendment (“the First Amendment”) to our 2010 Plan. Subject to the approval of our stockholders as indicated further below, under the First Amendment the number of shares of our common stock that may be granted under the 2010 Plan and the number of shares of our common stock that may be granted in the form of incentive stock options would increase by 1 million shares to 4,000,000 shares. In addition, the First Amendment imposes certain limits on grants to our directors, and changes the manner in which shares granted under the 2010 Plan will be counted against the plan’s share limit. As described further in Proposal Four below, the First Amendment also revises and expands the performance goals that may be used to qualify vesting or payment of a performance-based award and increases the maximum amount payable to an employee upon attainment of a performance goal for certain awards payable in shares of our common stock. In this proposal we are asking our stockholders to approve the First Amendment to the 2010 Plan.

 

Our executive officers and directors (including our director nominees) have an interest in this proposal, as they would be eligible to receive awards under our 2010 Plan.  

 

Plan Amendment Summary

 

Certain features of the First Amendment to our 2010 Plan are summarized below. This summary does not purport to be complete, and is qualified in its entirety by reference to the full text of the First Amendment to the RigNet, Inc. 2010 Omnibus Incentive Plan attached as Appendix A to this proxy statement.

 

Subject to the approval of our stockholders, the aggregate number of shares of our common stock with respect to which awards may be granted under the 2010 Plan will be increased by 1,000,000 shares from 3,000,000 to 4,000,000 authorized shares, and the aggregate number of shares of our common stock with respect to which incentive stock options may be granted under the plan will likewise increase by 1,000,000 shares, from 3,000,000 shares to 4,000,000 shares.

  

Effective as of the adoption of the First Amendment, the aggregate dollar value of shares of our common stock that may be granted under the 2010 Plan in any fiscal year, determined as of the date of grant, to a director who is not a

  

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Chairman or Vice Chairman of our Board shall be limited to no more than $300,000, and (iii) a director who is a Chairman or Vice Chairman of our Board shall be limited to no more than $400,000.

 

Effective as of the adoption of the First Amendment, stock withheld from payment of an award to satisfy tax obligations will count against the aggregate number of shares of stock available to be granted under the 2010 Plan;

 

Effective as of the adoption of the First Amendment, stock tendered as payment to satisfy the option price upon exercise of the option will count against the aggregate number of shares of stock available to be granted under the 2010 Plan.

 

As described further in Proposal Four below, subject to the approval of our stockholders, the First Amendment revises and expands the performance goals that may be used to qualify vesting or payment of a performance-based award to enable specific performance-based awards to be aligned to strategic goals or other initiatives of the Company and increases the maximum amount payable to an employee upon attainment of a performance goal for certain awards payable in shares of our common stock.

 

Summary of the 2010 Plan

 

Certain features of our 2010 Plan are summarized below. This summary does not purport to be complete, and is qualified in its entirety by reference to the full text of our 2010 Plan attached as Appendix B to this proxy statement.

 

Our employees are eligible to receive awards under our 2010 Plan. In addition, the non-employee directors of our Company and consultants, agents, representatives, advisors and independent contractors who render services to our Company and its affiliates that are not in connection with the offer and sale of our Company’s securities in a capital raising transaction and do not directly or indirectly promote or maintain a market for our Company’s securities will be eligible to receive awards settled in shares of our common stock, other than incentive stock options and annual cash incentive awards, under our 2010 Plan. 

 

Our Board of Directors will administer our 2010 Plan with respect to awards to non-employee directors and our Compensation Committee will administer our 2010 Plan with respect to awards to employees and other non-employee service providers other than non-employee directors. In administering awards under our 2010 Plan our Board of Directors or the Compensation Committee, as applicable (the “committee”), has the power to determine the terms of the awards granted under our 2010 Plan, including the exercise price, the number of shares subject to each award and the exercisability of the awards. The committee also has full power to determine the persons to whom and the time or times at which awards will be made and to make all other determinations and take all other actions advisable for the administration of the plan. 

 

Under our 2010 Plan, the committee may grant:

 

options to acquire our common stock. The exercise price of options granted under our 2010 Plan must at least be equal to the fair market value of our common stock on the date of grant and the term of an option may not exceed ten years, except that with respect to an incentive stock option granted to any employee who owns more than 10% of the voting power of all classes of our outstanding stock as of the grant date the term must not exceed five years and the exercise price must equal at least 110% of the fair market value on the grant date.

 

stock appreciation rights, or SARs, which allow the recipient to receive the appreciation in the fair market value of our common stock between the date of grant and the exercise date. The amount payable under the stock appreciation right may be paid in cash or with shares of our common stock, or a combination thereof, as determined by the committee.

 

restricted stock awards, which are awards of our shares of common stock that vest in accordance with terms and conditions established by the committee.

 

restricted stock units, which are awards that are based on the value of our common stock and may be paid in cash or in shares of our common stock.

  

Under our 2010 Plan, the committee may also grant performance stock, performance unit and annual cash incentive awards. Performance stock, performance unit and annual cash incentive awards are awards that will result in a payment to a participant only if performance goals established by the committee are achieved or the award otherwise vests. It is intended that our 2010 Plan will conform with the standards of Section 162(m) of the Internal Revenue Code. The committee will establish organization or individual performance goals which, depending on the extent to which they are met, will determine the number and the value of performance stock, performance units and annual incentive cash bonus amounts to be paid out to participants. Payment under performance unit awards may be made in cash or in shares of our common stock with equivalent value, or in some combination, as determined by the committee.

 

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The amount of, the vesting and the transferability restrictions applicable to any performance stock, performance unit and annual cash incentive award will be based upon the attainment of such performance goals as the committee may determine. 

 

Awards may be granted under our 2010 Plan in substitution for stock options and other awards held by employees of other corporations who are about to become employees of our Company or any of its subsidiaries. The terms and conditions of the substitute awards granted may vary from the terms and conditions set out in our 2010 Plan to the extent our Board of Directors may deem appropriate. 

 

The existence of outstanding awards will not affect in any way the right or power of our Company to make any adjustments, recapitalizations, reorganizations or other changes in our Company’s capital structure or its business. If our Company shall effect a capital readjustment or any increase or reduction of the number of shares of our common stock outstanding, without receiving compensation therefor in money, services or property, then the number and per share price of our common stock subject to outstanding awards under our 2010 Plan shall be appropriately adjusted. 

 

If we are not the surviving entity in any merger, consolidation or other reorganization; if we sell, lease or exchange or agree to sell, lease or exchange all or substantially all of our assets; if we are to be dissolved; or if we are a party to any other corporate transaction, then the committee may: 

 

accelerate the time at which some or all of the awards then outstanding may be exercised, after which all such awards that remain unexercised shall terminate;

  

require the mandatory surrender to our Company of some or all of the then outstanding awards as of a date in which event the committee will then cancel such awards and our Company will pay to each such holder an amount of cash per share equal to the excess, if any, of the per share price offered to stockholders of our Company in connection with such transaction over the exercise prices under such awards for such shares;

 

have some or all outstanding awards assumed or have a new award of a similar nature substituted for some or all of the then outstanding awards;

  

provide that the number of our shares of common stock covered by an award will be adjusted so that such award when exercised will then cover the number and class or series of our common stock or other securities or property to which the holder of such award would have been entitled pursuant to the terms of the agreement or plan relating to such transaction if the holder of such award had been the holder of record of the number of shares of our common stock then covered by such award; or

  

make such adjustments to awards then outstanding as the committee deems appropriate to reflect such transaction.

 

After a merger or consolidation involving our Company each holder of a restricted stock award granted under our 2010 Plan shall be entitled to have his restricted stock appropriately adjusted based on the manner in which the shares of our common stock were adjusted under the terms of the agreement of merger or consolidation. 

 

Awards under our 2010 Plan shall be designed, granted and administered in such a manner that they are either exempt from the application of, or comply with, the requirements of Section 409A of the Internal Revenue Code.

 

Our Board of Directors may alter, amend, or terminate our 2010 Plan and the committee may alter, amend, or terminate any award agreement in whole or in part; however, no termination, amendment, or modification shall adversely affect in any material way any award previously granted, without the written consent of the holder. 

 

Our 2010 Plan became effective May 26, 2010. No awards may be granted under our 2010 Plan on or after the tenth anniversary of the effective date, unless our 2010 Plan is subsequently amended, with the approval of stockholders, to extend the termination date.

 

U.S. Federal Income Tax Consequences of Awards Granted Under Our 2010 Plan

 

The following is a general summary of certain of the U.S. Federal income tax consequences to participants who are either U.S. citizens or residents of certain transactions with respect to awards granted under our 2010 Plan. 

 

Incentive Stock Options

 

When the committee grants an employee an incentive stock option to purchase shares of our common stock under our 2010 Plan, the employee will not be required to recognize any U.S. Federal taxable income as a result of the grant or as a result of the employee’s exercise of the incentive stock option; however, the difference between the exercise price and the fair market value

 

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of the shares of our common stock at the time of exercise is an item of tax preference that may require payment of an alternative minimum tax. On the sale of the shares acquired through exercise of an incentive stock option (assuming such sale does not occur within two years of the date of grant of the option or within one year from the date of exercise), any gain (or loss) will be taxed as long term capital gain (or loss) and our Company will not be entitled to any deduction in connection with the sale (or the grant or exercise) of the incentive stock option. With respect to a sale of shares that occurs after the later of two years from the date of grant and one year from the date of exercise, the tax basis of the shares for the purpose of a subsequent sale includes the option price paid for the shares. 

 

However, if the employee sells the shares acquired upon exercise of an incentive stock option before the later of (i) two years from the date of grant and (ii) one year from the date of exercise, the employee will be treated as having received, at the time of sale, compensation taxable as ordinary income, and our Company will be entitled to a corresponding deduction. The amount treated as compensation income is the excess of the fair market value of the shares at the time of exercise over the exercise price, and any amount realized in excess of the fair market value of the shares at the time of exercise would be treated as long or short term capital gain, depending on how long such shares were held. With respect to a sale of shares that occurs before the later of two years from the date of grant and one year from the date of exercise, the tax basis of the shares for the purpose of a subsequent sale includes the option price paid for the shares and the compensation income reported at the time of sale of the shares.

 

Nonqualified Stock Options

 

When the committee grants a nonqualified stock option to purchase shares of our common stock under our 2010 Plan, the recipient will not be required to recognize any U.S. Federal taxable income as a result of the grant. However, the recipient will be required to recognize ordinary income on the date the recipient exercises the nonqualified stock option. Generally, the measure of the income will be equal to the difference between the fair market value of the shares of our common stock acquired on the date the shares are acquired and the option price. The tax basis of the shares acquired on exercise of the nonqualified stock option for the purpose of a subsequent sale includes the option price paid and the ordinary income reported on exercise of the nonqualified stock option. The income reportable on exercise of the nonqualified stock option by an employee is subject to Federal tax withholding. Generally, our Company will be entitled to a deduction in the amount reportable as income by the recipient on the exercise of a nonqualified stock option. 

 

Stock Appreciation Rights 

 

The grant of a SAR under our 2010 Plan generally will not result in the recognition of any U.S. Federal taxable income by the recipient or a deduction for our Company, at the time of grant. However, the recipient will be required to recognize ordinary income on the date the recipient exercises the SAR (the appreciation in the fair market value of our common stock between the date of grant and the exercise date of the SAR). Generally, the measure of the income will be equal to the amount realized on exercise of the SAR. The income reportable on exercise of the SAR by an employee is subject to Federal tax withholding. Generally, our Company will be entitled to a deduction in the amount reportable as income by the recipient on the exercise of a SAR.

 

Restricted Stock Awards 

 

The grant of a restricted stock award under our 2010 Plan generally will not result in the recognition of any U.S. Federal taxable income by the recipient or a deduction for our Company, at the time of grant unless the recipient timely makes an election under Section 83(b) of the Internal Revenue Code, as described below. Upon the expiration of the forfeiture restrictions applicable to the restricted stock award (i.e., as the shares become vested), the recipient will recognize ordinary income in an amount equal to the excess of the fair market value of those shares at that time over the amount (if any) the recipient paid for the shares. The income realized by an employee is subject to Federal tax withholding. The Company will be entitled to a deduction in the amount and at the time the recipient recognizes income. If an election under Section 83(b) of the Internal Revenue Code has not been made, any dividends received with respect to any restricted shares that are not vested (i.e., the forfeiture restrictions have not yet lapsed) generally will be treated as compensation that is taxable as ordinary income to the recipient and our Company will be entitled to a corresponding deduction. With respect to any restricted shares that are vested (i.e., the forfeiture restrictions have lapsed), the recipient will be taxed on any dividends on such shares as the dividends are paid to the recipient and our Company will not be entitled to deductions with respect to the dividends.

 

If a participant makes an election under Section 83(b) of the Internal Revenue Code within 30 days of the date of transfer of the restricted shares awarded under the restricted stock award, the participant will recognize ordinary income on the date the shares are awarded. The amount of ordinary income required to be recognized is an amount equal to the excess, if any, of the fair market value of the shares on the date of award over the amount, if any, paid for such shares. In such case, the participant will not be required to recognize additional ordinary income when the shares vest. However, if the shares are later forfeited, a loss can only be recognized up to the amount the participant paid, if any, for the shares.

 

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Restricted Stock Unit Awards 

 

The grant of a restricted stock unit award under our 2010 Plan generally will not result in the recognition of any U.S. Federal taxable income by the recipient or a deduction for our Company at the time of grant. At the time a restricted stock unit award vests or is paid the recipient will recognize ordinary income and our Company will be entitled to a corresponding deduction. Generally, the measure of the income and deduction will be the fair market value of our Company’s common stock at the time the restricted stock unit is settled. The income realized under the restricted stock unit award that is reportable by an employee is subject to Federal tax withholding. 

 

Performance Stock and Performance Unit Awards

 

Performance stock awards granted under our 2010 Plan generally have the same tax consequences as restricted stock awards as discussed above (except that the compensation deduction limitation described below generally will not apply). A recipient of a performance unit award under our 2010 Plan generally will not realize U.S. Federal taxable income at the time of grant of the award, and our Company will not be entitled to a deduction at that time with respect to the award. When the performance goals applicable to the performance unit award are attained and amounts are due under the award, the holder of the award will be treated as receiving compensation taxable as ordinary income, and our Company will be entitled to a corresponding deduction. 

 

Annual Cash Incentive Awards

 

The grant of an annual cash incentive award under our 2010 Plan generally will not result in the recognition of any U.S. Federal taxable income by the recipient or a deduction for us at the time of grant. At the time the annual cash incentive award is paid in cash, the recipient will recognize ordinary income and our Company will be entitled to a corresponding deduction, in the amount of cash received by the recipient under the award at that time.

 

Other Cash-Based and Stock-Based Awards 

 

The grant of a cash-based award under our 2010 Plan generally will not result in the recognition of any U.S. Federal taxable income by the recipient or a deduction for us at the time of grant. At the time a cash-based award is settled in cash, the recipient will recognize ordinary income and our Company will be entitled to a corresponding deduction, in the amount of cash received by the recipient under the award at that time. 

 

Other stock-based awards granted under our 2010 Plan generally have the same tax consequences as restricted stock unit awards. 

 

Compensation Deduction Limitation 

 

Under Section 162(m) of the Internal Revenue Code, our Company’s Federal Income tax deductions for certain compensation paid to an employee who is a “covered employee,” as defined in Section 162(m) and the regulations and other guidance promulgated thereunder (“Covered Employee”) is limited to $1,000,000 per year. Section 162(m) provides an exception to this limitation for certain “performance based” compensation approved by a committee consisting solely of at least two “outside directors.” We believe that options to purchase shares of our common stock, stock appreciation rights and performance-based awards (performance stock, performance units and annual cash incentive awards) granted under our 2010 Plan generally should qualify as performance based compensation for purposes of Section 162(m) of the Code.

 

Vote Required

 

The approval of the First Amendment requires the affirmative vote of the holders of at least a majority of the votes cast. Brokers do not have discretion to vote on this proposal without your instruction. If you do not instruct your broker how to vote on this proposal, your broker will deliver a non-vote on this proposal. Under Delaware law, abstentions are not counted as votes cast, so abstentions have no effect on this proposal. Broker non-votes are not counted as votes cast so they would not affect the vote on this proposal.

 

Equity Compensation Plan Information

 

The table below sets forth the following information as of the end of December 31, 2015 for (i) all compensation plans previously approved by our stockholders and (ii) all compensation plans not previously approved by our stockholders.

 

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Plan category   Number of securities to
be issued upon exercise
of outstanding options,
warrants and rig